UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21407
Nuveen Diversified Dividend and Income Fund
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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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
-------------------
Date of reporting period: December 31, 2006
-----------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT DECEMBER 31, 2006
NUVEEN INVESTMENTS
CLOSED-END
FUNDS
NUVEEN
DIVERSIFIED
DIVIDEND AND
INCOME FUND
JDD
HIGH CURRENT INCOME AND
TOTAL RETURN FROM A
PORTFOLIO OF DIVIDEND-PAYING
COMMON STOCKS, REIT STOCKS,
EMERGING MARKETS
DEBT, AND SENIOR LOANS
NUVEEN LOGO
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<Table>
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</Table>
NUVEEN LOGO
(TIMOTHY SCHWERTFEGER PHOTO)
Timothy R. Schwertfeger
Chairman of the Board
CHAIRMAN'S
LETTER TO SHAREHOLDERS
Dear Shareholder,
I am very pleased to report that over the twelve-month period covered by
this report, your Fund continued to provide you with attractive monthly
distributions and diversified exposure to a variety of important market
sectors and asset classes. For more information on your Fund's
performance, please read the Portfolio Managers' Comments, the
Distribution and Share Price Information, and the Performance Overview
sections of this report.
Portfolio diversification is a recognized way to try to reduce some of the
risk that comes with investing. Since one part of your portfolio may be
going up when another is going down, portfolio diversification may help
smooth your investment returns over time. In addition to providing regular
monthly income, an investment like your Fund may help you achieve and
benefit from greater portfolio diversification. Your financial advisor can
explain these potential advantages in more detail. I urge you to contact
him or her soon for more information on this important investment
strategy.
"PORTFOLIO DIVERSIFICATION IS A RECOGNIZED WAY TO TRY TO REDUCE SOME OF THE RISK
THAT COMES WITH INVESTING."
As you look through this report, be sure to review the inside front cover.
This contains information on how you can receive future Fund reports and
other Fund information faster by using e-mails and the Internet. Sign up
is quick and easy - just follow the step-by-step instructions.
At Nuveen Investments, our mission continues to be to assist you and your
financial advisor by offering investment services and products that can
help you to secure your financial objectives. We are grateful that you
have chosen us as a partner as you pursue your financial goals, and we
look forward to continuing to earn your trust in the months and years
ahead.
Sincerely,
(TIMOTHY SCHWERTFEGER SIG)
Timothy R. Schwertfeger
Chairman of the Board
February 15, 2007
Nuveen Investments Closed-End Funds (JDD)
PORTFOLIO MANAGERS'
COMMENTS
This Fund is subadvised by four teams of specialists from NWQ, Security Capital
Research & Management Incorporated, Wellington Management Company and Symphony
Asset Management. NWQ Investment Management Company, LLC, ("NWQ") an affiliate
of Nuveen Investments, invests its portion of the Fund's assets in
dividend-paying common stocks. Jon Bosse, Chief Investment Officer of NWQ, leads
the Fund's management team at that firm. He has more than 22 years of corporate
finance and investment management experience.
The real estate portion of the Fund is managed by a team at Security Capital
Research & Management Incorporated ("Security Capital"), a wholly-owned
subsidiary of J. P. Morgan Chase & Co. Anthony R. Manno Jr. and Kenneth D.
Statz, who each have more than 23 years experience in managing real estate
investments, lead the team.
Wellington Management Company, LLP ("Wellington") invests its portion of the
Fund's assets in emerging markets debt. James W. Valone, who has more than 19
years of investment management experience, heads the team.
Symphony Asset Management, LLC, ("Symphony") an affiliate of Nuveen Investments,
invests its portion of the Fund's assets primarily in senior loans. The Symphony
team is led by Gunther Stein and Lenny Mason, who have more than 25 years of
combined investment management experience.
Here representatives from NWQ, Security Capital, Wellington and Symphony talk
about the markets, their management strategies and the performance of the Fund
for the twelve-month period ended December 31, 2006.
WHAT WERE THE GENERAL ECONOMIC AND MARKET CONDITIONS YOU FACED DURING THIS
ANNUAL REPORTING PERIOD ENDED DECEMBER 31, 2006?
Economic conditions throughout 2006 were generally favorable as a pronounced
slowdown in the housing market was more than offset by stabilization in interest
rates and energy prices combined with low unemployment and strong consumer
confidence. The second half of 2006 turned out to be a particularly good period
for investors. During the first half of last year, the Federal Reserve "Fed"
hiked interest rates four times with June being the last occurrence. As the
second half of the year began, it became clearer that a pause in the interest
rate tightening cycle was at hand. Through mid-year, despite double-digit
earnings gains, returns for the equity markets were relatively modest and bond
returns were negative. However, after mid-year with the Fed on hold, the U.S.
stock market marched steadily to a series of multi-year highs spurred by
corporate earnings which continued to come in above expectations. Equity markets
shrugged off any concerns regarding housing, a slowdown in global/domestic
growth, or an extended pause in consumer spending. The supply/demand situation
for common stocks stayed favorable as strong corporate balance sheets and cash
flows funded acquisitions and share buybacks as well as attracted takeovers from
private equity
4
firms. For the year, value stocks outperformed growth, and large and small
capitalization stocks outpaced mid caps.
Real estate stocks generated strong returns in the fourth quarter capping a
near-record performance year in the context of a healthy U.S. economy, strong
operating fundamentals, continued low interest rates and broadly based
investment demand for real estate assets. All sectors generated attractive
positive returns, with mall, self-storage and office stocks outperforming during
the quarter, and the lodging, industrial and diversified stocks lagging. For
2006 as a whole, the office, self-storage and multifamily stocks were the
performance leaders with lodging, malls and industrial companies lagging.
The market for emerging markets debt, represented by the JP Morgan Emerging
Markets Bond Index Global Diversified Index (EMBIGD), finished out the year with
a return of 9.86%. Global liquidity remained abundant, with the Federal Reserve
on hold since June and other central banks raising interest rates at a gradual
pace, if at all. The market's appetite for risky assets remained strong, driven
by improvements in credit quality and strong supply-demand conditions. Argentina
was by far the best performing country for the year, due to its continued
economic recovery and credit improvement following its debt restructuring.
Generally speaking, lower quality issuers outperformed higher quality issuers in
this environment. The top performing countries in the benchmark were Argentina,
the Dominican Republic, Uruguay, the Philippines, and Indonesia. Ecuador was the
only country in the benchmark to experience a negative return, but others that
lagged the broader market included higher credit quality countries such as
Hungary, South Africa, Poland, and Egypt.
The leverage loan market was also a beneficiary of these macroeconomic
conditions as it experienced a record year. The year was highlighted by record
new issuance, record leveraged merger financing and record inflows into the
leveraged loan asset class. Near historical low default rates contributed to
continued spread tightening. The leveraged loan market's ability to efficiently
digest record issuance surprised many skeptics. A flurry of jumbo deals that
were brought to market, including the largest LBO loan ever for HCA,
demonstrated significant liquidity and depth in the loan market. The CSFB
Leveraged Loan Index returned 2.01% during the fourth quarter and 7.33% for the
year. As of the end of December, the Index had registered 50 consecutive months
of positive returns.
5
WHAT WAS YOUR STRATEGY IN MANAGING THE FUND DURING THE TWELVE-MONTH PERIOD ENDED
DECEMBER 31, 2006?
For the dividend-paying common stock portion of the Fund's portfolio, we
continued to employ an opportunistic, bottom-up strategy that focused on
identifying undervalued companies that possess favorable risk/reward
characteristics as well as emerging catalysts that we believed could unlock
value or improve profitability. These catalysts included management changes,
restructuring efforts, recognition of hidden assets, or a positive change in the
underlying fundamentals. We also focused on downside protection, and paid a
great deal of attention to a company's balance sheet and cash flow statement,
not just the income statement. We believe that cash flow analysis offered a more
objective and truer picture of a company's financial position than an evaluation
based on earnings alone.
During the course of the year, we increased our telecommunications/media
exposure and also took new common stock positions in Caterpillar, General
Electric, Motorola, Pfizer, and Stora Enso Oyj. Our analysis indicated that
these companies possessed solid fundamentals, compelling valuations, and
attractive risk/reward relationships. We eliminated Dominion Resources, J
Sainsbury, Merck & Company, and Sprint Nextel from the portfolio based on
valuation concerns, and Albertsons Inc. and Kerr McGee Corp. after these
companies received takeover offers. The Kerr McGee sell reduced our overall
energy exposure; however, we continue to have a favorable opinion of the group
based on our analysis of global supply conditions for crude oil and natural gas
and its impact on industry fundamentals, the outlook on company cash flow
growth, and valuations. We also opportunistically increased our financial
services stakes with additions to our positions of Aon, Citigroup, Hartford
Financial Services, and IndyMac Bancorp.
In managing the real estate portion of the JDD portfolio, we sought to maintain
significant property type and geographic diversification while taking into
account company credit quality, sector, and security-type allocations. Our
investment decisions were based on a multi-layered analysis of the company, the
real estate it owns, its management, and the relative price of the security,
with a focus on securities that we believed would be best positioned to generate
sustainable income and potential price appreciation over the long-run.
Throughout 2006, the portfolio continued to emphasize companies and property
types associated with shorter lease terms (e.g. multifamily, hotels, etc.) and
underweight more defensive, bond-like companies and property types
6
typically reflecting longer lease terms (e.g. malls and shopping centers).
Across all real estate sectors, we favored companies with properties located in
the strongest infill markets. These "high barrier to entry" markets are defined
by constraints which limit new construction, a quality that over the long-term
has the potential provide superior value enhancement and a real inflation hedge.
Throughout the year within the emerging markets debt portion of the portfolio,
we sought to add value by identifying countries and securities with attractive
risk and return profiles as well as utilized our ability to invest a portion of
the Portfolio in local market issues, granted in the second half of 2006, which
broadened our investment universe. We remained broadly neutral on emerging
markets debt over the period as our positive view on credit trends and
supply-demand dynamics were balanced by high asset valuations. We shifted
portfolio positioning to favor higher quality issuers heading into the emerging
markets sell-off in May and June on concerns that tightening global liquidity
would put pressure on credit spreads. As market sentiment stabilized, we took
the opportunity to return to a relatively neutral position. Country selection
and relative value trades throughout the year were the key focus of our
portfolio management strategy. Spread compression created some opportunities to
capture security mispricings, as did volatility surrounding elections in certain
markets.
During the year we continued to manage the senior corporate loans and other debt
instruments portion of the portfolio using fundamental analysis to select loans
that we believed offer strong asset coverage and attractive risk-adjusted
returns. Given the strength of the economy and the overall loan market we have
focused on avoiding loans we believed had not been structured properly as well
as loans that we believe would have earnings volatility in a weakening economy.
Given these views, we continued to position the portfolio in a more conservative
manner. We have also tried to focus the portfolio on larger capitalization
companies as we believed that these companies would perform better than smaller
companies over the course of a credit cycle.
During the year we avoided the loans of most automotive part suppliers as well
as smaller homebuilders and land developers, even though many loans in both
sectors traded at a discount throughout the year. We also avoided many smaller
loans that were done to finance leveraged buyouts. We did not believe that there
is sufficient
7
incremental spread in many small loans to compensate for potential illiquidity
and volatility if earnings should become challenged. Throughout the year, we
focused on adding high quality new-issue loans at par. Given the elevated
trading levels of the marketplace, we focused on the new issue market to buy
loans. We also continued to avoid the vast majority of second lien loans.
Similar to smaller loans, we did not believe that second lien loans offer
sufficient spread to compensate investors for potential volatility and lower
recovery rates.
HOW DID THE FUND PERFORM?
Fund performance results, as well as the performance of a comparative benchmark,
are shown in the accompanying table.
TOTAL RETURNS ON NET ASSET VALUE
For the twelve-months ended December 31, 2006
<Table>
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JDD 22.66%(1)
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Comparative Benchmark(2) 19.37%
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</Table>
Past performance does not guarantee future results. Current performance may be
higher or lower than the data shown. Returns do not reflect the deduction of
taxes that a shareholder may have to pay on Fund distributions or upon the sale
of Fund shares. See the Performance Overview Page for additional information.
As indicated in the accompanying table, the Nuveen Diversified Dividend and
Income Fund outperformed its comparative benchmark, for the twelve-months ended
December 31, 2006.
The equity portfolio had several positions that performed particularly well for
the year, including a strong gain in Korean steel manufacturer, POSCO. The
shares rose sharply on improving fundamentals in the steel industry brought on
by ongoing consolidation trends. In the defense sector, our investments of
Lockheed Martin and Raytheon outperformed due to benign political pressures and
a healthy outlook for defense spending given improving international demand. Our
utility investments benefited from a surge in demand for global utilities given
their attractive yields and ongoing consolidation in the sector. Our tobacco
stocks gained on an improving litigation environment and stronger industry
fundamentals, including favorable pricing and volumes. Finally, our energy
investments outperformed as high oil prices and increased production volumes are
driving strong earnings and cash flows. Overall fundamentals in
- --------------------------------------------------------------------------------
1 The Fund elected to retain a portion of its realized long-term capital gains
for the tax year ended December 31, 2006, and pay required Federal corporate
income taxes on these gains. As reported on Form 2439, Common shareholders of
record on December 29, 2006, must include their pro-rata share of these gains
on their 2006 federal tax returns, and will receive a corresponding credit
toward their taxes, or a tax refund, for their pro-rata share of the taxes
paid by the Fund. The standardized total returns shown in the table do not
include the economic benefit to Common shareholders of record of this tax
credit/refund. The Fund's total return on NAV for the twelve months ended
December 31, 2006, when this benefit is included is 24.26%.
2 Comparative benchmark performance is a blended return consisting of: 1) 18.75%
of the return of the Russell 3000 Value Index, which measures the performance
of those Russell 3000 Index companies with lower price-to book ratios and
lower forecasted growth values, 2) 6.25% of the return of the MSCI EAFE
ex-Japan Value Index, a capitalization weighted index that selects the lower
50% of the price-to-book ranked value stocks traded in the developed markets
of Europe, Asia and the Far East, excluding Japan, 3) 25% of the return of the
Dow Jones Wilshire Real Estate Securities Index, an unmanaged, market
capitalization-weighted index comprised of publicly traded REITs and real
estate companies, 4) 25% of the return of the JP Morgan EMBI Global
Diversified Index, which tracks total returns for U.S.-dollar-denominated debt
instruments issued by emerging markets sovereign and quasi sovereign entities,
and 5) 25% of the return of the CSFB Leveraged Loan Index, which consists of
approximately $150 billion of tradable term loans with at least one year to
maturity and rated BBB or lower. Index returns do not include the effects of
any sales charges or management fees. It is not possible to invest directly in
an index.
- --------------------------------------------------------------------------------
8
the oil and gas industry remain healthy as companies are using their operating
profits to pay down debt and buy back shares.
Over the past year the Fund's real estate investments in the health care and
multifamily sector performed very well versus the Specialized Real Estate
Securities Benchmark(3). While the relative performance of multifamily real
estate stocks eased as 2006 progressed, their pricing and performance was buoyed
by a strong rebound in rent and occupancy levels. This occurred in the context
of healthy U.S. job growth and a decrease in the affordability of for-sale
housing even as - or probably because - for-sale conditions have weakened in
many markets.
The strong performance of companies owning and operating real estate properties
in the health care sector reflect the culmination of a multi-year improvement of
operating fundamentals combined with limited new supply. While short-term
volatility in this sector was expected, we were encouraged with the long-term
potential of health care, driven by favorable demographics and a new class of
companies led by high quality, professional management teams.
Office operating fundamentals showed steady quarter-to-quarter improvement with
pockets of more pronounced strength in key coastal markets, including New York,
Washington D.C., and Los Angeles. This research-based theme was rewarded, as
many of our specific selections within the office sector substantially
outperformed their respective sector components of the Specialized Real Estate
Securities Benchmark, highlighted by the Fund's investment in Equity Office
Properties (6.8%, NYSE: EOP), the target of a $36.0 billion takeover bid.
The emerging market debt component of the portfolio benefited from strong
country and security selection in Latin America, Emerging Europe and Africa.
Decisions to overweight Argentina and Brazil and to underweight Ecuador and
Lebanon helped returns, as did underweight exposure to high quality issuers such
as Hungary, Egypt, Poland, China and Morocco. Security selection within Brazil
and Ecuador was also additive to performance. Local market instruments,
particularly in Argentina and Brazil, were positive contributors to portfolio
results.
- --------------------------------------------------------------------------------
3 The Specialized Real Estate Securities Benchmark is based on the preferred
stock and highest 50% yielding (based on market capitalization) common stock
securities in the SNL Financial LC real estate database. Returns are computed
from this database by a third party service provider.
- --------------------------------------------------------------------------------
9
In the senior loan component of the portfolio, one security that positively
impacted the Fund's performance during the twelve-month period was the Federal
Mogul term loan position. The Federal Mogul term loan traded up during the
period due to the expectation that the company will emerge out of bankruptcy
soon. Successful restructuring efforts and financial results show progress on
the company's Chapter 11 emergence.
The Fund had several positions that constrained performance over this reporting
period. In the equity portion of the Fund, rising cost pressures, lowered
aluminum contract pricing, as well as concerns regarding global economic growth
contributed to a decline in our shares of Alumina Limited, while paper stocks
lagged due to margin pressures and weak demand characteristics in the forest
product industry. The paper industry continues to make positive fundamental
changes such as shuttering capacity and monetizing timber assets at attractive
valuations; however, a lackluster advertising environment remains an obstacle
for industry growth.
After appreciating strongly at the beginning of the year, our shares of
insurance broker Aon posted a modest decline for the year as the company lowered
its earnings guidance from previous lofty expectations. Our recent purchase of
Motorola also detracted from performance as the company reported that its
revenues are being pressured because of a higher mix of lower priced, low-end
handsets and greater price competition as the company expands its presence in
emerging markets (i.e. China, India, and Latin America) where the cell phone
industry is still under penetrated.
While, on the whole, the real estate component of the portfolio produced
attractive positive returns, in seeking to maintain the income and sector
diversification objectives of the Fund, many investments in the industrial,
storage and historically defensive shopping center sectors underperformed the
Specialized Real Estate Securities Benchmark as a whole in 2006.
In its emerging markets debt sleeve, any drag on performance was primarily due
to overweighting to Russia, Trinidad & Tobago, Mexico and Malaysia, in addition
to security selection and spread curve positioning in Argentina and Venezuela.
One position that had a negative impact on the portfolio was D.R. Horton, whose
bonds traded down during the period due to the decrease in new home orders,
investor concern about a severe slowdown in homebuilding activity, and
increasing mortgage rates.
10
DISTRIBUTION AND SHARE PRICE
INFORMATION
In addition to owning preferred stocks, the Fund has issued its own preferred
shares, called FundPreferred(TM). FundPreferred provides a degree of financial
leverage that can enhance the Fund's returns and supplement the income available
to pay common shareholder distributions, but also can increase share price
volatility. This leveraging strategy provided incremental income and helped
enhance shareholder distributions over this reporting period.
The Fund has a managed distribution policy designed to provide relatively stable
monthly cash flow to investors. Under this policy, the Fund's monthly
distributions will be paid from net investment income generated by its
underlying investments as well as from net realized capital gains and/or returns
of capital, generally representing net unrealized capital gains. During the
twelve-month period, the Fund declared two monthly distribution increases; most
recently in December to $0.125 per share.
As of December 31, 2006, the Fund was trading at a 9.42% premium to its net
asset value. Over the course of the twelve-month reporting period, the fund
traded at an average discount of -4.84%.
We are providing you with information regarding your Fund's distributions. This
information is as of December 31, 2006, and likely will vary over time based on
the Fund's investment activities and portfolio investment value changes.
The Fund has a managed distribution program. The goal of a managed distribution
program is to provide shareholders relatively consistent and predictable cash
flow by systematically converting its expected long-term return potential into
regular monthly distributions. As a result, regular distributions throughout the
year will likely include a portion of expected long-term gains (both realized
and unrealized), along with net investment income.
Important points to understand about the managed distribution program are:
- The Fund seeks to establish a relatively stable distribution rate that
roughly corresponds to the projected total return from its investment
strategy over an extended period of time. However, you should not draw any
conclusions about the Fund's past or future investment performance from its
current distribution rate.
11
- Actual returns will differ from projected long-term returns (and therefore
the Fund's distribution rate), at least over shorter time periods. Over a
specific timeframe, the difference between actual returns and total
distributions will be reflected in an increasing (returns exceed
distributions) or a decreasing (distributions exceed returns) fund net asset
value.
- Each month's distributions are expected to be paid from some or all of the
following sources:
- net investment income (regular interest and dividends),
- realized capital gains, and
- unrealized gains, or, in certain cases, a return of principal
(non-taxable distributions)
- A non-taxable distribution is a payment of a portion of the Fund's capital.
When the Fund's returns exceed distributions, it may represent portfolio
gains generated, but not realized as a taxable capital gain. In periods when
the Fund's returns fall short of distributions, it will represent a portion
of your original principal unless the shortfall is offset during other time
periods over the life of your investment (previous or subsequent) when the
fund's total return exceeds distributions.
- Because distribution source estimates are updated monthly during the year,
based on the Fund's performance and forecast for its current fiscal year
(which is the calendar year for the Fund), these estimates may differ from
both the tax information reported to you in your Fund's 1099 statement
provided at year end, as well as the ultimate economic sources of
distributions over the life of your investment.
12
The following table provides information regarding the Fund's distributions and
total return performance for the fiscal year ended December 31, 2006. The
distribution information is presented on a tax basis rather than on a generally
accepted accounting principles (GAAP) basis. This information is intended to
help you better understand whether the Fund's returns for the specified time
period was sufficient to meet the Fund's distributions.
<Table>
<Caption>
- -------------------------------------------------------------------------------
AS OF 12/31/2006 JDD
- -------------------------------------------------------------------------------
Inception date 9/25/03
Calendar Year:
Per share distribution:
From net investment income $0.98
From short-term capital gains $0.09
From long-term capital gains $0.28
From return of capital --
Total per share distribution $1.35
Distribution rate on NAV 7.02%
One-year total return on NAV 22.66%
Annualized since inception total return on NAV 18.53%
- -------------------------------------------------------------------------------
</Table>
13
RETENTION OF REALIZED LONG-TERM
CAPITAL GAINS
NOTICE CONCERNING RETENTION OF REALIZED LONG-TERM CAPITAL GAINS BY CERTAIN
NUVEEN CLOSED-END FUNDS
On December 15, 2006, the Nuveen Real Estate Income Fund (AMEX: JRS), Nuveen
Diversified Dividend and Income Fund (NYSE: JDD), and Nuveen Tax-Advantaged
Total Return Strategy Fund (NYSE: JTA) announced that each Fund would retain a
portion of its realized long-term capital gains for the tax year ended December
31, 2006, and to pay required Federal corporate income taxes on these gains.
The Funds' Board of Trustees believes retaining realized long-term capital gains
may benefit shareholders by enabling the Funds to better preserve and grow their
capital base, providing the opportunity over time for more stable and/or growing
distributions and share price, increased portfolio diversification and lower
operating expenses, as well as greater flexibility in structuring and managing
the Funds' investments.
Common shareholders of record on December 29, 2006 must include their pro-rata
share of their Fund's retained gains on their 2006 federal income tax returns.
They will be entitled to a corresponding federal income tax credit (or refund)
of their pro rata share of taxes their fund paid on its retained gains. Common
shareholders also will be entitled to increase their Fund investments' cost
basis by the net amount of gains retained by the fund. Each Fund's net asset
value on December 27, 2006 was reduced to reflect the accrual of the Fund's
estimated tax liability as shown below.
Per share estimates of each fund's retained long-term capital gains and
corresponding Federal corporate income taxes paid are as follows:
<Table>
<Caption>
PER SHARE JDD
- -----------------------------------------------------------------------
Long-Term Capital Gain Retained $ 0.7192
Less Federal Income Taxes Paid by Fund (0.2517)
NET LONG-TERM CAPITAL GAIN RETAINED $ 0.4675
- -----------------------------------------------------------------------
</Table>
Final amounts for retained gains and taxes paid were reported to shareholders of
record on IRS Form 2439 in early 2007. These gains will not be reported on Form
1099-DIV, which only reflects realized capital gains actually distributed to
shareholders and taxable in 2006. More details about these funds, as well as
additional information on retained capital gains and related tax information are
available on www.nuveen.com/cef.
14
Nuveen Diversified Dividend and Income Fund
JDD
PERFORMANCE
OVERVIEW As of December 31, 2006
(PORTFOLIO ALLOCATION PIE CHART)
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
Real Estate Investment Trust Common Stocks 28.2%
- --------------------------------------------------------------------------------
Common Stocks 25.0%
- --------------------------------------------------------------------------------
Emerging Markets Debt and Foreign Corporate Bonds 22.6%
- --------------------------------------------------------------------------------
Variable Rate Senior Loan Interests 20.9%
- --------------------------------------------------------------------------------
Short-Term Investments 1.9%
- --------------------------------------------------------------------------------
Corporate Bonds 1.4%
- --------------------------------------------------------------------------------
</Table>
(2006 MONTHLY DISTRIBUTIONS PER SHARE BAR CHART)
<Table>
Jan 0.11
Feb 0.11
Mar 0.11
Apr 0.11
May 0.11
Jun 0.11
Jul 0.11
Aug 0.11
Sep 0.1175
Oct 0.1175
Nov 0.1175
Dec 0.125
</Table>
(SHARE PRICE PERFORMANCE CHART)
Price performance is not predictive of future results.
<Table>
1/01/06 16.44
16.34
16.81
16.65
16.71
16.75
17.00
16.72
16.84
17.08
17.17
16.90
17.05
16.93
17.13
16.67
16.84
16.95
17.13
17.05
16.66
16.84
16.98
16.99
16.78
16.34
16.89
16.85
17.57
16.57
17.00
17.22
17.33
17.55
17.55
17.55
18.19
18.14
18.34
18.50
18.17
18.89
18.83
19.10
19.28
19.16
19.16
19.00
19.27
19.35
20.27
19.97
20.00
20.44
21.03
12/31/06 21.03
</Table>
FUND SNAPSHOT
<Table>
- --------------------------------------------------------------------------------
Common Share Price(1) $21.03
- --------------------------------------------------------------------------------
Common Share Net Asset Value(1) $19.22
- --------------------------------------------------------------------------------
Premium/(Discount) to NAV 9.42%
- --------------------------------------------------------------------------------
Current Distribution Rate(2) 7.13%
- --------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $387,432
- --------------------------------------------------------------------------------
</Table>
AVERAGE ANNUAL TOTAL RETURN(3)
(Inception 9/25/03)
<Table>
<Caption>
- --------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
- --------------------------------------------------------------------------------
1-Year 38.72% 22.66%
- --------------------------------------------------------------------------------
Since
Inception 20.60% 18.53%
- ---------------------------------------------------------------------------------
</Table>
INDUSTRIES
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
Real Estate Investment Trust 28.2%
- --------------------------------------------------------------------------------
Emerging Markets Debt 22.6%
- --------------------------------------------------------------------------------
Media 5.0%
- --------------------------------------------------------------------------------
Diversified Telecommunication Services 3.4%
- --------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels 2.8%
- --------------------------------------------------------------------------------
Hotels, Restaurants & Leisure 2.8%
- --------------------------------------------------------------------------------
Aerospace & Defense 2.5%
- --------------------------------------------------------------------------------
Tobacco 2.0%
- --------------------------------------------------------------------------------
Insurance 2.0%
- --------------------------------------------------------------------------------
Thrifts & Mortgage Finance 1.9%
- --------------------------------------------------------------------------------
Commercial Services & Supplies 1.8%
- --------------------------------------------------------------------------------
Containers & Packaging 1.7%
- --------------------------------------------------------------------------------
Paper & Forest Products 1.7%
- --------------------------------------------------------------------------------
Other 21.6%
- --------------------------------------------------------------------------------
</Table>
REAL ESTATE INVESTMENT TRUST
TOP FIVE SUB-INDUSTRIES
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
Office 8.4%
- --------------------------------------------------------------------------------
Specialized 8.2%
- --------------------------------------------------------------------------------
Residential 5.1%
- --------------------------------------------------------------------------------
Retail 4.5%
- --------------------------------------------------------------------------------
Industrial 1.6%
- --------------------------------------------------------------------------------
</Table>
EMERGING MARKETS DEBT
AND FOREIGN CORPORATE BONDS
TOP FIVE COUNTRIES
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
Russian Federation 2.2%
- --------------------------------------------------------------------------------
Argentina 1.9%
- --------------------------------------------------------------------------------
Brazil 1.6%
- --------------------------------------------------------------------------------
Mexico 1.2%
- --------------------------------------------------------------------------------
Columbia 1.1%
- --------------------------------------------------------------------------------
</Table>
1 Common Share Net Asset Value (NAV) reflects a downward adjustment, made
subsequent to December 31, 2006, for the amount of the tax liability
associated with the Fund's retention of a portion of its long-term capital
gains and the Fund's payment of Federal corporate income tax thereon, and
therefore differs from the NAV published shortly after that date. The Common
Share Price is actual as of December 31, 2006, and did not reflect the
knowledge of the subsequent adjustment to NAV.
2 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
3 The Fund elected to retain a portion of its realized long-term capital gains
for the tax year ended December 31, 2006, and pay required Federal corporate
income taxes on these gains. As reported on Form 2439, Common shareholders of
record on December 29, 2006, must include their pro-rata share of these gains
on their 2006 federal tax returns, and will receive a corresponding credit
toward their taxes, or a tax refund, for their pro-rata share of the taxes
paid by the Fund. The standardized total returns shown above do not include
the economic benefit to Common shareholders of record of this tax
credit/refund. The Fund's corresponding average annual total returns on share
price when this benefit is included are 40.37% and 21.04%, for the one-year
and since inception periods, respectively. The Fund's corresponding average
annual total returns on NAV when this benefit is included are 24.26% and
19.00%, for the one-year and since inception periods, respectively.
15
Report of
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN DIVERSIFIED DIVIDEND AND INCOME FUND
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Nuveen Diversified Dividend and Income Fund
(the "Fund") as of December 31, 2006, and the related statements of operations
and cash flows for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2006, by correspondence with the custodian,
selling or agent banks and brokers or by other appropriate auditing procedures
where replies from selling or agent banks were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Nuveen
Diversified Dividend and Income Fund at December 31, 2006, the results of its
operations and cash flows for the year then ended, changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
the periods indicated therein in conformity with U.S. generally accepted
accounting principles.
(ERNST & YOUNG LLP LOGO)
Chicago, Illinois
February 20, 2007
16
Nuveen Diversified Dividend and Income Fund (JDD)
Portfolio of
INVESTMENTS December 31, 2006
<Table>
<Caption>
SHARES DESCRIPTION (1) VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 35.7% (25.0% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 1.9%
32,600 Lockheed Martin Corporation $ 3,001,482
85,000 Raytheon Company 4,488,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Aerospace & Defense 7,489,482
-----------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 1.1%
85,000 JPMorgan Chase & Co. 4,105,500
- ---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 1.9%
69,200 Bank of America Corporation 3,694,588
65,000 Wachovia Corporation 3,701,750
- ---------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 7,396,338
-----------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 1.3%
105,000 Pitney Bowes Inc. 4,849,950
- ---------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.7%
131,000 Motorola, Inc. 2,693,360
- ---------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.8%
146,300 Packaging Corp. of America 3,233,230
- ---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 1.6%
113,000 Citigroup Inc. 6,294,100
- ---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.7%
175,500 AT&T Inc. 6,274,125
90,000 KT Corporation, Sponsored ADR 2,281,500
52,500 Telecom Italia S.p.A., Sponsored ADR 1,581,825
105,000 Verizon Communications Inc. 3,910,200
- ---------------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 14,047,650
-----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.6%
67,100 EDP -- Energias de Portugal, S.A., Sponsored ADR 3,399,286
118,000 Korea Electric Power Corporation, Sponsored ADR 2,679,780
- ---------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 6,079,066
-----------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.8%
112,000 Newell Rubbermaid Inc. 3,242,400
- ---------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 1.3%
73,000 Kimberly-Clark Corporation 4,960,350
- ---------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.8%
85,000 General Electric Company 3,162,850
- ---------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 2.5%
100,800 Aon Corporation 3,562,272
65,400 Hartford Financial Services Group, Inc. 6,102,474
- ---------------------------------------------------------------------------------------------------------------------------------
Total Insurance 9,664,746
-----------------------------------------------------------------------------------------------------------------
MACHINERY - 0.7%
45,000 Caterpillar Inc. 2,759,850
- ---------------------------------------------------------------------------------------------------------------------------------
MEDIA - 1.5%
55,000 CBS Corporation, Class B 1,714,900
118,300 Clear Channel Communications, Inc. 4,204,382
- ---------------------------------------------------------------------------------------------------------------------------------
Total Media 5,919,282
-----------------------------------------------------------------------------------------------------------------
</Table>
17
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
SHARES DESCRIPTION (1) VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 1.5%
84,900 Alumina Limited, Sponsored ADR $ 1,689,510
33,000 POSCO, ADR 2,728,110
7,100 Rio Tinto PLC, Sponsored ADR 1,508,679
- ---------------------------------------------------------------------------------------------------------------------------------
Total Metals & Mining 5,926,299
-----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.7%
82,800 United Utilities PLC, Sponsored ADR 2,543,616
- ---------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 3.5%
33,000 ChevronTexaco Corporation 2,426,490
41,800 ConocoPhillips 3,007,510
57,500 Eni S.p.A., Sponsored ADR 3,868,600
60,000 Total SA, Sponsored ADR 4,315,200
- ---------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 13,617,800
-----------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.3%
105,500 International Paper Company 3,597,550
97,000 Stora Enso Oyj, Sponsored ADR 1,531,630
- ---------------------------------------------------------------------------------------------------------------------------------
Total Paper & Forest Products 5,129,180
-----------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.5%
71,000 Pfizer Inc. 1,838,900
- ---------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.7%
81,600 Fannie Mae 4,846,224
124,100 IndyMac Bancorp, Inc. 5,604,356
- ---------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 10,450,580
-----------------------------------------------------------------------------------------------------------------
TOBACCO - 2.9%
88,200 Altria Group, Inc. 7,569,324
56,000 Loews Corp -- Carolina Group 3,624,320
- ---------------------------------------------------------------------------------------------------------------------------------
Total Tobacco 11,193,644
-----------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.4%
54,950 Vodafone Group PLC 1,526,511
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $99,955,160) 138,124,684
=================================================================================================================
<Caption>
SHARES DESCRIPTION (1) VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST COMMON STOCKS - 40.2% (28.2% OF TOTAL INVESTMENTS)
INDUSTRIAL - 2.3%
227,300 DCT Industrial Trust Inc. $ 2,682,140
136,000 First Industrial Realty Trust, Inc. 6,377,040
- ---------------------------------------------------------------------------------------------------------------------------------
Total Industrial 9,059,180
-----------------------------------------------------------------------------------------------------------------
MORTGAGE - 0.4%
45,000 American Home Mortgage Investment Corp. 1,580,400
- ---------------------------------------------------------------------------------------------------------------------------------
OFFICE - 12.1%
200,300 Brandywine Realty Trust 6,659,975
219,100 Equity Office Properties Trust 10,554,047
435,600 HRPT Properties Trust 5,379,660
158,900 Mack-Cali Realty Corporation 8,103,900
146,800 Maguire Properties, Inc. 5,872,000
115,400 Reckson Associates Realty Corporation 5,262,240
416,000 Republic Property Trust 4,800,640
- ---------------------------------------------------------------------------------------------------------------------------------
Total Office 46,632,462
-----------------------------------------------------------------------------------------------------------------
RESIDENTIAL - 7.2%
114,900 Archstone-Smith Trust 6,688,329
57,500 AvalonBay Communities, Inc. 7,477,875
86,200 Camden Property Trust 6,365,870
164,400 Post Properties, Inc. 7,513,080
- ---------------------------------------------------------------------------------------------------------------------------------
Total Residential 28,045,154
-----------------------------------------------------------------------------------------------------------------
RETAIL - 6.4%
252,900 Cedar Shopping Centers Inc. 4,023,639
73,500 Federal Realty Investment Trust 6,247,500
221,000 Kite Realty Group Trust 4,115,020
49,900 Macerich Company 4,319,843
</Table>
18
<Table>
<Caption>
SHARES DESCRIPTION (1) VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
RETAIL (continued)
107,100 New Plan Excel Realty Trust $ 2,943,108
32,400 Simon Property Group, Inc. 3,281,796
- ---------------------------------------------------------------------------------------------------------------------------------
Total Retail 24,930,906
-----------------------------------------------------------------------------------------------------------------
SPECIALIZED - 11.8%
314,200 Ashford Hospitality Trust Inc. 3,911,790
78,500 Cogdell Spencer Inc. 1,687,750
350,000 DiamondRock Hospitality Company 6,303,500
172,300 Extra Space Storage Inc. 3,146,198
169,500 Health Care Property Investors Inc. 6,240,990
148,700 Hersha Hospitality Trust 1,686,258
166,000 Nationwide Health Properties, Inc. 5,016,520
37,174 Public Storage, Inc. 3,624,465
355,000 Senior Housing Properties Trust 8,690,400
253,100 U-Store-It Trust 5,201,205
- ---------------------------------------------------------------------------------------------------------------------------------
Total Specialized 45,509,076
-----------------------------------------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUST COMMON STOCKS 155,757,178
(COST $104,893,958)
=================================================================================================================
<Caption>
WEIGHTED
PRINCIPAL AVERAGE
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (3) RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS - 29.8% (20.9% OF TOTAL INVESTMENTS) (4)
AEROSPACE & DEFENSE - 1.6%
$ 2,448 Hexcel Corporation, Term Loan B 7.125% 3/01/12 BB- $ 2,454,100
1,633 K&F Industries, Inc., Term Loan C 7.350% 11/18/12 B+ 1,641,245
1,606 Vought Aircraft Industries, Inc., Term Loan 7.880% 12/22/11 B- 1,617,937
364 Vought Aircraft Industries, Inc., Tranche B, 7.822% 12/22/10 B- 366,136
Letter of Credit
- -----------------------------------------------------------------------------------------------------------------------------------
6,051 Total Aerospace & Defense 6,079,418
- -----------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 1.6%
2,500 Federal Mogul Corporation, Term Loan A, (5) 7.600% 2/24/04 N/R 2,469,531
1,864 Gen Tek Inc., Term Loan B 7.362% 12/31/10 B+ 1,872,147
1,217 Tenneco Automotive Inc., Term Loan B 7.360% 12/12/10 BB- 1,224,513
534 Tenneco Automotive Inc., Term Loan B-1 7.349% 12/12/10 BB- 537,907
- -----------------------------------------------------------------------------------------------------------------------------------
6,115 Total Auto Components 6,104,098
- -----------------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS - 1.5%
2,000 Armstrong World Industries, Term Loan 7.100% 10/02/13 BB 2,006,375
1,955 Nortek, Inc., Term Loan B 7.360% 8/27/11 B 1,953,778
982 Stile Acquisition Corporation, Canadian Term 7.380% 4/05/13 BB- 963,910
Loan
983 Stile Acquisition Corporation, Term Loan B 7.380% 4/05/13 BB- 965,552
- -----------------------------------------------------------------------------------------------------------------------------------
5,920 Total Building Products 5,889,615
- -----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 2.0%
1,621 Georgia Gulf Corporation, Term Loan B 7.350% 10/03/13 BB 1,631,068
2,000 Hexion Specialty Chemicals, Term Loan 7.875% 5/05/13 B 1,999,861
1,995 Lyondell Citgo Refining LP, Term Loan 7.121% 8/16/13 BB 2,006,222
1,970 Rockwood Specialties Group, Inc., Term Loan E 7.376% 7/30/12 B+ 1,981,574
- -----------------------------------------------------------------------------------------------------------------------------------
7,586 Total Chemicals 7,618,725
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 1.3%
663 Allied Waste North America, Inc., Letter of 7.073% 1/15/12 Ba3 665,612
Credit
1,493 Allied Waste North America, Inc., Term Loan B 7.158% 1/15/12 Ba3 1,496,934
2,000 Banta Corporation, Term Loan 7.110% 10/31/13 BB 2,005,000
1,000 Verifone Inc. 7.120% 10/31/13 BB- 1,002,969
- -----------------------------------------------------------------------------------------------------------------------------------
5,156 Total Commercial Services & Supplies 5,170,515
- -----------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 1.7%
1,995 Berry Plastics Corporation, Term Loan 7.124% 8/31/13 B+ 2,001,858
2,940 Graham Packaging Company, L.P., Term Loan B 7.726% 2/14/10 B 2,961,000
175 Smurfit-Stone Container Corporation, 7.572% 11/01/11 B+ 175,950
Deposit-Funded Commitment
702 Smurfit-Stone Container Corporation, Term Loan B 7.625% 11/01/11 B+ 706,987
422 Smurfit-Stone Container Corporation, Term Loan C 7.625% 11/01/11 B+ 424,853
132 Smurfit-Stone Container Corporation, Tranche C-1 7.625% 11/01/11 B+ 133,323
- -----------------------------------------------------------------------------------------------------------------------------------
6,366 Total Containers & Packaging 6,403,971
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
19
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
WEIGHTED
PRINCIPAL AVERAGE
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (3) RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.3%
$ 1,000 Cequel Communications LLC., Term Loan B 7.620% 11/05/13 B+ $ 1,002,032
1,975 Intelsat Ltd., Term Loan 7.622% 7/01/13 B1 1,991,788
1,995 MetroPCS Inc., Term Loan 7.875% 11/03/13 B 2,004,352
- -----------------------------------------------------------------------------------------------------------------------------------
4,970 Total Diversified Telecommunication Services 4,998,172
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.5%
1,980 Mirant Corporation, Term Loan 7.100% 1/03/13 BB- 1,980,176
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.5%
1,583 Sensus Metering Systems Inc., Term Loan B-1 7.441% 12/17/10 B+ 1,578,652
210 Sensus Metering Systems Inc., Term Loan B-2 7.493% 12/17/10 B+ 209,692
- -----------------------------------------------------------------------------------------------------------------------------------
1,793 Total Electrical Equipment 1,788,344
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.3%
995 Sensata Technologies B.V., Term Loan 7.130% 4/27/13 BB- 989,636
- -----------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.7%
2,586 Michael Foods, Inc., Term Loan B 7.350% 11/21/10 B+ 2,593,046
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.2%
583 Kinteic Concepts, Inc., Term Loan B-2 7.120% 8/11/10 BB 584,139
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 2.0%
1,652 Davita Inc., Term Loan B 7.422% 10/05/12 BB- 1,663,022
2,000 HCA, Inc., Term Loan 8.114% 11/17/13 Ba3 2,024,472
2,085 LifePoint Hospitals Holdings, Inc., Term Loan B 6.975% 4/18/12 Ba3 2,079,235
1,985 Quintiles Transnational Corporation, Term Loan B 7.360% 3/31/13 B1 1,985,744
- -----------------------------------------------------------------------------------------------------------------------------------
7,722 Total Health Care Providers & Services 7,752,473
- -----------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.8%
1,985 24 Hour Fitness Worldwide, Inc., Term Loan B 7.870% 7/17/12 B 2,002,369
2,322 Burger King Corporation, Term Loan B 6.875% 6/30/12 BB- 2,323,624
122 CBRL Group, Inc., Delayed Draw, Term Loan B-2, 0.750% 4/27/13 BB (305)
(6) (7)
782 CBRL Group, Inc., Term Loan B-1 6.868% 4/27/13 BB 782,267
1,975 Penn National Gaming, Inc., Term Loan B 7.132% 10/03/12 BB 1,987,344
909 TDS Investor Corp., Letter of Credit 8.364% 8/23/13 B+ 911,837
89 TDS Investor Corp., Term Loan 8.364% 8/23/13 B+ 89,550
513 Venetian Casino Resort, LLC, Delayed Draw, Term 7.120% 6/15/11 BB- 515,360
Loan
2,487 Venetian Casino Resort, LLC, Term Loan 7.120% 6/15/11 BB- 2,499,496
- -----------------------------------------------------------------------------------------------------------------------------------
11,184 Total Hotels, Restaurants & Leisure 11,111,542
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.3%
1,183 Conseco, Inc., Term Loan 7.350% 10/10/13 BB- 1,188,075
- -----------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 1.0%
1,730 Fidelity National Information Services, Term 7.100% 3/09/13 BB+ 1,732,012
Loan B
1,975 SunGard Data Systems Inc., Term Loan B 7.875% 2/11/13 B+ 1,996,370
- -----------------------------------------------------------------------------------------------------------------------------------
3,705 Total IT Services 3,728,382
- -----------------------------------------------------------------------------------------------------------------------------------
MEDIA - 5.5%
1,990 Cablevision Systems Corporation, Incremental 7.123% 3/23/13 BB 1,992,861
Term Loan
2,000 Charter Communications Inc., Term Loan B 8.005% 4/28/13 B 2,015,375
1,281 Dex Media West, LLC, Term Loan B 6.869% 3/09/10 BB 1,279,038
2,000 Emmis Communications Corporation, New Term Loan 7.350% 11/01/13 B 2,013,907
B
2,000 Idearc Inc., Term Loan 7.350% 11/17/14 Ba2 2,012,438
988 Metro-Goldwyn-Mayer Studios, Inc., Term Loan B 8.614% 4/08/12 N/R 979,489
2,000 Neilsen Finance LLC, Term Loan B 8.125% 8/01/13 B+ 2,016,389
1,713 R. H. Donnelley Inc., Tranche D 6.865% 6/30/11 BB 1,709,336
1,886 Regal Cinemas Corporation, Term Loan 7.114% 11/10/10 BB- 1,883,551
1,000 UPC Broadband Holding BV, Term Loan J2 7.640% 3/29/13 B 1,002,125
1,000 UPC Broadband Holding BV, Term Loan K2 7.640% 12/31/13 B 1,002,125
1,939 WMG Acquisition Corp., Term Loan 7.373% 2/28/11 BB- 1,948,657
2,000 Yell Group, Term Loan 7.350% 2/10/13 Ba3 2,014,888
- -----------------------------------------------------------------------------------------------------------------------------------
21,797 Total Media 21,870,179
- -----------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.2%
684 Amsted Industries Incorporated, Delayed Draw, 0.500% 4/05/13 BB- (11,962)
Term Loan, (6) (7)
944 Amsted Industries Incorporated, Term Loan B 7.369% 4/05/13 BB- 944,596
- -----------------------------------------------------------------------------------------------------------------------------------
1,628 Total Metals & Mining 932,634
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
20
<Table>
<Caption>
WEIGHTED
PRINCIPAL AVERAGE
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (3) RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL - 0.2%
$ 949 Neiman Marcus Group Inc., Term Loan 7.602% 3/28/13 B+ $ 957,136
- -----------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.5%
591 NRG Energy Inc., Credit-Linked Deposit 7.364% 2/01/13 BB- 594,851
1,434 NRG Energy Inc., Term Loan 7.364% 2/01/13 BB- 1,443,400
- -----------------------------------------------------------------------------------------------------------------------------------
2,025 Total Multi-Utilities 2,038,251
- -----------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.5%
387 Targa Resources Inc., Synthetic Letter of Credit 5.239% 10/31/12 B+ 389,274
1,593 Targa Resources Inc., Term Loan B 7.624% 10/31/12 B+ 1,601,701
- -----------------------------------------------------------------------------------------------------------------------------------
1,980 Total Oil, Gas & Consumable Fuels 1,990,975
- -----------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.0%
3,975 Georgia-Pacific Corporation, Term Loan B 7.356% 2/13/12 BB- 3,998,148
- -----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.4%
1,500 LNR Property Corporation, Term Loan B 8.120% 7/12/11 B2 1,507,813
- -----------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.3%
111 Hertz Corporation, Synthetic Term Loan 5.365% 12/21/12 BB+ 111,992
883 Hertz Corporation, Term Loan B 7.362% 12/21/12 BB 889,794
- -----------------------------------------------------------------------------------------------------------------------------------
994 Total Road & Rail 1,001,786
- -----------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 0.5%
1,777 Advanced Micro Devices, Term Loan B 7.620% 12/31/13 BB- 1,788,318
- -----------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.4%
1,500 TRU 2005 RE Holding Co., Term Loan 8.349% 12/09/08 B 1,507,500
- -----------------------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS - 0.5%
1,852 HanesBrands Inc., Term Loan 7.681% 9/15/13 BB- 1,871,939
- -----------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.5%
1,000 Ashtead Group Public Limited Company, Term Loan 7.188% 8/31/11 B3 1,000,000
B
196 Brenntag Holding GmbH and Company KG, 8.080% 1/20/14 B 197,714
Acquisition Facility Term Loan
804 Brenntag Holdings, Term Loan B2 8.080% 1/20/14 B 812,175
- -----------------------------------------------------------------------------------------------------------------------------------
2,000 Total Trading Companies & Distributors 2,009,889
- -----------------------------------------------------------------------------------------------------------------------------------
$ 115,872 TOTAL VARIABLE RATE SENIOR LOAN INTERESTS (COST 115,454,895
$115,014,622)
===================================================================================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT RATINGS
(000) (8) DESCRIPTION (1) COUPON MATURITY (2) VALUE
- ------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS DEBT AND FOREIGN CORPORATE BONDS - 32.2% (22.6% OF TOTAL INVESTMENTS)
ARGENTINA - 2.7%
885 Argentine Beverages Financial Trust, 144A 7.375% 3/22/12 N/R $ 913,763
575 Banco Macro Misiones SA, 144A 9.750% 12/18/36 B- 589,375
1,395ARS Central Bank of Argentina 2.000% 2/04/18 N/R 665,621
655 Compania de Transporte Energia, 144A 8.875% 12/15/16 B 658,275
555 Pan American Energy LLC, 144A 7.750% 2/09/12 BB- 574,425
1,855ARS Republic of Argentina 11.986% 2/20/08 B 618,576
355 Republic of Argentina 7.000% 3/28/11 B 358,550
2,110 Republic of Argentina 5.590% 8/03/12 B+ 1,542,410
1,863 Republic of Argentina 8.280% 12/31/33 B+ 2,031,138
1,525ARS Republic of Argentina 5.830% 12/31/33 B 726,030
1,494 Republic of Argentina 1.330% 12/31/38 B+ 810,495
1,200EUR Republic of Argentina 1.200% 12/31/38 B 720,747
545 Transportadora de Gas del Sur SA, Series B-A, Reg 8.000% 12/15/13 CCC+ 561,350
S
- ------------------------------------------------------------------------------------------------------------------------
Total Argentina 10,770,755
--------------------------------------------------------------------------------------------------------
BRAZIL - 2.3%
405 Centrais Eletricas Brasileiras S.A., 144A 7.750% 11/30/15 BB 430,313
400 Cia Brasileira de Bebidas 10.500% 12/15/11 Baa1 486,000
420 Companhia de Saneamento Basico do Estado de Sao 7.500% 11/03/16 BB- 443,625
Paulo, 144A
595 Companhia Energetica de Sao Paulo, 144A 9.250% 8/11/13 Ba3 658,963
685 Cospipa Commercial Limited, 144A 8.250% 6/14/16 Baa2 762,063
565 Federative Republic of Brazil 8.000% 1/15/18 BB 629,693
1,005 Federative Republic of Brazil 8.250% 1/20/34 BB 1,221,075
760 JBS S.A., 144A 10.500% 8/04/16 B+ 811,300
3,120BRL National Treasury Note of Brazil 10.000% 1/01/14 N/R 1,366,591
</Table>
21
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT (000) (8) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
BRAZIL (continued)
200BRL National Treasury Note of Brazil 6.000% 5/15/15 N/R $ 1,340,760
325 Vale Overseas Limited 6.250% 1/23/17 BBB 328,102
545 Vale Overseas Limited 6.875% 11/21/36 BBB 561,702
- --------------------------------------------------------------------------------------------------------------------------------
Total Brazil 9,040,187
----------------------------------------------------------------------------------------------------------
BULGARIA - 0.3%
1,100 Republic of Bulgaria, Reg S 8.250% 1/15/15 BBB+ 1,305,040
- --------------------------------------------------------------------------------------------------------------------------------
CHILE - 1.6%
565 Celulosa Arauco Y Constitucion 5.625% 4/20/15 BBB+ 556,394
600 Coldelco Inc., Reg S 6.375% 11/30/12 A2 627,803
450 Corporacion Nacional del Cobre de Chile, Reg S 5.625% 9/21/35 Aa3 430,174
430 Corporacion Nacional del Cobre, 144A 5.500% 10/15/13 Aa3 430,731
1,765 Corporacion Nacional del Cobre, 144A 4.750% 10/15/14 Aa3 1,681,141
245 Empresa Nacional Del Petroleo, Reg S 6.750% 11/15/12 A 259,010
1,100 Empresa Nacional del Petroleo, 144A 4.875% 3/15/14 A 1,046,460
550 Enersis SA 7.375% 1/15/14 BBB- 592,899
550 Republic of Chile 6.875% 4/28/09 A 572,000
- --------------------------------------------------------------------------------------------------------------------------------
Total Chile 6,196,612
----------------------------------------------------------------------------------------------------------
CHINA - 0.2%
610 China Development Bank 5.000% 10/15/15 A 594,816
- --------------------------------------------------------------------------------------------------------------------------------
COLOMBIA - 1.6%
2,500,000COP Republic of Colombia 11.750% 3/01/10 BB 1,318,763
1,580 Republic of Colombia 10.000% 1/23/12 BB 1,864,400
350 Republic of Colombia 8.250% 12/22/14 BB 399,000
1,080 Republic of Colombia 7.375% 1/27/17 BB 1,163,700
1,495 Republic of Colombia 7.375% 9/18/37 BB 1,608,620
- --------------------------------------------------------------------------------------------------------------------------------
Total Colombia 6,354,483
----------------------------------------------------------------------------------------------------------
COSTA RICA - 0.5%
1,095 Republic of Costa Rica, Reg S 9.995% 8/01/20 Ba1 1,439,925
350 Republic of Costa Rica, Reg S 8.110% 2/01/12 Ba1 384,300
225 Republic of Costa Rica, Reg S 8.050% 1/31/13 Ba1 248,850
- --------------------------------------------------------------------------------------------------------------------------------
Total Costa Rica 2,073,075
----------------------------------------------------------------------------------------------------------
DOMINICAN REPUBLIC - 0.6%
2,044 Dominican Republic, Reg S 9.040% 1/23/18 B 2,352,491
- --------------------------------------------------------------------------------------------------------------------------------
ECUADOR - 0.5%
2,460 Republic of Ecuador, Reg S 10.000% 8/15/30 CCC+ 1,832,700
- --------------------------------------------------------------------------------------------------------------------------------
EGYPT - 0.4%
8,000EGP Egypt Republic, Treasury Bill 0.000% 3/14/07 N/R 1,374,118
- --------------------------------------------------------------------------------------------------------------------------------
EL SALVADOR - 0.8%
750 Republic of El Salvador, Reg S 8.500% 7/25/11 Baa3 833,250
1,080 Republic of El Salvador, Reg S 7.750% 1/24/23 Baa3 1,243,620
730 Republic of El Salvador, 144A 7.650% 6/15/35 Baa3 830,375
- --------------------------------------------------------------------------------------------------------------------------------
Total El Salvador 2,907,245
----------------------------------------------------------------------------------------------------------
INDONESIA - 0.7%
390 Adaro Finance B.V., 144A 8.500% 12/08/10 Ba3 399,750
315 Excelcomindo Finance Company B.V., 144A 7.125% 1/18/13 BB- 318,150
6,000,000IDR Indonesia Republic 11.000% 11/15/20 BB+ 685,471
1,195 Majapahit Holdings BV, 144A 7.250% 10/17/11 BB- 1,232,344
- --------------------------------------------------------------------------------------------------------------------------------
Total Indonesia 2,635,715
----------------------------------------------------------------------------------------------------------
ISRAEL - 0.1%
585 State of Israel 5.500% 11/09/16 A2 580,004
- --------------------------------------------------------------------------------------------------------------------------------
JAMAICA - 0.1%
250 Clarendon Alumina Production Limited, 144A 8.500% 11/16/21 Ba2 261,875
- --------------------------------------------------------------------------------------------------------------------------------
KAZAKHSTAN - 0.4%
1,040 Intergas Finance B.V., Reg S 6.875% 11/04/11 Baa2 1,077,838
212 Kazkommerts International BV, 144A 8.000% 11/03/15 Baa1 221,540
300 Tengizchevroil LLP, 144A 6.124% 11/15/14 BBB- 300,750
- --------------------------------------------------------------------------------------------------------------------------------
Total Kazakhstan 1,600,128
----------------------------------------------------------------------------------------------------------
</Table>
22
<Table>
<Caption>
PRINCIPAL
AMOUNT (000) (8) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
LEBANON - 0.1%
220 Republic of Lebanon 7.750% 9/07/12 B- $ 210,100
210 Republic of Lebanon, Reg S 7.375% 4/14/14 B- 192,150
- --------------------------------------------------------------------------------------------------------------------------------
Total Lebanon 402,250
----------------------------------------------------------------------------------------------------------
MALAYSIA - 1.3%
950 Penerbangan Malaysia Berhad, Reg S 5.625% 3/15/16 A- 965,788
1,125 Petronas Capital Limited, Reg S 7.000% 5/22/12 A1 1,214,039
1,100 Republic of Malaysia 8.750% 6/01/09 A- 1,185,494
1,000 Republic of Malaysia 7.500% 7/15/11 A- 1,089,441
550 Sarawak International Inc. 5.500% 8/03/15 A- 545,048
- --------------------------------------------------------------------------------------------------------------------------------
Total Malaysia 4,999,810
----------------------------------------------------------------------------------------------------------
MEXICO - 1.7%
1,255 Banco Mercantil Del Norte SA, 144A 6.135% 10/13/16 Baa1 1,261,695
895 Conproca SA, Reg S 12.000% 6/16/10 BBB- 1,038,200
1,200 Pemex Project Funding Master Trust 8.500% 2/15/08 Baa1 1,237,500
830 Pemex Project Funding Master Trust 5.750% 12/15/15 Baa1 825,228
275 Petroleos Mexicanos 8.850% 9/15/07 Baa1 281,738
12,350MXN United Mexican States 9.500% 12/18/14 A 1,286,101
580 United Mexican States 6.750% 9/27/34 Baa1 627,850
- --------------------------------------------------------------------------------------------------------------------------------
Total Mexico 6,558,312
----------------------------------------------------------------------------------------------------------
NETHERLANDS - 0.2%
1,500 Banco ABN AMRO Real SA, Reg S 16.200% 2/22/10 N/R 761,760
- --------------------------------------------------------------------------------------------------------------------------------
PAKISTAN - 0.1%
330 Pakistan Mobile Communications Ltd., 144A 8.625% 11/13/13 B+ 346,913
- --------------------------------------------------------------------------------------------------------------------------------
PANAMA - 1.2%
445 AES Panama SA, 144A 6.350% 12/21/16 BBB- 438,926
720 Republic of Panama 9.625% 2/08/11 Ba1 824,400
2,699 Republic of Panama 6.700% 1/26/36 Ba1 2,820,455
575 Republic of Panama 7.125% 1/29/26 Ba1 623,875
- --------------------------------------------------------------------------------------------------------------------------------
Total Panama 4,707,656
----------------------------------------------------------------------------------------------------------
PERU - 0.8%
708 Republic of Peru 5.000% 3/07/17 BB+ 705,791
575 Republic of Peru 7.350% 7/21/25 BB+ 652,625
615 Republic of Peru 8.750% 11/21/33 BB+ 811,800
1,485 Republic of Peru, Enhanced Pass Thru Notes, 144A 0.000% 5/31/18 BB 989,381
- --------------------------------------------------------------------------------------------------------------------------------
Total Peru 3,159,597
----------------------------------------------------------------------------------------------------------
PHILIPINES - 1.1%
255 Bangko Sentral ng Pilipinas 8.600% 6/15/27 BB- 306,319
780 Republic of the Philippines 8.375% 2/15/11 BB- 858,000
210 Republic of the Philippines 8.250% 1/15/14 BB- 238,088
1,275 Republic of the Philippines 9.375% 1/18/17 BB- 1,577,813
1,268 Republic of the Philippines 7.750% 1/14/31 BB- 1,445,520
- --------------------------------------------------------------------------------------------------------------------------------
Total Philipines 4,425,740
----------------------------------------------------------------------------------------------------------
QATAR - 0.6%
285 Ras Laffan Liquefied Natural Gas Co., Ltd., 144A 3.437% 9/15/09 A- 277,860
597 Ras Laffan Liquified Natural Gas Company Limited, 3.437% 9/15/09 A- 582,934
Reg S
575 Ras Laffan Liquified Natural Gas II, Reg S 5.298% 9/30/20 A1 556,193
550 State of Qatar, Reg S 9.750% 6/15/30 A+ 822,910
- --------------------------------------------------------------------------------------------------------------------------------
Total Qatar 2,239,897
----------------------------------------------------------------------------------------------------------
RUSSIAN FEDERATION - 3.2%
640 Gaz Capital SA, 144A 6.212% 11/22/16 Baa1 646,080
170EUR GAZ Capitol SA, 144A 5.030% 2/25/14 BBB 225,391
525 Gazprom 10.500% 10/21/09 A3 594,563
763 GazStream SA, 144A 5.625% 7/22/13 Baa1 764,779
620 Irkut Corporation, Loan Participations, Moscow 8.250% 4/10/09 N/R 626,076
River BV, Reg S
1,575 Russia Federation, Reg S 5.000% 3/31/30 BBB+ 1,781,832
2,305 Russian Agricultural Bank, 144A 7.175% 5/16/13 A3 2,434,656
750 Russian Federation, Reg S 11.000% 7/24/18 BBB+ 1,085,175
400 Russian Ministry of Finance, Reg S 12.750% 6/24/28 BB+ 723,539
550 Saving Bank of the Russian Federation, 6.230% 2/11/15 Baa2 559,598
Participations
490 VTB Capital SA, Corporate Bonds, 144A 5.970% 8/01/08 A2 490,858
</Table>
23
Nuveen Diversified Dividend and Income Fund (JDD) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT (000) (8) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
RUSSIAN FEDERATION (continued)
1,000 VTB Capital SA, 144A 7.500% 10/12/11 A2 $ 1,071,250
1,200 VTB Capital SA, Reg S 6.250% 6/30/35 A2 1,223,112
- --------------------------------------------------------------------------------------------------------------------------------
Total Russian Federation 12,226,909
----------------------------------------------------------------------------------------------------------
SERBIA - 0.6%
2,500 Republic of Serbia, 144A 3.750% 11/01/24 BB- 2,325,000
- --------------------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA - 1.2%
3,255 Republic of South Africa 9.125% 5/19/09 BBB+ 3,523,538
1,140 Republic of South Africa 7.375% 4/25/12 BBB+ 1,228,350
- --------------------------------------------------------------------------------------------------------------------------------
Total South Africa 4,751,888
----------------------------------------------------------------------------------------------------------
SOUTH KOREA - 0.5%
2,020 Korea Development Bank 4.625% 9/16/10 A 1,976,998
- --------------------------------------------------------------------------------------------------------------------------------
THAILAND - 0.1%
250 Bangkok Bank Public Company Limited, Reg S 9.025% 3/15/29 BBB 318,561
- --------------------------------------------------------------------------------------------------------------------------------
TRINIDAD AND TOBAGO - 1.0%
945 First Citizens Saint Lucia Limited, Reg S 5.125% 2/14/11 A2 931,298
180 National Gas Company of Trinidad and Tobago, 144A 6.050% 1/15/36 A3 176,453
1,913 Republic of Trinidad and Tobago, Reg S 9.750% 7/01/20 A- 2,608,854
- --------------------------------------------------------------------------------------------------------------------------------
Total Trinidad and Tobago 3,716,605
----------------------------------------------------------------------------------------------------------
TUNISIA - 0.6%
2,065 Banque de Tunisie 7.375% 4/25/12 BBB 2,246,720
- --------------------------------------------------------------------------------------------------------------------------------
TURKEY - 0.8%
500 Republic of Turkey 9.500% 1/15/14 BB- 585,000
270 Republic of Turkey 7.250% 3/15/15 BB- 280,463
1,260 Republic of Turkey 7.000% 9/26/16 BB- 1,286,775
875 Republic of Turkey 6.875% 3/17/36 BB- 840,000
- --------------------------------------------------------------------------------------------------------------------------------
Total Turkey 2,992,238
----------------------------------------------------------------------------------------------------------
UKRAINE - 1.4%
1,055 Republic of Ukraine, Reg S 7.650% 6/11/13 BB- 1,138,240
2,585 Republic of Ukraine, Reg S 6.875% 3/04/11 BB- 2,663,326
615 Ukraine Export-Import Bank Loan Participation with 8.400% 2/09/16 Ba2 630,375
Credit Suisse International
650 Ukraine Government, 144A 6.580% 11/21/16 BB- 651,625
215 Ukraine Government, Reg S 11.000% 3/15/07 B1 217,355
- --------------------------------------------------------------------------------------------------------------------------------
Total Ukraine 5,300,921
----------------------------------------------------------------------------------------------------------
UNITED ARAB EMIRATES - 0.2%
350 Abu Dhabi National Energy Company, 144A 5.875% 10/27/16 Aa3 353,133
545 Abu Dhabi National Energy Company, 144A 6.500% 10/27/36 Aa3 564,008
- --------------------------------------------------------------------------------------------------------------------------------
Total United Arab Emirates 917,141
----------------------------------------------------------------------------------------------------------
URUGUAY - 0.7%
1,495 Oriental Republic of Uruguay 7.625% 3/21/36 B+ 1,651,975
715 Republic of Uruguay 8.000% 11/18/22 B+ 815,100
116 Republic of Uruguay 7.875% 1/15/33 B+ 130,088
- --------------------------------------------------------------------------------------------------------------------------------
Total Uruguay 2,597,163
----------------------------------------------------------------------------------------------------------
VENEZUELA - 1.4%
505 Petrozuata Finance Inc., Reg S 8.220% 4/01/17 Ba3 494,900
1,935 Republic of Venezuela, Reg S 5.375% 8/07/10 B+ 1,905,975
1,400 Republic of Venezuela 6.000% 12/09/20 BB- 1,312,500
500 Republic of Venezuela, Reg S 6.374% 4/20/11 BB- 496,875
380EUR Republic of Venezuela 11.125% 7/25/11 BB- 621,506
125 Republic of Venezuela 8.500% 10/08/14 BB- 141,750
675 Republic of Venezuela 5.750% 2/26/16 BB- 641,250
- --------------------------------------------------------------------------------------------------------------------------------
Total Venezuela 5,614,756
----------------------------------------------------------------------------------------------------------
VIETNAM - 0.6%
2,346 Socialist Republic of Vietnam 6.250% 3/12/16 BB- 2,358,914
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL EMERGING MARKETS DEBT AND FOREIGN CORPORATE BONDS 124,824,993
(COST $119,611,442)
================================================================================================================================
</Table>
24
<Table>
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 2.1% (1.4% OF TOTAL INVESTMENTS)
HOTELS, RESTAURANTS & LEISURE - 1.0%
$ 2,000 Aztar Corporation 9.000% 8/15/11 Ba3 $ 2,100,000
2,000 MGM Mirage, Inc. 6.750% 8/01/07 BB 2,017,500
- --------------------------------------------------------------------------------------------------------------------------------
4,000 Total Hotels, Restaurants & Leisure 4,117,500
- --------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 1.1%
2,000 D.R. Horton, Inc. 7.500% 12/01/07 BBB- 2,035,454
2,000 KB Home 8.625% 12/15/08 Ba2 2,088,030
- --------------------------------------------------------------------------------------------------------------------------------
4,000 Total Household Durables 4,123,484
- --------------------------------------------------------------------------------------------------------------------------------
$ 8,000 TOTAL CORPORATE BONDS (COST $8,297,054) 8,240,984
================================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.7% (1.9% OF TOTAL INVESTMENTS)
10,610 Repurchase Agreement with Fixed Income Clearing 4.580% 1/02/07 10,610,346
Corporation, dated 12/29/06, repurchase price
$10,615,745, collateralized by $11,105,000 U.S.
Treasury Notes, 3.000%, due 2/15/09, value
$10,827,375
========== ----------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $10,610,346) 10,610,346
==========================================================================================================
TOTAL INVESTMENTS (COST $458,382,582) - 142.7% 553,013,080
==========================================================================================================
BORROWINGS PAYABLE - (11.6)% (8) (45,000,000)
==========================================================================================================
OTHER ASSETS LESS LIABILITIES - (0.1)% (581,525)
==========================================================================================================
FUNDPREFERRED SHARES, AT LIQUIDATION (120,000,000)
VALUE - (31.0)%
==========================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 387,431,555
==========================================================================================================
</Table>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS OUTSTANDING AT DECEMBER 31, 2006:
<Table>
<Caption>
UNREALIZED
APPRECIATION
AMOUNT IN EXCHANGE FOR AMOUNT SETTLEMENT (DEPRECIATION)
CURRENCY CONTRACTS TO DELIVER (LOCAL CURRENCY) CURRENCY (LOCAL CURRENCY) DATE (U.S. DOLLARS)
------------------------------------------------------------------------------------------------------------------------
Argentine Peso 1,953,000 U.S. Dollar 630,814 3/20/07 $ (4,956)
Colombian Peso 2,837,800,000 U.S. Dollar 1,230,082 3/20/07 (29,636)
Euro 676,000 U.S. Dollar 902,916 3/20/07 7,363
Euro 485,000 U.S. Dollar 647,800 3/20/07 5,281
Peruvian Nouveau Sol 4,030,000 U.S. Dollar 1,260,951 3/20/07 (2,164)
U.S. Dollar 2,513,105 Peruvian Nouveau Sol 8,150,000 3/21/07 41,364
------------------------------------------------------------------------------------------------------------------------
$ 17,252
========================================================================================================================
</Table>
<Table>
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Ratings (not covered by the report of independent registered public accounting firm):
Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by Standard &
Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be below
investment grade.
(3) Senior Loans generally are subject to mandatory and/or optional prepayment. Because of
these mandatory prepayment conditions and because there may be significant economic
incentives for a Borrower to prepay, prepayments of Senior Loans may occur. As a result,
the actual remaining maturity of Senior Loans held may be substantially less than the
stated maturities shown.
(4) Senior Loans in which the Fund invests generally pay interest at rates which are
periodically adjusted by reference to a base short-term, floating lending rate plus an
assigned fixed rate. These floating lending rates are generally (i) the lending rate
referenced by the London Inter-Bank Offered Rate ("LIBOR"), or (ii) the prime rate offered
by one or more major United States banks.
Senior Loans may be considered restricted in that the Fund ordinarily is contractually
obligated to receive approval from the Agent Bank and/or Borrower prior to the disposition
of a Senior Loan.
(5) At or subsequent to December 31, 2006, this issue was under the protection of the Federal
Bankruptcy Court.
(6) Position represents an unfunded Senior Loan commitment outstanding at December 31, 2006.
(7) Negative value represents unrealized depreciation on Senior Loan commitment at December
31, 2006.
(8) Principal amount denominated in U.S. dollars, unless otherwise noted.
(9) Borrowings payable as a percentage of total investments is (8.1%).
N/R Not rated.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
ADR American Depositary Receipt.
Reg S Regulation S allows U.S. companies to sell securities to persons or entities located
outside of the United States without registering those securities with the Securities and
Exchange Commission. Specifically, Regulation S provides a safe harbor from the
registration requirements of the Securities Act for the offers and sales of securities by
both foreign and domestic issuers that are outside the United States.
</Table>
See accompanying notes to financial statements.
25
Statement of
ASSETS AND LIABILITIES December 31, 2006
<Table>
<Caption>
- ---------------------------------------------------------------------------
ASSETS
Investments, at value (cost $458,382,582) $553,013,080
Cash denominated in foreign currencies (cost $52,699) 53,310
Unrealized appreciation on forward foreign currency exchange
contracts 54,008
Receivables:
Dividends 1,067,202
Interest 3,660,754
Investments sold 338,529
Reclaims 31,714
Other assets 33,008
- ---------------------------------------------------------------------------
Total assets 558,251,605
- ---------------------------------------------------------------------------
LIABILITIES
Borrowings 45,000,000
Unrealized depreciation on forward foreign currency exchange
contracts 36,756
Payable for Federal corporate income tax 5,075,001
Accrued expenses:
Management fees 265,548
Interest on borrowings 208,556
Other 156,107
FundPreferred shares dividends payable 78,082
- ---------------------------------------------------------------------------
Total liabilities 50,820,050
- ---------------------------------------------------------------------------
FundPreferred shares, at liquidation value 120,000,000
- ---------------------------------------------------------------------------
Net assets applicable to Common shares $387,431,555
- ---------------------------------------------------------------------------
Common shares outstanding 20,160,158
- ---------------------------------------------------------------------------
Net asset value per Common share outstanding (net assets
applicable to Common shares, divided by Common shares
outstanding) $ 19.22
- ---------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
- ---------------------------------------------------------------------------
Common shares, $.01 par value per share $ 201,602
Paid-in surplus(1) 294,440,202
Undistributed (Over-distribution of) net investment income (1,728,586)
Accumulated net realized gain (loss) from investments and
derivative transactions (130,590)
Net unrealized appreciation (depreciation) of investments
and derivative transactions 94,648,927
- ---------------------------------------------------------------------------
Net assets applicable to Common shares $387,431,555
- ---------------------------------------------------------------------------
Authorized shares:
Common Unlimited
FundPreferred Unlimited
- ---------------------------------------------------------------------------
</Table>
<Table>
(1) Includes retained realized long-term capital gains of $14,500,002, net of Federal
corporate income taxes of $5,075,001.
</Table>
See accompanying notes to financial statements.
26
Statement of
OPERATIONS Year Ended December 31, 2006
<Table>
<Caption>
- -----------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $83,771) $ 8,630,013
Interest (net of foreign tax withheld of $53,487) 15,809,302
- -----------------------------------------------------------------------------
Total investment income $24,439,315
- -----------------------------------------------------------------------------
EXPENSES
Management fees 4,431,727
FundPreferred shares - auction fees 300,001
FundPreferred shares - dividend disbursing agent fees 14,203
Shareholders' servicing agent fees and expenses 1,947
Interest expense 931,345
Liquidity and program fees 53,305
Custodian's fees and expenses 169,295
Trustees' fees and expenses 16,137
Professional fees 63,120
Shareholders' reports - printing and mailing expenses 90,908
Stock exchange listing fees 9,823
Investor relations expense 69,100
Other expenses 27,143
- -----------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 6,178,054
Custodian fee credit (9,906)
Expense reimbursement (1,599,807)
- -----------------------------------------------------------------------------
Net expenses 4,568,341
- -----------------------------------------------------------------------------
Net investment income 19,870,974
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments (net of Federal corporate income taxes of
$5,075,001 on long-term capital gains retained) 20,381,938
Forwards (108,994)
Foreign Currencies (14,318)
Change in net unrealized appreciation (depreciation) of:
Investments 39,874,652
Forwards 17,252
Foreign Currencies 1,177
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) 60,151,707
- -----------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (2,676,452)
From accumulated net realized gains (2,963,239)
- -----------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (5,639,691)
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $74,382,990
- -----------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
27
Statement of
CHANGES IN NET ASSETS
<Table>
<Caption>
YEAR ENDED YEAR ENDED
12/31/06 12/31/05
- --------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 19,870,974 $ 16,705,911
Net realized gain (loss) from:
Investments (net of Federal corporate income
taxes of $5,075,001 and $0, respectively, on
long-term capital gains retained) 20,381,938 21,214,600
Forwards (108,994) --
Foreign Currencies (14,318) --
Change in net unrealized appreciation
(depreciation) of:
Investments 39,874,652 (928,498)
Forwards 17,252 --
Foreign Currencies 1,177 --
Distributions to FundPreferred shareholders:
From net investment income (2,676,452) (1,861,555)
From accumulated net realized gains (2,963,239) (1,922,933)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable
to Common shares from operations 74,382,990 33,207,525
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (19,796,094) (14,320,955)
From accumulated net realized gains (7,554,538) (18,211,404)
- --------------------------------------------------------------------------------
Decrease in net assets applicable to Common
shares from distributions to Common shareholders (27,350,632) (32,532,359)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common Shares:
Offering cost adjustments -- (4,043)
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 285,727 --
FundPreferred shares offering costs adjustments -- (4,043)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable
to Common shares from capital share transactions 285,727 (8,086)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable
to Common shares 47,318,085 667,080
Net assets applicable to Common shares at the
beginning of year 340,113,470 339,446,390
- --------------------------------------------------------------------------------
Net assets applicable to Common shares at the
end of year $387,431,555 $340,113,470
- --------------------------------------------------------------------------------
Undistributed (Over-distribution of) net
investment income at the end of year $ (1,728,586) $ 478,675
- --------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
28
Statement of
CASH FLOWS Year Ended December 31, 2006
<Table>
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM OPERATIONS $ 74,382,990
Adjustments to reconcile the net increase (decrease) in net
assets applicable to Common shares from operations to net
cash provided by (used in) operating activities:
Purchases of investments (241,335,031)
Proceeds from the sales of investments 212,747,756
Proceeds from (Purchases of) short-term investments, net (3,181,774)
Amortization/(Accretion) of premiums and discounts, net (145,641)
(Increase) Decrease in receivable for dividends 216,128
(Increase) Decrease in receivable for interest (954,431)
(Increase) Decrease in receivable for investments sold 712,078
(Increase) Decrease in receivable for reclaims (12,074)
(Increase) Decrease in other assets (21,401)
Increase (Decrease) in interest on borrowings 208,556
Increase (Decrease) in payable for investments purchased (2,930,378)
Increase (Decrease) in payable for Federal corporate
income tax 5,075,001
Increase (Decrease) in accrued management fees 40,047
Increase (Decrease) in accrued other liabilities 33,745
Increase (Decrease) in FundPreferred share dividends
payable 26,619
Net realized (gain) loss from investments (20,381,938)
Net realized (gain) loss from forwards 108,994
Net realized (gain) loss from foreign currencies 14,318
Net realized (gain) loss from paydowns 85,614
Change in net unrealized (appreciation) depreciation of
investments (39,874,652)
Change in net unrealized (appreciation) depreciation of
forwards (17,252)
Change in net unrealized (appreciation) depreciation of
foreign currencies (1,177)
Federal corporate income taxes on retained capital gains (5,075,001)
Capital gain and return of capital distributions from
investments 2,795,875
- ------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (17,483,029)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to Common shareholders (27,064,905)
Change in borrowings 45,000,000
- ------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 17,935,095
- ------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 452,066
Cash at the beginning of year (452,066)
- ------------------------------------------------------------------------------
CASH AT THE END OF YEAR $ --
- ------------------------------------------------------------------------------
</Table>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest on borrowings during the fiscal year ended December 31,
2006, was $722,789.
Non-cash financing activities not included herein consist of reinvestments of
Common share distributions of $285,728.
29
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Diversified Dividend and Income Fund (the "Fund") is a diversified,
closed-end management investment company registered under the Investment Company
Act of 1940, as amended. The Fund's Common shares are listed on the New York
Stock Exchange and trade under the ticker symbol "JDD." The Fund was organized
as a Massachusetts business trust on July 18, 2003.
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 debt and foreign
corporate bonds") and senior loans.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. The prices of fixed-income securities, senior
loans and derivative instruments are generally provided by an independent
pricing service approved by the Fund's Board of Trustees. When price quotes are
not readily available, the pricing service or, in the absence of a pricing
service for a particular investment, the Board of Trustees of the Fund, or its
designee, may establish fair value using a wide variety of market data including
yields or prices of investments of comparable quality, type of issue, coupon,
maturity and rating, market quotes or indications of value from security
dealers, evaluations of anticipated cash flows or collateral, general market
conditions and other information and analysis, including the obligor's credit
characteristics considered relevant by the pricing service or the Board of
Trustee's designee. If the pricing service is unable to supply a price for a
derivative investment the Fund may use a market quote provided by a major
broker/dealer in such investments. If it is determined that the market price for
an investment is unavailable or inappropriate, the Board of Trustees of the
Fund, or its designee, may establish fair value in accordance with procedures
established in good faith by the Board of Trustees. Short-term investments are
valued at amortized cost, which approximates market value.
The senior loans in which the Fund invests are not listed on an organized
exchange and the secondary market for such investments may be less liquid
relative to markets for other fixed income securities. Consequently, the value
of senior loans, determined as described above, may differ significantly from
the value that would have been determined had there been an active market for
that senior loan.
Investment Transactions
Investment transactions are recorded on a trade date basis. Trade date for
senior loans purchased in the "primary market" is considered the date on which
the loan allocations are determined. Trade date for senior loans purchased in
the "secondary market" is the date on which the transaction is entered into.
Realized gains and losses from investment transactions are determined on the
specific identification method. Investments purchased on a when-issued/delayed
delivery basis may have extended settlement periods. Any investments so
purchased are subject to market fluctuation during this period. The Fund
maintains liquid assets with a current value at least equal to the amount of the
when-issued/delayed delivery purchase commitments. At December 31, 2006, the
Fund had no outstanding when-issued/delayed delivery commitments.
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. Fee income, if any, consists primarily of amendment fees. Amendment fees
are earned as compensation for evaluating and accepting changes to the original
loan agreement and are recognized when received.
Federal Income Taxes
The Fund intends to comply with the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. The Fund intends to
distribute substantially all of its investment company taxable income to
shareholders. In any year when the Fund realizes net capital gains, the Fund may
choose to distribute all or a portion of its net capital gains to shareholders,
or alternatively, to retain all or a portion of its net capital gains and pay
Federal corporate income taxes on such retained gains. During the tax year ended
December 31, 2006, the Fund retained $14,500,002 of realized long-term capital
gains and accrued a provision for Federal corporate income taxes of $5,075,001,
the net of which has been reclassified to Paid-in surplus.
30
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with Federal
corporate income tax regulations, which may differ from U.S. generally accepted
accounting principles.
The Fund makes monthly cash distributions to Common shareholders of a stated
dollar amount per share. Subject to approval and oversight by the Fund's Board
of Trustees, the Fund seeks to maintain a stable distribution level designed to
deliver the long-term return potential of the Fund's investment strategy through
regular monthly distributions (a "Managed Distribution Policy"). Total
distributions during a calendar year generally will be made from the Fund's net
investment income, net realized capital gains and net unrealized capital gains
in the Fund's portfolio, if any. The portion of distributions paid from net
unrealized gains, if any, would be distributed from the Fund's assets and would
be treated by shareholders as a non-taxable distribution for tax purposes. If
the Fund's total return on net asset value exceeds total distributions during a
calendar year, the excess will be reflected as an increase in net asset value
per share. In the event that total distributions during a calendar year exceed
the Fund's total return on net asset value, the difference will be treated as a
return of capital for tax purposes and will reduce net asset value per share.
The final determination of the source and character of all distributions for the
fiscal year are made after the end of the fiscal year and are reflected in the
accompanying financial statements.
Real Estate Investment Trust ("REIT") distributions received by the Fund are
generally comprised of ordinary income, long-term and short-term capital gains,
and a return of REIT capital. The actual character of amounts received during
the period are not known until after the fiscal year-end. For the fiscal year
ended December 31, 2006, the character of distributions to the Fund from the
REITs was 58.28% ordinary income, 22.05% long-term and short-term capital gains,
and 19.67% return of REIT capital. For the fiscal year ended December 31, 2005,
the character of distributions to the Fund from the REITs was 46.22% ordinary
income, 37.32% long-term and short-term capital gains, and 16.46% return of REIT
capital.
For the fiscal years ended December 31, 2006 and December 31, 2005, the Fund
applied the actual character of distributions reported by the REITs in which the
Fund invests to its receipts from the REITS. If a REIT held in the portfolio of
investments did not report the actual character of its distributions during the
period, the Fund treated the distributions as ordinary income.
The actual character of distributions made by the Fund during the fiscal years
ended December 31, 2006 and December 31, 2005, are reflected in the accompanying
financial statements.
FundPreferred Shares
The Fund has issued and outstanding 2,400 Series T and 2,400 Series W
FundPreferred shares, $25,000 stated value per share, as a means of effecting
financial leverage. The dividend rate paid by the Fund on each Series is
determined every seven days, pursuant to a dutch auction process overseen by the
auction agent, and is payable at the end of each rate period.
Foreign Currency Translation
To the extent that the Fund invests in securities that are denominated in a
currency other than U.S. dollars, the Fund will be subject to currency risk,
which is the risk that an increase in the U.S. dollar relative to the foreign
currency will reduce returns or portfolio value. Generally, when the U.S. dollar
rises in value against a foreign currency, the Fund's investments in securities
denominated in that currency will lose value because its currency is worth fewer
U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative
value. Investments and other assets and liabilities denominated in foreign
currencies are converted into U.S. dollars on a spot (i.e. cash) basis at the
spot rate prevailing in the foreign currency exchange market at the time of
valuation. Purchases and sales of investments and dividend income denominated in
foreign currencies are translated into U.S. dollars on the respective dates of
such transactions. The gains or losses resulting from changes in foreign
exchange rates on investments and derivative transactions, if any, are included
with Net realized gain (loss) from foreign currencies and Change in net
unrealized appreciation (depreciation) of foreign currencies in the Statement of
Operations.
Foreign Currency Transactions
The Fund is authorized to engage in foreign currency exchange transactions. The
Fund may engage in foreign currency forward, options and futures contracts. To
the extent that the Fund invests in contracts that are denominated in a currency
other than U.S. dollars, the Fund will be subject to currency risk, which is the
risk that an increase in the U.S. dollar relative to the foreign currency will
reduce returns or portfolio value. Generally, when the U.S. dollar rises in
value against a foreign currency, the Fund's investments denominated in that
currency will lose value because its currency is worth fewer U.S. dollars; the
opposite effect occurs if the U.S. dollar falls in relative value. Investments
and other assets and liabilities denominated in foreign currencies are converted
into U.S. dollars on a spot (i.e. cash) basis at the spot rate prevailing in the
foreign currency exchange market at the time of valuation. Purchases and sales
of investments and dividend income denominated in foreign currencies are
translated into U.S. dollars on the respective dates of such transactions.
The books and records of the Fund are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at 4:00 p.m. Eastern time. Investments and income and expenses are
translated on the respective dates of such transactions. Net realized foreign
currency gains and losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date of the
transactions, foreign currency transactions, and the difference between the
amounts of interest and dividends recorded on the books of the Fund and the
amounts actually received.
31
Notes to
FINANCIAL STATEMENTS (continued)
Forward Foreign Currency Exchange Contracts
Generally, the Fund may enter into forward foreign currency exchange contracts
only under two circumstances: (i) when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency to "lock in"
the U.S. exchange rate of the transaction, with such period being a short-dated
contract covering the period between transaction date and settlement date; or
(ii) when the Adviser believes that the currency of a particular foreign country
may experience a substantial movement against the U.S. dollar or against another
foreign currency. Forward foreign currency contracts are valued daily at the
forward rate. The change in market value is recorded as an unrealized gain or
loss by the Fund. When the contract is closed or offset with the same
counterparty, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed or offset.
Forward foreign currency contracts will generally not be entered into for terms
greater than three months. The use of forward foreign currency contracts does
not eliminate fluctuations in the underlying prices of a Fund's investment
securities; however, it does establish a rate of exchange that can be achieved
in the future. The use of forward foreign currency contracts involves the risk
that anticipated currency movements will not be accurately predicted. A forward
foreign currency contract would limit the risk of loss due to a decline in the
value of a particular currency; however, it also would limit any potential gain
that might result should the value of the currency increase instead of decrease.
These contracts may involve market risk in excess of the unrealized gain or loss
reflected in the Statements of Assets and Liabilities. In addition, the Fund
could be exposed to risks if counterparties to the contracts are unable to meet
the terms of their contracts. The counterparty risk exposure is, therefore,
closely monitored and contracts are only executed with high credit quality
financial institutions.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Fund's organizational documents, its Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
Transactions in Common shares were as follows:
<Table>
<Caption>
YEAR YEAR
ENDED ENDED
12/31/06 12/31/05
- --------------------------------------------------------------------------------
Common shares issued to shareholders
due to reinvestment of
distributions 15,035 --
- --------------------------------------------------------------------------------
</Table>
3. INVESTMENT TRANSACTIONS
Purchases and sales (including maturities but excluding short-term investments
and derivative transactions) during the fiscal year ended December 31, 2006,
aggregated $241,335,031 and $212,747,756, respectively.
32
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis. Differences
between amounts for financial statement and Federal income tax purposes are
primarily due to the treatment of paydown gains and losses, recognition of
premium amortization, recognition of income on REIT investments, and timing
differences in recognizing certain gains and losses on investment transactions.
To the extent that differences arise that are permanent in nature, such amounts
are reclassified within the capital accounts on the Statement of Assets and
Liabilities presented in the annual report, based on their Federal tax basis
treatment; temporary differences do not require reclassification. Temporary and
permanent differences do not impact the net asset values of the Funds.
At December 31, 2006, the cost of investments was $460,151,033.
Gross unrealized appreciation and gross unrealized depreciation of investments
at December 31, 2006, were as follows:
<Table>
- ----------------------------------------------------------------------------
Gross unrealized:
Appreciation $96,520,167
Depreciation (3,658,120)
- ----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments $92,862,047
- ----------------------------------------------------------------------------
</Table>
The tax components of undistributed net ordinary income and net long-term
capital gains at December 31, 2006, the Fund's tax year end, were as follows:
<Table>
- ----------------------------------------------------------------------------
Undistributed net ordinary income * $ --
Undistributed net long-term capital gains --
- ----------------------------------------------------------------------------
</Table>
* 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 tax years ended, December 31,
2006 and December 31, 2005, was designated for purposes of the dividends paid
deduction as follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Distributions from net ordinary income * $24,569,542
Distributions from net long-term capital gains ** 8,394,162
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Distributions from net ordinary income * $20,166,376
Distributions from net long-term capital gains 16,120,736
- ----------------------------------------------------------------------------
</Table>
* 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 the
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 year ended December 31, 2006.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all funds assets managed by Nuveen
Asset Management (the "Adviser"), a wholly owned subsidiary of Nuveen
Investments, Inc. ("Nuveen"), and a specific fund-level component, based only on
the amount of assets within the Fund. This pricing structure enables Nuveen fund
shareholders to benefit from growth in the assets within each individual fund as
well as from growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly, is based upon the average daily
Managed Assets of the Fund as follows:
<Table>
<Caption>
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
- ---------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
- ---------------------------------------------------------------------------
</Table>
33
Notes to
FINANCIAL STATEMENTS (continued)
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the table below. As
of December 31, 2006, the complex-level fee rate was .1845%.
<Table>
<Caption>
COMPLEX-LEVEL ASSETS (1) COMPLEX-LEVEL FEE RATE
- -------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion (2) .1400
- -------------------------------------------------------------------------------
</Table>
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
preferred stock issued by or borrowings by the Nuveen funds) of
Nuveen-sponsored funds in the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level fee
rate for such complex-wide Managed Assets shall be .1400% until such time as
a different rate or rates is determined.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with NWQ Investment Management Company, LLC
("NWQ"), Security Capital Research & Management Incorporated ("Security
Capital"), Symphony Asset Management, LLC ("Symphony") and Wellington Management
Company, LLP ("Wellington"). Nuveen owns a controlling interest in NWQ while key
management of NWQ owns a non-controlling minority interest. Symphony is an
indirect wholly owned subsidiary of Nuveen. NWQ manages the portion of the
Fund's investment portfolio allocated to dividend-paying common stocks including
American Depositary Receipts ("ADRs"). Security Capital manages the portion of
the Fund's investment portfolio allocated to securities issued by real estate
companies including REITs. Symphony manages the portion of the Fund's investment
portfolio allocated to senior loans. Wellington manages the portion of the
Fund's investment portfolio allocated to emerging markets debt and foreign
corporate bonds. NWQ, Security Capital, Symphony and Wellington are compensated
for their services to the Fund from the management fee paid to the Adviser.
The Fund pays no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its Officers, all of whom receive remuneration
for their services to the Fund from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
For the first eight years of the Fund's operations, the Adviser has agreed to
reimburse the Fund, as a percentage of average daily Managed Assets, for fees
and expenses in the amounts and for the time periods set forth below:
<Table>
<Caption>
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
- --------------------------------------------------------------------------------
</Table>
* 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.
34
6. COMMITMENTS
Pursuant to the terms of certain of the variable rate senior loan agreements,
the Fund may have unfunded senior loan commitments. The Fund will maintain with
its custodian, cash, liquid securities and/or liquid senior loans having an
aggregate value at least equal to the amount of unfunded senior loan
commitments. At December 31, 2006, the Fund had unfunded senior loan commitments
of $805,600.
7. SENIOR LOAN PARTICIPATION COMMITMENTS
With respect to the senior loans held in the Fund's portfolio, the Fund may: 1)
invest in assignments; 2) act as a participant in primary lending syndicates; or
3) invest in participations. If the Fund purchases a participation of a senior
loan interest, the Fund would typically enter into a contractual agreement with
the lender or other third party selling the participation, rather than directly
with the Borrower. As such, the Fund not only assumes the credit risk of the
Borrower, but also that of the Selling Participant or other persons
interpositioned between the Fund and the Borrower. At December 31, 2006, there
were no such outstanding participation commitments.
8. BORROWINGS
On August 15, 2006, the Fund entered into a commercial paper program ($45
million maximum) with CITIBANK N.A.'s conduct financing agency, CHARTA, LLC
("CHARTA"). CHARTA issues high grade commercial paper and uses the proceeds to
make advances to the Fund. For the fiscal year ended December 31, 2006, the
average daily balance of borrowings under the commercial paper program agreement
was $17,136,986. The average annualized interest rate on such borrowings was
5.43%. In addition to the interest expense, the Fund also pays a .21% per annum
program fee and a .10% per annum liquidity fee.
9. NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 48
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Recent SEC guidance allows funds
to delay implementing FIN 48 into NAV calculations until the fund's last NAV
calculation in the first required financial statement reporting period. As a
result, the Fund must begin to incorporate FIN 48 into its NAV calculation on
June 29, 2007. At this time, management is continuing to evaluate the
implications of FIN 48 and does not expect the adoption of FIN 48 will have a
significant impact on the net assets or results of operations of the Fund.
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The changes to current generally accepted accounting principles from the
application of this standard relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. As of December 31, 2006, the Fund does not believe the adoption of
SFAS No. 157 will impact the financial statement amounts; however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements included within the Statement of
Operations for the period.
10. SUBSEQUENT EVENT
Distributions to Common Shareholders.
The Fund declared a distribution of $.1250 per Common share which was paid on
February 1, 2007, to shareholders of record on January 15, 2007.
35
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
<Table>
<Caption>
Investment Operations
------------------------------------------------------------------------------
Distributions
from Net Distributions
Beginning Net Investment from Capital
Common Realized/ Income to Gains to
Share Net Unrealized FundPreferred FundPreferred
Net Asset Investment Gain Share- Share-
Value Income(a) (Loss)(b) holders+ holders+ Total
- ------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2006 $ 16.88 $ .99 $ 2.98 $ (.13) $ (.15) 3.69
2005 16.85 .83 1.00 (.09) (.10) 1.64
2004 15.13 .81 2.23 (.06) (.03) 2.95
2003(c) 14.33 .18 1.01 (.01) -- 1.18
- ------------------------------------------------------------------------------------------------------------------
<Caption>
Less Distributions
----------------------------------------
Net Offering
Investment Capital Costs and Ending
Income to Gains to Tax FundPreferred Common
Common Common Return Share Share
Share- Share- of Underwriting Net Asset
holders holders Capital Total Discounts Value
- ------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2006 $ (.98) $ (.37) $ -- $(1.35) $ -- $ 19.22
2005 (.71) (.90) -- (1.61) -- 16.88
2004 (.81) (.41) (.01) (1.23) -- 16.85
2003(c) (.18) (.02) (.01) (.21) (.17) 15.13
- ------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
FundPreferred Shares at End of Period Borrowings at End of Period
------------------------------------------------- ----------------------------
Aggregate Aggregate
Amount Liquidation Asset Amount Asset
Outstanding and Market Coverage Outstanding Coverage
(000) Value Per Share Per Share (000) Per $1,000
- ------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2006 $ 120,000 $ 25,000 $ 105,715 $ 45,000 $ 12,276
2005 120,000 25,000 95,857 -- --
2004 120,000 25,000 95,718 -- --
2003(c) 120,000 25,000 88,414 -- --
- ------------------------------------------------------------------------------------------------------------------
</Table>
* Annualized.
** - Total Return on Market Value is the combination of changes in the market
price per share and the effect of reinvested dividend income and
reinvested capital gains distributions, if any, at the average price paid
per share at the time of reinvestment. Total Return on Common Share Net
Asset Value is the combination of changes in Common share net asset
value, reinvested dividend income at net asset value and reinvested
capital gains distributions at net asset value, if any. Total returns are
not annualized.
- The Fund elected to retain a portion of its realized long-term capital
gains for the tax year ended December 31, 2006, and pay required Federal
corporate income taxes on these gains. As reported on Form 2439, Common
shareholders of record on December 29, 2006, must include their pro-rata
share of these gains on their 2006 Federal tax returns, and will receive
a corresponding credit toward their taxes, or a tax refund, for their
pro-rata share of the taxes paid by the Fund. The standardized total
returns shown above do not include the economic benefit to Common
shareholders of record of this tax credit/refund. The Fund's
corresponding 2006 total return on market value and net asset value when
this benefit is included are 40.37% and 24.26%, respectively.
*** After custodian fee credit and expense reimbursement, where applicable.
+ 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 and borrowings, where applicable.
- Each ratio includes the effect of the interest expense paid on borrowings
as follows:
<Table>
<Caption>
Ratio of Borrowings Interest
Expense to Average
Net Assets Applicable to
Common Shares
------------------------------------------------------------------------
2006 .26%
2005 --
2004 --
2003(c) --
</Table>
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) Net of Federal corporate income taxes on long-term capital gains retained
by the Fund of $0.25 per share for the fiscal year ended December 31, 2006.
(c) For the period September 25, 2003 (commencement of operations) through
December 31, 2003.
36
<Table>
<Caption>
Total Returns Ratios/Supplemental Data
----------------- ----------------------------------------------------------------------------------------
Based Ratios to Average Net Assets Ratios to Average Net Assets
on Applicable to Common Shares Applicable to Common Shares
Common Ending Net Before Credit/Reimbursement After Credit/Reimbursement***
Based Share Assets ----------------------------- -----------------------------
Ending on Net Applicable Net Net Portfolio
Market Market Asset to Common Investment Investment Turnover
Value Value** Value** Shares (000) Expenses++ Income++ Expenses++ Income++ Rate
- --------------------------------------------------------------------------------------------------------------------------
$21.03 38.72% 22.66% $ 387,432 1.70% 5.03% 1.26% 5.47% 44%
16.35 16.36 10.21 340,113 1.42 4.53 .99 4.96 49
15.57 8.04 20.44 339,446 1.50 4.74 1.06 5.19 46
15.65 5.76 7.04 304,387 1.26* 4.51* .87* 4.89* 28
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
37
Board Members
AND OFFICERS
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board
Members of the Funds. The number of board members of the Fund is currently set
at ten. None of the board members who are not "interested" persons of the Funds
has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
<Table>
<Caption>
NUMBER OF PORTFOLIOS
PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS WITH THE FUNDS OR APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
- -------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS:
- -------------------------------------------------------------------------------------------------------------------------------
Timothy R. Chairman of the 1994 Chairman (since 1996) and Director 172
Schwertfeger(1) Board and Board of Nuveen Investments, Inc., Nuveen
3/28/49 Member Investments, LLC; Chairman and
333 W. Wacker Drive Director (since 1997) of Nuveen
Chicago, IL 60606 Asset Management; Chairman and
Director of Rittenhouse Asset
Management, Inc. (since 1999);
Chairman of Nuveen Investments
Advisers Inc. (since 2002);
formerly, Chairman and Director
(1996-2004) Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.(3); formerly, Director
(1996-2006) of Institutional
Capital Corporation.
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
- -------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Lead Independent 1997 Private Investor and Management 172
8/22/40 Board member Consultant.
333 W. Wacker Drive
Chicago, IL 60606
- -------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Board member 1993 Retired (since 1989) as Senior Vice 172
7/29/34 President of The Northern Trust
333 W. Wacker Drive Company; Director (since 2002)
Chicago, IL 60606 Community Advisory Board for
Highland Park and Highwood, United
Way of the North Shore; Director
(since 2006) of the Michael Rolfe
Pancreatic Cancer Foundation.
- -------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Board member 1999 President, The Hall-Perrine 172
10/22/48 Foundation, a private philanthropic
333 W. Wacker Drive corporation (since 1996); Director
Chicago, IL 60606 and Vice Chairman, United Fire
Group, a publicly held company;
Adjunct Faculty Member, University
of Iowa; Director, Gazette
Companies; Life Trustee of Coe
College and Iowa College
Foundation; formerly, Director,
Alliant Energy; formerly, Director,
Federal Reserve Bank of Chicago;
formerly, President and Chief
Operating Officer, SCI Financial
Group, Inc., a regional financial
services firm.
- -------------------------------------------------------------------------------------------------------------------------------
William C. Hunter Board member 2004 Dean, Tippie College of Business, 172
3/6/48 University of Iowa (since July
333 W. Wacker Drive 2006); formerly, Dean and
Chicago, IL 60606 Distinguished Professor of Finance,
School of Business at the
University of Connecticut
(2003-2006); previously, Senior
Vice President and Director of
Research at the Federal Reserve
Bank of Chicago (1995-2003);
Director (since 1997), Credit
Research Center at Georgetown
University; Director (since 2004)
of Xerox Corporation; Director,
SS&C Technologies, Inc. (May 2005-
October 2005).
</Table>
38
<Table>
<Caption>
NUMBER OF PORTFOLIOS
PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS WITH THE FUNDS OR APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
- -------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
- -------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Chairman of Miller-Valentine 172
9/24/44 Partners Ltd., a real estate
333 W. Wacker Drive investment company; formerly,
Chicago, IL 60606 Senior Partner and Chief Operating
Officer (retired, 2004) of
Miller-Valentine Group; formerly,
Vice President, Miller-Valentine
Realty; Board Member, Chair of the
Finance Committee and member of the
Audit Committee of Premier Health
Partners, the not-for-profit
company of Miami Valley Hospital;
Vice President, Dayton Philharmonic
Orchestra Association; Board
Member, Regional Leaders Forum,
which promotes cooperation on
economic development issues;
Director, Dayton Development
Coalition; formerly, Member,
Community Advisory Board, National
City Bank, Dayton, Ohio and
Business Advisory Council,
Cleveland Federal Reserve Bank.
- -------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale Board member 1997 Executive Director, Gaylord and 172
12/29/47 Dorothy Donnelley Foundation (since
333 W. Wacker Drive 1994); prior thereto, Executive
Chicago, IL 60606 Director, Great Lakes Protection
Fund (from 1990 to 1994).
- -------------------------------------------------------------------------------------------------------------------------------
Carole E. Stone Board Member 2007 Director, Chicago Board Options 172
6/28/47 Exchange (since 2006); Chair New
333 West Wacker Drive York Racing Association Oversight
Chicago, IL 60606 Board (since 2005); Commissioner,
New York State Commission on Public
Authority Reform (since 2005);
formerly Director, New York State
Division of the Budget (2000-2004),
Chair, Public Authorities Control
Board (2000-2004) and Director,
Local Government Assistance
Corporation (2000-2004).
- -------------------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine Board member 2005 Senior Vice President for Business 172
1/22/50 and Finance, Northwestern
333 W. Wacker Drive University (since 1997); Director
Chicago, IL 60606 (since 2003), Chicago Board Options
Exchange; Chairman (since 1997),
Board of Directors, Rubicon, a pure
captive insurance company owned by
Northwestern University; Director
(since 1997), Evanston Chamber of
Commerce and Evanston Inventure, a
business development organization;
Director (since 2006), Pathways, a
provider of therapy and related
information for physically disabled
infants and young children;
formerly, Director (2003-2006),
National Mentor Holdings, a
privately-held, national provider
of home and community-based
services.
</Table>
39
Board Members
AND OFFICERS (CONTINUED)
<Table>
<Caption>
NUMBER OF PORTFOLIOS
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER
- -------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND:
- -------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), 172
9/9/56 Administrative Assistant Secretary and Associate
333 W. Wacker Drive Officer General Counsel, formerly, Vice
Chicago, IL 60606 President and Assistant General
Counsel, of Nuveen Investments,
LLC; Managing Director (2002-2004),
General Counsel (1998-2004) and
Assistant Secretary, formerly, Vice
President of Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.(3); Managing Director (since
2002) and Assistant Secretary and
Associate General Counsel,
formerly, Vice President (since
1997), of Nuveen Asset Management;
Managing Director (since 2004) and
Assistant Secretary (since 1994) of
Nuveen Investments, Inc.; Assistant
Secretary of NWQ Investment
Management Company, LLC. (since
2002); Vice President and Assistant
Secretary of Nuveen Investments
Advisers Inc. (since 2002);
Managing Director, Associate
General Counsel and Assistant
Secretary of Rittenhouse Asset
Management, Inc.; Assistant
Secretary of Symphony Asset
Management LLC (since 2003),
Tradewinds NWQ Global Investors,
LLC and Santa Barbara Asset
Management, LLC; (since 2006);
Chartered Financial Analyst.
- -------------------------------------------------------------------------------------------------------------------------------
Julia L. Antonatos Vice President 2004 Managing Director (since 2005), 172
9/22/63 formerly, Vice President (since
333 W. Wacker Drive 2002); formerly, Assistant Vice
Chicago, IL 60606 President (since 2000) of Nuveen
Investments, LLC; Chartered
Financial Analyst.
- -------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), 172
2/3/66 and Assistant formerly, Assistant Vice President
333 W. Wacker Drive Secretary (since 2000) of Nuveen Investments,
Chicago, IL 60606 LLC.
- -------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President and Treasurer of 172
11/28/67 Nuveen Investments, LLC and of
333 W. Wacker Drive Nuveen Investments, Inc. (since
Chicago, IL 60606 1999); Vice President and Treasurer
of Nuveen Asset Management (since
2002) and of Nuveen Investments
Advisers Inc. (since 2002);
Assistant Treasurer of NWQ
Investment Management Company, LLC.
(since 2002); Vice President and
Treasurer of Nuveen Rittenhouse
Asset Management, Inc. (since
2003); Treasurer of Symphony Asset
Management LLC (since 2003) and
Santa Barbara Asset Management, LLC
(since 2006); Assistant Treasurer,
Tradewinds NWQ Global Investors,
LLC (since 2006); formerly, Vice
President and Treasurer (1999-2004)
of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.(3);
Chartered Financial Analyst.
- -------------------------------------------------------------------------------------------------------------------------------
John N. Desmond Vice President 2005 Vice President, Director of 172
8/24/61 Investment Operations, Nuveen
333 W. Wacker Drive Investments, LLC (since January
Chicago, IL 60606 2005); formerly, Director, Business
Manager, Deutsche Asset Management
(2003- 2004), Director, Business
Development and Transformation,
Deutsche Trust Bank Japan
(2002-2003); previously, Senior
Vice President, Head of Investment
Operations and Systems, Scudder
Investments Japan, (2000-2002),
Senior Vice President, Head of Plan
Administration and Participant
Services, Scudder Investments
(1995-2002).
</Table>
40
<Table>
<Caption>
NUMBER OF PORTFOLIOS
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER
- -------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 1998 Vice President (since 2002), 172
9/24/64 and Secretary Assistant Secretary and Assistant
333 W. Wacker Drive General Counsel (since 1998)
Chicago, IL 60606 formerly, Assistant Vice President
(since 1998) of Nuveen Investments,
LLC; Vice President (2002-2004) and
Assistant Secretary (1998-2004)
formerly, Assistant Vice President
of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.(3);
Vice President and Assistant
Secretary (since 2005) of Nuveen
Asset Management.
- -------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Managing Director (since 2004), 172
10/24/45 formerly, Vice President of Nuveen
333 W. Wacker Drive Investments, LLC, Managing Director
Chicago, IL 60606 (2004) formerly, Vice President
(1998-2004) of Nuveen Advisory
Corp. and Nuveen Institutional
Advisory Corp.(3); Managing
Director (since 2005) of Nuveen
Asset Management.
- -------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002), 172
3/2/64 formerly, Vice President of Nuveen
333 W. Wacker Drive Investments, LLC; Managing Director
Chicago, IL 60606 (1997-2004) of Nuveen Advisory
Corp. and Nuveen Institutional
Advisory Corp.(3); Managing
Director (since 2001) of Nuveen
Asset Management; Vice President
(since 2002) of Nuveen Investments
Advisers Inc.; Chartered Financial
Analyst.
- -------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and 172
5/31/54 and Controller Funds Controller (since 1998) of
333 W. Wacker Drive Nuveen Investments, LLC; formerly,
Chicago, IL 60606 Vice President and Funds Controller
(1998-2004) of Nuveen Investments,
Inc.; Certified Public Accountant.
- -------------------------------------------------------------------------------------------------------------------------------
Walter M. Kelly Chief Compliance 2003 Vice President and Assistant 172
2/24/70 Officer and Vice Secretary (since 2006) formerly,
333 West Wacker Drive President Assistant Vice President and
Chicago, IL 60606 Assistant General Counsel (since
2003) of Nuveen Investments, LLC;
Vice President (since 2006) and
Assistant Secretary (since 2003)
formerly, Assistant Vice President
of Nuveen Asset Management;
previously, Associate (2001-2003)
at the law firm of Vedder, Price,
Kaufman & Kammholz.
- -------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of 172
3/22/63 Nuveen Investments, LLC; Certified
333 W. Wacker Drive Public Accountant.
Chicago, IL 60606
- -------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President of Nuveen 172
8/27/61 Investments, LLC (since 1999).
333 W. Wacker Drive
Chicago, IL 60606
</Table>
41
Board Members
AND OFFICERS (CONTINUED)
<Table>
<Caption>
NUMBER OF PORTFOLIOS
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER
- -------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary 172
7/27/51 and Assistant and Assistant General Counsel of
333 W. Wacker Drive Secretary Nuveen Investments, LLC; formerly,
Chicago, IL 60606 Vice President and Assistant
Secretary of Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.(3); Vice President (since
2005) and Assistant Secretary of
Nuveen Investments, Inc.; Vice
President (since 2005) and
Assistant Secretary (since 1997) of
Nuveen Asset Management; Vice
President (since 2000), Assistant
Secretary and Assistant General
Counsel (since 1998) of Rittenhouse
Asset Management, Inc.; Vice
President and Assistant Secretary
of Nuveen Investments Advisers Inc.
(since 2002); Assistant Secretary
of NWQ Investment Management
Company, LLC (since 2002), Symphony
Asset Management LLC (since 2003)
and Tradewinds NWQ Global
Investors, LLC and Santa Barbara
Asset Management, LLC (since 2006).
</Table>
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and board member of
the Adviser.
(2) Board members serve a three year term until his/her successor is elected.
The year first elected or appointed represents the year in which the board
member was first elected or appointed to any fund in the Nuveen Complex.
(3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were
reorganized into Nuveen Asset Management, effective January 1, 2005.
(4) Officers serve one year terms through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
42
REINVEST AUTOMATICALLY
EASILY AND CONVENIENTLY
NUVEEN CLOSED-END FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Fund allows you to conveniently reinvest dividends and/or
capital gains distributions in additional fund shares
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO
SET UP YOUR REINVESTMENT ACCOUNT.
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of the shares may increase before
purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
43
Automatic Dividend
REINVESTMENT PLAN
NOTICE OF AMENDMENT TO THE TERMS AND CONDITIONS
The Fund amended the terms and conditions of its Automatic Dividend Reinvestment
Plan (the "Plan") as further described below effective with the close of
business on December 1, 2006. THESE CHANGES ARE INTENDED TO ENABLE PLAN
PARTICIPANTS UNDER CERTAIN CIRCUMSTANCES TO REINVEST FUND DISTRIBUTIONS AT A
LOWER AGGREGATE COST THAN IS POSSIBLE UNDER THE EXISTING PLAN. Shareholders who
do not wish to continue as participants under the amended Plan may withdraw from
the Plan by notifying the Plan Agent prior to the effective date of the
amendments. Participants should refer to their Plan document for notification
instructions, or may simply call Nuveen at (800) 257-8787.
Fund shareholders who elect to participate in the Plan are able to have Fund
distributions consisting of income dividends, realized capital gains and returns
of capital automatically reinvested in additional Fund shares. Under the Plan's
existing terms, the Plan Agent purchases Fund shares in the open market if the
Fund's shares are trading at a discount to their net asset value on the payable
date for the distribution. If the Fund's shares are trading at or above their
net asset value on the payable date for the distribution, the Plan Agent
purchases newly-issued Fund shares directly from the Fund at a price equal to
the greater of the shares' net asset value or 95% of the shares' market value.
Under the Plan's amended terms, if the Plan Agent begins purchasing Fund shares
on the open market while shares are trading below net asset value, but the
Fund's shares subsequently trade at or above their net asset value before the
Plan Agent is able to complete its purchases, the Plan Agent may cease
open-market purchases and may invest the uninvested portion of the distribution
in newly-issued Fund shares at a price equal to the greater of the shares' net
asset value or 95% of the shares' market value. This change will permit Plan
participants under these circumstances to reinvest Fund distributions at a lower
aggregate cost than is possible under the existing Plan.
44
Notes
45
Notes
46
OTHER USEFUL
INFORMATION
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
The Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
most recent 12-month period ended June 30, 2006, and (iii) a description of the
policies and procedures that the Fund used to determine how to vote proxies
relating to portfolio securities are available without charge, upon request, by
calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549.
DISTRIBUTION INFORMATION
Nuveen Diversified Dividend and Income Fund (JDD) designates 15.75% of dividends
declared from net investment income as dividends qualifying for the 70%
dividends received deduction for corporations and 20.63% as qualified dividend
income for individuals under the Jobs and Growth Tax Relief Reconciliation Act
of 2003.
CEO CERTIFICATION DISCLOSURE
The Fund's Chief Executive Officer has submitted to the New York Stock Exchange
the annual CEO certification as required by Section 303A.12(a) of the NYSE
Listed Company Manual.
The Fund has filed with the Securities and Exchange Commission the certification
of its Chief Executive Officer and Chief Financial Officer required by Section
302 of the Sarbanes-Oxley Act.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
MARKET YIELD: Market yield is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Funds'
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any Preferred shares issued
in order to leverage the Fund) from its total assets and then dividing the
remainder by the number of shares outstanding. Fund NAVs are calculated at the
end of each business day.
BOARD OF TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Carole E. Stone
Eugene S. Sunshine
FUND MANAGER
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust Company
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
47
(back cover photo)
NUVEEN INVESTMENTS:
SERVING INVESTORS
FOR GENERATIONS
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past
century, Nuveen Investments has adhered to the belief that the best
approach to investing is to apply conservative risk-management principles
to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity
and fixed-income solutions that are integral to a well-diversified core
portfolio. Our clients have come to appreciate this diversity, as well as
our continued adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT
NEEDS.
Managing $162 billion in assets, as of December 31, 2006, Nuveen
Investments offers access to a number of different asset classes and
investing solutions through a variety of products. Nuveen Investments
markets its capabilities under six distinct brands: Nuveen, a leader in
fixed-income investments; NWQ, a leader in value-style equities;
Rittenhouse, a leader in growth-style equities; Symphony, a leading
institutional manager of market-neutral alternative investment
portfolios; Santa Barbara, a leader in growth equities; and Tradewinds
NWQ, a leader in global equities.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers,
talk to your financial advisor, or call us at (800) 257-8787. Please read
the information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should
consider the investment objective and policies, risk considerations,
charges and expenses of the Fund carefully before investing. The
prospectus contains this and other information relevant to an investment
in the Fund. For a prospectus, please contact your securities
representative or Nuveen Investments, 333 W. Wacker Dr., Chicago, IL
60606. Please read the prospectus carefully before you invest or send
money.
LEARN MORE
ABOUT NUVEEN FUNDS AT
WWW.NUVEEN.COM/CEF
- Share prices
- Fund details
- Daily financial news
- Investor education
- Interactive planning tools
EAN-B-1206D
NUVEEN LOGO
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. [There were no amendments to or waivers
from the Code during the period covered by this report.] The registrant has
posted the code of ethics on its website at www.nuveen.com/etf. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then click on Code of Conduct.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors or Trustees determined that the registrant
has at least one "audit committee financial expert" (as defined in Item 3 of
Form N-CSR) serving on its Audit Committee. The registrant's audit committee
financial expert is Jack B. Evans, Chairman of the Audit Committee, who is
"independent" for purposes of Item 3 of Form N-CSR.
Mr. Evans was formerly President and Chief Operating Officer of SCI Financial
Group, Inc., a full service registered broker-dealer and registered investment
adviser ("SCI"). As part of his role as President and Chief Operating Officer,
Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and
actively supervised the CFO's preparation of financial statements and other
filings with various regulatory authorities. In such capacity, Mr. Evans was
actively involved in the preparation of SCI's financial statements and the
resolution of issues raised in connection therewith. Mr. Evans has also served
on the audit committee of various reporting companies. At such companies, Mr.
Evans was involved in the oversight of audits, audit plans, and the preparation
of financial statements. Mr. Evans also formerly chaired the audit committee of
the Federal Reserve Bank of Chicago.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Nuveen Diversified Dividend and Income Fund
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP the Audit Committee approved in advance all
audit services and non-audit services that Ernst & Young LLP provided to the
Fund, except for those non-audit services that were subject to the pre-approval
exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The
pre-approval exception for services provided directly to the Fund waives the
pre-approval requirement for services other than audit, review or attest
services if: (A) the aggregate amount of all such services provided constitutes
no more than 5% of the total amount of revenues paid by the Fund to its
accountant during the fiscal year in which the services are provided; (B) the
Fund did not recognize the services as non-audit services at the time of the
engagement; and (C) the services are promptly brought to the Audit Committee's
attention, and the Committee (or its delegate) approves the services before the
audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
<Table>
<Caption>
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND (1) BILLED TO FUND (2) BILLED TO FUND (3) BILLED TO FUND (4)
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 2006 $29,000 $0 $800 $950
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 2005 $27,000 $0 $829 $900
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) "Audit Fees" are the aggregate fees billed for professional services for the
audit of the Fund's annual financial statements and services provided in
connection with statutory and regulatory filings or engagements.
(2) "Audit Related Fees" are the aggregate fees billed for assurance and related
services reasonably related to the performance of the audit or review of
financial statements and are not reported under "Audit Fees".
(3) "Tax Fees" are the aggregate fees billed for professional services for tax
advice, tax compliance, and tax planning.
(4)" All Other Fees" are the aggregate fees billed for products and services
other than "Audit Fees", "Audit Related Fees", and "Tax Fees".
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling,
controlled by or under common control with NAM ("Control Affiliate") that
provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for
engagements directly related to the Fund's operations and financial reporting,
during the Fund's last two full fiscal years.
The tables also show the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
<Table>
<Caption>
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES
BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER
AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND
SERVICE PROVIDERS SERVICE PROVIDERS (1) SERVICE PROVIDERS
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 2006 $0 $5,400 $0
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 2005 $0 $4,950 $0
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) The amounts reported for the Fund under the column heading "Tax Fees"
represents amounts billed to the Adviser exclusively for the preparation for the
Fund's tax return, the cost of which is borne by the Adviser. In the aggregate,
for all Nuveen funds for which Ernst & Young LLP serves as independent
registered public accounting firm, these fees amounted to $288,000 in 2006 and
$282,575 in 2005.
NON-AUDIT SERVICES
The following table shows the amount of fees that Ernst & Young LLP billed
during the Fund's last two full fiscal years for non-audit services. For
engagements entered into on or after May 6, 2003, the Audit Committee is
required to pre-approve non-audit services that Ernst & Young LLP provides to
the Adviser and any Affiliated Fund Services Provider, if the engagement related
directly to the Fund's operations and financial reporting (except for those
subject to the de minimis exception described above). The Audit Committee
requested and received information from Ernst & Young LLP about any non-audit
services that Ernst & Young LLP rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating Ernst & Young LLP's independence.
<Table>
<Caption>
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES
BILLED TO ADVISER AND
AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES
PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND
RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE
TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER
BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 2006 $1,750 $5,400 $0 $7,150
December 31, 2005 $1,729 $4,950 $0 $6,679
</Table>
"Non-Audit Fees billed to Adviser" for both fiscal year ends represent "Tax
Fees" billed to Adviser in their respective amounts from the previous table.
Audit Committee Pre-Approval Policies and Procedures. Generally, the Audit
Committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the Audit Committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the Audit Committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the Audit Committee at
the next Audit Committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant's Board of Directors or Trustees has a separately designated
Audit Committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (15 U.S.C. 78c(a)(58)(A)). The
members of the audit committee are Robert P. Bremner, Lawrence H. Brown, Jack B.
Evans, William J. Schneider and Eugene S. Sunshine.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Adviser has engaged NWQ Investment Management Company, LLC ("NWQ"),
Security Capital Research & Management Incorporated ("SC-R&M"), Wellington
Management Company, LLC ("Wellington") and Symphony Asset Management, LLC
("Symphony") (NWQ, SC-R&M, Wellington and Symphony are also collectively
referred to as "Sub-Advisers") as Sub-Advisers to provide discretionary
investment advisory services. As part of these services, the Adviser has also
delegated to each Sub-Adviser the full responsibility for proxy voting and
related duties in accordance with the Sub-Adviser's policy and procedures. The
Adviser periodically will monitor each Sub-Adviser's voting to ensure that they
are carrying out their duties. The Sub-Advisers' proxy voting policies and
procedures are summarized as follows:
NWQ
NWQ's Proxy Voting Policies and Procedures apply to securities held in
client accounts over which NWQ Investment Management Company, LLC ("NWQ") has
voting authority. NWQ shall vote proxies in respect of securities owned by or
on behalf of a client in the client's best interests and without regard to the
interests of NWQ or any other client of NWQ. NWQ has a Proxy Voting Committee
to supervise the proxy voting process, including the identifying material
conflicts of interest. Unless the Proxy Voting Committee otherwise determines
(and documents the basis for its decision) or as otherwise provided below, the
Proxy Voting Committee shall cause proxies to be voted in a manner consistent
with the recommendations or guidelines of an independent third party proxy
service or other third party. In most cases, NWQ has adopted the guidelines of
and will generally vote in accordance with the recommendations of Institutional
Shareholder Services, Inc. As a general matter, unless otherwise restricted
NWQ reserves the right to override the applicable Recommendations or Guidelines
in any situation where it believes that following such Recommendations or
Guidelines is not in its clients' best interests.
Where any material conflict of interest has been identified and the matter
is covered by the applicable Recommendation or Guidelines, the Proxy Voting
Committee shall cause proxies to be voted in accordance with the applicable
Recommendation or Guidelines. Where any material conflict of interest has been
identified and the matter is not covered by the applicable Recommendation or
Guidelines, NWQ may (i) vote in accordance with the recommendation of an
alternative independent third party (who may be an proxy voting service) or (ii)
disclose the conflict to the client, obtain the client's consent to vote, and
make the proxy voting determination itself (and document the basis for the
decision).
NWQ may determine not to vote proxies in respect of securities of any
issuer if it determines it would be in its clients' overall best interests not
to vote. NWQ may decline to vote proxies where the voting would in NWQ's
judgment result in some other financial, administrative, legal or regulatory
disability or burden to NWQ or the client (such as blocking subsequent purchases
or imputing control with respect to the issuer). To the extent that NWQ
receives proxies for securities that are transferred into a client's portfolio
that were not recommended or selected by NWQ and are sold or expected to be sold
promptly in an orderly manner ("legacy securities"), NWQ will generally refrain
from voting such proxies.
NWQ shall retain required records relating to the voting of proxies and
shall provide a client with information on how NWQ voted proxies on behalf of
the client as requested.
SC-R&M
SC-R&M may be granted by its clients the authority to vote the proxies of
the securities held in client portfolios. To ensure that the proxies are voted
in the best interests of its clients, SC-R&M has adopted detailed proxy voting
procedures ("Procedures") that incorporate detailed proxy guidelines
("Guidelines") for voting proxies on specific types of issues.
Pursuant to the Procedures, most routine proxy matters will be voted in
accordance with the Guidelines, which have been developed with the objective of
encouraging corporate action that enhances shareholder value. For proxy matters
that are not covered by the Guidelines (including matters that require a
case-by-case determination) or where a vote contrary to the Guidelines is
considered appropriate, the Procedures require a certification and review
process to be completed before the vote is cast. That process is designed to
identify actual or potential material conflicts of interest and ensure that the
proxy is cast in the best interest of clients.
To oversee and monitor the proxy-voting process, SC-R&M will establish a
proxy committee and appoint a proxy administrator. The proxy committee will meet
periodically to review general proxy-voting matters, review and approve the
Guidelines annually, and provide advice and recommendations on general
proxy-voting matters as well as on specific voting issues.
A copy of the SC-R&M's proxy voting procedures and guidelines are available
upon request by contacting your client service representative.
WELLINGTON
The registrant has granted to Wellington Management the authority to vote
proxies on its behalf with respect to the assets managed by Wellington
Management. Wellington Management votes proxies in what it believes are the
best economic interests of its clients and in accordance with its Proxy Policies
and Procedures. Wellington Management's Corporate Governance committee is
responsible for the review and oversight of the firm's Global Proxy Policies and
Procedures. The Corporate Governance Group within Wellington Management's
Corporate Operations Department is responsible for the day-to-day administration
of the proxy voting process. Although Wellington Management may utilize the
services of various external resources in analyzing proxy issues and has
established its own Proxy Guidelines setting forth general guidelines for voting
proxies, Wellington Management personnel analyze all proxies and vote proxies
based on their assessment of the merits of each proposal. Each Fund's portfolio
manager has the authority to determine the final vote for securities held in the
Fund, unless the portfolio manager is determined to have a material conflict of
interest related to that proxy vote.
Wellington Management maintains procedures designed to identify and address
material conflicts of interest in voting proxies. Its Corporate Governance
Committee sets standards for identifying materials conflicts based on client,
vendor and lender relationships. Proxy votes for which Wellington Management
identifies a material conflict are reviewed by designated members of its
Corporate Governance Committee or by the entire committee in some cases to
resolve the conflict and direct the vote.
Wellington Management may be unable to vote or may determine not to vote a
proxy on behalf of a Fund due to securities lending, share blocking and
re-registration requirements, lack of adequate information, untimely receipt of
proxy materials, immaterial impact of the vote, and/or excessive costs.
SYMPHONY
Symphony uses the proxy voting services of Institutional Shareholder
Services ("ISS"). The ISS Proxy Voting Services provide Symphony and its
clients with an independent source of proxy voting research and services. The
use of ISS is designed to offer client-centered proxy voting which minimizes
conflicts of interests between Symphony's interests and those of its clients.
In order to monitor how ISS votes client proxies, Symphony has established
a Proxy Voting Review Committee (the "Committee"). The Committee is composed of
Symphony's Chief Operating Officer and its Chief Investment Officer. Each year,
the Committee reviews ISS proxy voting policies and practices to determine
whether such policies and practices are consistent with Symphony's fiduciary
duty to the clients for whom Symphony is responsible for voting proxies. During
the year, the Committee review how ISS votes on specific issues. From time to
time, the Committee discusses the proxy voting process with representatives of
ISS in order to ensure that Symphony's client interests are being protected.
When Symphony disagrees with ISS' policies with respect to certain issues,
Symphony will direct the voting of its clients' proxies according to what
Symphony believes is the best interests of its clients.
Clients who have questions about how particular proxies are voted for their
account may request such information from Symphony by calling (415) 676-4000.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The Adviser has engaged Security Capital Research & Management Incorporated
("SC-R&M") for a portion of the registrant's equity investments, Wellington
Management Company, LLP ("Wellington Management") for a portion of the
registrant's debt investments, Symphony Asset Management, LLC ("Symphony") for
an additional portion of the registrant's debt investments and NWQ Investment
Company, LLC ("NWQ") for an additional portion of the registrant's equity
investments, (SC-R&M, Wellington, Symphony and NWQ are also collectively
referred to as "Sub-Advisers") as Sub-Advisers to provide discretionary
investment advisory services. The following section provides information on the
portfolio managers at each Sub-Adviser:
SECURITY CAPITAL RESEARCH & MANAGEMENT INCORPORATED
ITEM 8 (a)(1). PORTFOLIO MANAGEMENT TEAM
ANTHONY R. MANNO JR. is CEO, President and Chief Investment Officer of Security
Capital Research & Management Incorporated. He is Chairman, President and
Managing Director of SC-Preferred Growth Incorporated. Prior to joining Security
Capital in 1994, Mr. Manno spent 14 years with LaSalle Partners Limited as a
Managing Director, responsible for real estate investment banking activities.
Mr. Manno began his career in real estate finance at The First National Bank of
Chicago and has 31 years of experience in the real estate investment business.
He received an MBA in Finance with honors (Beta Gamma Sigma) from the University
of Chicago and graduated Phi Beta Kappa from Northwestern University with a BA
and MA in Economics. Mr. Manno is also a Certified Public Accountant and was
awarded an Elijah Watt Sells award.
KENNETH D. STATZ is a Managing Director and Senior Market Strategist of Security
Capital Research & Management Incorporated where he is responsible for the
development and implementation of portfolio investment strategy. Prior to
joining Security Capital in 1995, Mr. Statz was a Vice President in the
Investment Research Department of Goldman, Sachs & Co., concentrating on
research and underwriting for the REIT industry. Previously, he was a REIT
Portfolio Manager and a Managing Director of Chancellor Capital Management. Mr.
Statz has 23 years of experience in the real estate securities industry and
received an MBA and a BBA in Finance from the University of Wisconsin.
KEVIN W. BEDELL is a Managing Director of Security Capital Research & Management
Incorporated where he directs the Investment Analysis Team, which provides
in-depth proprietary research on publicly listed companies. Prior to joining
Security Capital in 1996, Mr. Bedell spent nine years with LaSalle Partners
Limited where he was Equity Vice President and Portfolio Manager, with
responsibility for strategic, operational and financial management of a private
real estate investment trust with commercial real estate investments in excess
of $1 billion. Mr. Bedell has 18 years of experience in the real estate
securities industry and received an MBA in Finance from the University of
Chicago and a BA from Kenyon College.
DAVID E. ROSENBAUM is a Managing Director of Security Capital Research &
Management Incorporated where he leads the Investment Structuring Team. He is
also Managing Director of SC-Preferred Growth Incorporated. Prior to joining
Security Capital in 1997, Mr. Rosenbaum was a Vice President at Lazard Freres &
Co., LLC, where he structured investments in real estate operating companies.
Previously, he was an Associate in the New York and Chicago offices of Lazard
Freres & Co. LLC, where he executed merger and acquisition transactions for real
estate and hotel companies. Mr. Rosenbaum has 14 years of experience in the real
estate securities industry and holds a BA from Yale University.
ITEM 8 (a)(2). OTHER ACCOUNTS MANAGED BY SECURITY CAPITAL RESEARCH & MANAGEMENT
INCORPORATED
- -----------------------------------------------------------------------------------------
Nuveen Real Estate Income Fund and Nuveen Diversified Dividend and Income Fund ("Funds")
Security Capital Research & Management Incorporated ("Adviser")
- -----------------------------------------------------------------------------------------
(a)(1) Identify
portfolio manager(s) (a)(2) For each person identified in column (a)(1), provide
of the Adviser to be number of accounts other than the Funds managed by the
named in the Fund person within each category below and the total assets in
prospectus the accounts managed within each category below
- --------------------------------------------------------------------------------------------
Registered Other Pooled
Investment Investment Other
Companies Vehicles Accounts
- --------------------------------------------------------------------------------------------
Number Total Number Total Number Total
of Assets of Assets of Assets
Accounts ($billions) Accounts ($billions) Accounts ($billions)
- --------------------------------------------------------------------------------------------
Anthony R. Manno Jr. 4 $1.2 1 $1.5 534 $2.3
- --------------------------------------------------------------------------------------------
Kenneth D. Statz 4 $1.2 1 $1.5 534 $2.3
- --------------------------------------------------------------------------------------------
Kevin W. Bedell 4 $1.2 1 $1.5 534 $2.3
- --------------------------------------------------------------------------------------------
David E. Rosenbaum 4 $1.2 1 $1.5 534 $2.3
- --------------------------------------------------------------------------------------------
<Caption>
(a)(3) PERFORMANCE FEE ACCOUNTS. For each of the
categories in column (a)(2), provide number of
accounts and the total assets in the accounts with
respect to which the ADVISORY FEE IS BASED ON THE
PERFORMANCE OF THE ACCOUNT
- -------------------------------------------------------------------------------------------------------------
Other
Registered Pooled
Investment Investment Other
Companies Vehicles Accounts
- -------------------------------------------------------------------------------------------------------------
Number Number Number
of Total of Total of Total Assets
Accounts Assets Accounts Assets Accounts ($billions)
- -------------------------------------------------------------------------------------------------------------
Anthony R. Manno Jr. - - - - 3 $0.3
- -------------------------------------------------------------------------------------------------------------
Kenneth D. Statz - - - - 3 $0.3
- -------------------------------------------------------------------------------------------------------------
Kevin W. Bedell - - - - 3 $0.3
- -------------------------------------------------------------------------------------------------------------
David E. Rosenbaum - - - - 3 $0.3
- -------------------------------------------------------------------------------------------------------------
POTENTIAL MATERIAL CONFLICTS OF INTEREST
As shown in the above tables, the portfolio managers may manage accounts in
addition to the Nuveen Funds (the "Funds"). The potential for conflicts of
interest exists when portfolio managers manage other accounts with similar
investment objectives and strategies as the Funds ("Similar Accounts").
Potential conflicts may include, for example, conflicts between investment
strategies and conflicts in the allocation of investment opportunities.
Responsibility for managing SC-R&M's clients' portfolios is organized according
to investment strategies within asset classes. Generally, client portfolios with
similar strategies are managed using the same objectives, approach and
philosophy. Therefore, portfolio holdings, relative position sizes and sector
exposures tend to be similar across similar portfolios, which minimizes the
potential for conflicts of interest.
SC-R&M may receive more compensation with respect to certain Similar Accounts
than that received with respect to the Nuveen Funds or may receive compensation
based in part on the performance of certain Similar Accounts. This may create a
potential conflict of interest for SC-R&M or its portfolio managers by providing
an incentive to favor these Similar Accounts when, for example, placing
securities transactions. Potential conflicts of interest may arise with both the
aggregation and allocation of securities transactions and allocation of limited
investment opportunities. Allocations of aggregated trades, particularly trade
orders that were only partially completed due to limited availability, and
allocation of investment opportunities generally, could raise a potential
conflict of interest, as SC-R&M may have an incentive to allocate securities
that are expected to increase in value to favored accounts. Initial public
offerings, in particular, are frequently of very limited availability. SC-R&M
may be perceived as causing accounts it manages to participate in an offering to
increase SC-R&M's overall allocation of securities in that offering. A potential
conflict of interest also may be perceived to arise if transactions in one
account closely follow related transactions in a different account, such as when
a purchase increases the value of securities previously purchased by another
account, or when a sale in one account lowers the sale price received in a sale
by a second account. If SC-R&M manages accounts that engage in short sales of
securities of the type in which the Funds invests, SC-R&M could be seen as
harming the performance of the Funds for the benefit of the accounts engaging in
short sales if the short sales cause the market value of the securities to fall.
SC-R&M has policies and procedures designed to manage these conflicts described
above such as allocation of investment opportunities to achieve fair and
equitable allocation of investment opportunities among its clients over time.
For example:
Orders for the same equity security are aggregated on a continual basis
throughout each trading day consistent with SC-R&M's duty of best execution for
its clients. If aggregated trades are fully executed, accounts participating in
the trade will be allocated their pro rata share on an average price basis.
Partially completed orders will be allocated among the participating accounts on
a pro-rata average price basis as well.
ITEM 8 (a)(3). FUND MANAGER COMPENSATION
The Portfolio Managers participate in a highly competitive compensation program
that is designed to attract and retain outstanding people. The total
compensation program includes base salary and cash incentives. These elements
reflect individual performance and the performance of the business as a whole.
Base salaries are fixed for each Portfolio Manager. Cash bonuses are variable
and are focused extensively on the profitability of the business as a whole as
well as portfolio investment performance. Base salaries are not based on the
performance of any account. Cash bonuses are based on the profitability of the
business as a whole as well as the investment performance of all accounts
managed by the Portfolio Manager. Portfolio Manager compensation is not based on
the value of assets held in the Fund's portfolio.
ITEM 8 (a)(4).
OWNERSHIP OF JDD SECURITIES AS DECEMBER 31, 2006.
- -----------------------------------------------------------------------------------------------------------------------------------
$10,001- $50,001- $100,001- $500,001 - OVER
Portfolio Manager None $1-$10,000 $50,000 $100,000 $500,000 $1,000,000 $1,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Anthony R. Manno, Jr. X
- -----------------------------------------------------------------------------------------------------------------------------------
Kenneth D. Statz X
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin W. Bedell X
- -----------------------------------------------------------------------------------------------------------------------------------
David E. Rosenbaum X
- -----------------------------------------------------------------------------------------------------------------------------------
WELLINGTON MANAGEMENT COMPANY, LLP
Item 8 (a)(1). PORTFOLIO MANAGER BIOGRAPHY:
JAMES W. VALONE, Senior Vice President and Fixed Income Portfolio Manager of
Wellington Management, has served as Portfolio Manager of the Fund since 2003.
Mr. Valone joined Wellington Management as an investment professional in 1999.
Item 8 (a)(2). Other Accounts Managed
<Table>
<Caption>
- -----------------------------------------------------------------------------------------
(a)(1) Identify (a)(2) For each person identified in column (a)(1), provide
portfolio manager(s) number of accounts other than the Funds managed by the
of the Adviser to be person within each category below and the total assets in
named in the Fund the accounts managed within each category below
prospectus
- -----------------------------------------------------------------------------------------
Registered Other Pooled
Investment Investment Other
Companies Vehicles Accounts
- -----------------------------------------------------------------------------------------
Number Number Total Number Total
of Total of Assets of Assets
Accounts Assets Accounts ($millions) Accounts ($millions)
- -----------------------------------------------------------------------------------------
James W. Valone 1 $872,534 19 $3,012 11 $496,921
- -----------------------------------------------------------------------------------------
<Caption>
(a)(3) PERFORMANCE FEE ACCOUNTS. For each of the
categories in column (a)(2), provide number of
accounts and the total assets in the accounts with
respect to which the ADVISORY FEE IS BASED ON THE
PERFORMANCE OF THE ACCOUNT
- ---------------------------------------------------------------------------------------
Other
Registered Pooled
Investment Investment Other
Companies Vehicles Accounts
- ---------------------------------------------------------------------------------------
Number Number Total Number
of Total of Assets of Total Assets
Accounts Assets Accounts ($millions) Accounts ($millions)
- ---------------------------------------------------------------------------------------
James W. Valone - - 5 $260,724 1 $105.791
- ---------------------------------------------------------------------------------------
POTENTIAL MATERIAL CONFLICTS OF INTEREST
Individual investment professionals at Wellington Management manage multiple
portfolios for multiple clients. These accounts may include mutual funds,
separate accounts (assets managed on behalf of institutions such as pension
funds, insurance companies, foundations, or separately managed account programs
sponsored by financial intermediaries), bank common trust accounts, and hedge
funds. The investment professional primarily responsible for the day-to-day
management of the Fund ("Portfolio Manager") generally manages portfolios in
several different investment styles. These portfolios may have investment
objectives, strategies, time horizons, tax considerations and risk profiles that
differ from those of the Fund. The Portfolio Manager makes investment decisions
for each portfolio, including the Fund, based on the investment objectives,
policies, practices, benchmarks, cash flows, tax and other relevant investment
considerations applicable to that portfolio. Consequently, the Portfolio Manager
may purchase or sell securities, including IPOs, for one portfolio and not
another portfolio, and the performance of securities purchased for one portfolio
may vary from the performance of securities purchased for other portfolios.
Alternatively, these accounts may be managed in a similar fashion to the Fund
and thus the accounts may have similar, and in some cases nearly identical,
objectives, strategies and/or holdings to that of the Fund.
The Portfolio Manager or other investment professionals at Wellington Management
may place transactions on behalf of other accounts that are directly or
indirectly contrary to investment decisions made on behalf of the Fund, or make
investment decisions that are similar to those made for the Fund, both of which
have the potential to adversely impact the Fund depending on market conditions.
For example, an investment professional may purchase a security in one portfolio
while appropriately selling that same security in another portfolio. Similarly,
the Portfolio Manager may purchase the same security for the Fund and one or
more other accounts at or about the same time, and in those instances the other
accounts will have access to their respective holdings prior to the public
disclosure of the Fund's holdings. In addition, some of these portfolios have
fee structures, including performance fees that are or have the potential to be
higher, in some cases significantly higher, than the fees paid by the Fund to
Wellington Management. The Portfolio Manager also manages a hedge fund, which
pays performance allocations to Wellington Management or its affiliates. Because
incentive payments paid by Wellington Management to the Portfolio Manager are
tied to revenues earned by Wellington Management and, where noted, to the
performance achieved by the manager in each account, the incentives associated
with any given portfolio may be significantly higher or lower than those
associated with other accounts managed by a given investment professional.
Finally, the Portfolio Manager may hold shares or investments in the other
pooled investment vehicles and/or other accounts identified above.
Wellington Management's goal is to meet its fiduciary obligation to treat all
clients fairly and provide high quality investment services to all of its
clients. Wellington Management has adopted and implemented policies and
procedures, including brokerage and trade allocation policies and procedures
that it believes address the conflicts associated with managing multiple
accounts for multiple clients. In addition, Wellington Management monitors a
variety of areas, including compliance with primary Fund guidelines, the
allocation of IPOs, and compliance with the firm's Code of Ethics, and places
additional investment restrictions on investment professionals who manage hedge
funds and certain other accounts. Furthermore, senior investment and business
personnel at Wellington Management periodically review the performance of
Wellington Management's Portfolio Managers. Although Wellington Management does
not track the time a Portfolio Manager spends on a single portfolio, Wellington
Management does periodically assess whether a Portfolio Manager has adequate
time and resources to effectively manage the Portfolio Manager's various client
mandates.
ITEM 8 (a)(3). Fund Manager Compensation
The Fund pays Wellington Management a fee based on the assets under management
of the Fund as set forth in an Investment Sub-Advisory Agreement between
Wellington Management and Nuveen Asset Management with respect to the Fund.
Wellington Management pays its investment professionals out of its total
revenues and other resources, including the advisory fees earned with respect to
the Fund. The following information relates to the fiscal year ended December
31, 2006.
Wellington Management's compensation structure is designed to attract and retain
high-caliber investment professionals necessary to deliver high quality
investment management services to its clients. Wellington Management's
compensation of the Portfolio Manager includes a base salary and incentive
components. The base salary for the Portfolio Manager, a partner of Wellington
Management, is determined by the Managing Partners of the firm. The Portfolio
Manager's base salary is generally a fixed amount that may change as a result of
an annual review. The Portfolio Manager is eligible to receive an incentive
payment based on the revenues earned by Wellington Management from the Fund and
generally each other portfolio managed by such Portfolio Manager. The Portfolio
Manager's incentive payments are based solely on the revenues earned by
Wellington Management and are not directly linked to the performance of the
account. Wellington Management applies similar incentive structures to other
similar portfolios managed by the Portfolio Manager. Portfolio-based incentives
across all portfolios managed by a portfolio manager can, and typically do,
represent a significant portion of a portfolio manager's overall compensation;
incentive compensation varies significantly by individual and can vary
significantly from year to year. The Portfolio Manager may also be eligible for
bonus payments based on his overall contribution to Wellington Management's
business operations. Senior management at Wellington Management may reward
individuals as it deems appropriate based on factors other than portfolio
performance. Each partner of Wellington Management is eligible to participate in
partner-funded tax qualified retirement plan, the contributions to which are
made pursuant to an actuarial formula, as a partner of the firm.
ITEM 8 (a)(4). OWNERSHIP OF JDD SECURITIES AS OF DECEMBER 31, 2006.
- ------------------------------------------------------------------------------------------------------
NAME OF
PORTFOLIO $1- $10,001- $50,001- $100,001- $500,001- OVER
MANAGER NONE $10,000 $50,000 $100,000 $500,000 $1,000,000 $1,000,000
- -------------------------------------------------------------------------------------------------------
James W. Valone X
- -------------------------------------------------------------------------------------------------------
SYMPHONY
Item 8 (a)(1). PORTFOLIO MANAGER BIOGRAPHIES:
GUNTHER STEIN, Director of Fixed Income Strategies, Portfolio Manager
Gunther Stein is the lead portfolio manager for High Yield strategies at
Symphony and is the lead portfolio manager of Symphony's senior loan asset
management team. Prior to joining Symphony in 1999, Stein was a high yield
portfolio manager at Wells Fargo Bank, where he was responsible for investing in
public high yield bonds and bank loans and also managed a team of credit
analysts. Stein joined Wells Fargo in 1993 as an Associate in its Loan
Syndications/Leveraged Finance Group. Previously, Stein worked for four years as
a euro-currency deposit trader with First Interstate Bank. He has also worked
for Standard Chartered Bank, Mexico City and Citibank Investment Bank, London.
He completed Wells Fargo's Credit Management Training program and holds an
M.B.A. from the University of Texas, Austin. He graduated from the University of
California at Berkeley with a B.A. in Economics.
LENNY MASON, Fixed-Income Portfolio Manager
Lenny Mason is a Fixed-Income Portfolio Manager for Symphony Asset Management
LLC. His responsibilities include portfolio management for Symphony's high yield
and bank loan strategies and credit research for its fixed income strategies.
Prior to joining Symphony in 2001, Lenny was a Managing Director in
FleetBoston's Technology & Communications Group where he headed its five-member
Structuring and Advisory Team. He joined FleetBoston in 1995 as an Assistant
Vice President in its Media & Communications Group. Before joining Fleet, Lenny
worked for Wells Fargo Bank's Corporate Banking Group dealing primarily with
leveraged transactions and for Coopers & Lybrand as an auditor. Lenny has an MBA
in Finance from the University of Chicago, a BS in Accounting from Babson
College. Lenny is a Certified Public Accountant.
Item 8 (a)(2). Other Accounts Managed
Gunther Stein Lenny Mason
(a) RICs
Number of accts 7 7
Assets ($000s) $ 1,420 $ 1,420
(b) Other pooled accts
Non-performance fee accts
Number of accts 3 3
Assets ($000s) $ 432 $ 432
Performance fee accts
Number of accts 8 2
Assets ($000s) $ 1,175 $ 66
(c) Other
Non-performance fee accts
Number of accts 2 1
Assets ($000s) $ 30 $ 37
Performance fee accts
Number of accts 2 --
Assets ($000s) $ 295.3 $ --
Dollar amounts are in millions
POTENTIAL MATERIAL CONFLICTS OF INTEREST
As described above, the portfolio manager may manage other accounts with
investment strategies similar to the Fund, including other investment companies
and separately managed accounts. Fees earned by the sub-advisers may vary among
these accounts and the portfolio managers may personally invest in some but not
all of these accounts. In addition, certain accounts may be subject to
performance-based fees. These factors could create conflicts of interest because
a portfolio manager may have incentives to favor certain accounts over others,
resulting in other accounts outperforming the Fund. A conflict may also exist if
a portfolio manager identified a limited investment opportunity that may be
appropriate for more than one account, but the Fund is not able to take full
advantage of that opportunity due to the need to allocate that opportunity among
multiple accounts. In addition, the portfolio manger may execute transactions
for another account that may adversely impact the value of securities held by
the Fund. However, the sub-advisers believe that these risks are mitigated by
the fact that accounts with like investment strategies managed by a particular
portfolio manager are generally managed in a similar fashion, subject to
exceptions to account for particular investment restrictions or policies
applicable only to certain accounts, differences in cash flows and account
sizes, and other factors. In addition, each sub-adviser has adopted trade
allocation procedures that require equitable allocation of trade orders for a
particular security among participating accounts.
ITEM 8 (a)(3). Fund Manager Compensation
Symphony investment professionals receive competitive base salaries and
participate in a bonus pool which is tied directly to the firm's operating
income with a disproportionate amount paid to the managers responsible for
generating the alpha. The bonus paid to investment personnel is based on acumen,
overall contribution and strategy performance. However, there is no fixed
formula which guides bonus allocations. Bonuses are paid on an annual basis. In
addition, investment professionals may participate in an equity-based
compensation pool.
ITEM 8 (a)(4). OWNERSHIP OF JDD SECURITIES AS OF DECEMBER 31, 2006.
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------
NAME OF
PORTFOLIO $1- $10,001- $50,001- $100,001- $500,001- OVER
MANAGER NONE $10,000 $50,000 $100,000 $500,000 $1,000,000 $1,000,000
- -------------------------------------------------------------------------------------------------------
Gunther Stein X
- -------------------------------------------------------------------------------------------------------
Lenny Mason X
- -------------------------------------------------------------------------------------------------------
NWQ
Item 8 (a)(1). PORTFOLIO MANAGER BIOGRAPHY:
JON D. BOSSE, CFA, Chief Investment Officer and Portfolio Manager
Jon Bosse is Chief Investment Officer of NWQ, co-president of NWQ (since June
2006) and has been a Managing Director of NWQ since 1996.
Item 8 (a)(2). Other Accounts Managed
<Table>
<Caption>
Jon Bosse
(a) RICs
Number of accts 6
Assets ($000s) $ 1,960,519
(b) Other pooled accts
Non-performance fee accts
Number of accts 9
Assets ($000s) $ 1,305,694
(c) Other
Non-performance fee accts
Number of accts 49,880
Assets ($000s) $28,768,533
Performance fee accts
Number of accts 7
Assets ($000s) $ 376,290
POTENTIAL MATERIAL CONFLICTS OF INTEREST
Actual or apparent conflicts of interest may arise when a portfolio manager has
day-to-day management responsibilities with respect to more than one account.
More specifically, portfolio managers who manage multiple accounts are presented
with the following potential conflicts:
- The management of multiple accounts may result in a portfolio
manager devoting unequal time and attention to the management of
each account. NWQ seeks to manage such competing interests for
the time and attention of portfolio managers by having portfolio
managers focus on a particular investment discipline. Most
accounts managed by a portfolio manager in a particular
investment strategy are managed using the same investment models.
- If a portfolio manager identifies a limited investment
opportunity which may be suitable for more than one account, an
account may not be able to take full advantage of that
opportunity due to an allocation of filled purchase or sale
orders across all eligible accounts. To deal with these
situations, NWQ has adopted procedures for allocating portfolio
transactions across multiple accounts.
- With respect to many of its clients' accounts, NWQ determines
which broker to use to execute transaction orders, consistent
with its duty to seek best execution of the transaction. However,
with respect to certain other accounts, NWQ may be limited by the
client with respect to the selection of brokers or may be
instructed to direct trades through a particular broker. In these
cases, NWQ may place separate, non-simultaneous, transactions for
a Fund and other accounts which may temporarily affect the market
price of the security or the execution of the transactions, or
both, to the detriment of the Fund or the other accounts.
- The Fund is subject to different regulation than other pooled
investment vehicles and other accounts managed by the portfolio
managers. As a consequence of this difference in regulatory
requirements, the Fund may not be permitted to engage in all the
investment techniques or transactions or to engage in these
transactions to the same extent as the other accounts managed by
the portfolio managers. Finally, the appearance of a conflict of
interest may arise where NWQ has an incentive, such as a
performance-based management fee, which relates to the management
of some accounts, with respect to which a portfolio manager has
day-to-day management responsibilities.
NWQ has adopted certain compliance procedures which are designed to address
these types of conflicts common among investment managers. However, there is no
guarantee that such procedures will detect each and every situation in which a
conflict arises.
ITEM 8 (a)(3). Fund Manager Compensation
NWQ's portfolio managers participate in a highly competitive compensation
structure with the purpose of attracting and retaining the most talented
investment professionals and rewarding them through a total compensation program
as determined by the firm's executive committee. The total compensation program
consists of both a base salary and an annual bonus that can be a multiple of the
base salary. The portfolio manager's performance is formally evaluated annually
and based on a variety of factors. Bonus compensation is primarily a function of
the firm's overall annual profitability and the individual portfolio manager's
contribution as measured by the overall investment performance of client
portfolios in the strategy they manage relative to the strategy's general
benchmark for one, three and five year periods (as applicable), as well as an
objective review of stock recommendations and the quality of primary research,
and subjective review of the professional's contributions to portfolio strategy,
teamwork, collaboration and work ethic.
The total compensation package includes availability of equity-like incentive
for purchase (whose value is determined by the increase in profitability of NWQ
over time) made to most investment professionals. Additionally, the portfolio
managers have been provided compensation in conjunction with signing long-term
employment agreements. NWQ is a subsidiary of Nuveen Investments, Inc., which
has augmented this incentive compensation annually through individual awards of
a stock option pool, as determined through a collaborative process between
Nuveen Investments and the NWQ executive committee.
ITEM 8 (a)(4). OWNERSHIP OF JDD SECURITIES AS OF DECEMBER 31, 2006.
- ------------------------------------------------------------------------------------------------------
NAME OF
PORTFOLIO $1- $10,001- $50,001- $100,001- $500,001- OVER
MANAGER NONE $10,000 $50,000 $100,000 $500,000 $1,000,000 $1,000,000
- ------------------------------------------------------------------------------------------------------
Jon Bosse X
- ------------------------------------------------------------------------------------------------------
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board implemented after the registrant
last provided disclosure in response to this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of this report that
includes the disclosure required by this paragraph, based on their
evaluation of the controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because the code is posted on registrant's website at www.nuveen.com/etf and
there were no amendments during the period covered by this report. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then Code of Conduct.)
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
Attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Diversified Dividend and Income Fund
-------------------------------------------------------
By (Signature and Title)* /s/ Jessica R. Droeger
------------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: March 9, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: March 9, 2007
By (Signature and Title)* /s/ Stephen D. Foy
------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: March 9, 2007
* Print the name and title of each signing officer under his or her signature.