UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21708
Name of Fund: Dow 30(SM) Premium & Dividend Income Fund Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Mitchell M. Cox, Chief Executive Officer,
Dow 30(SM) Premium & Dividend Income Fund Inc., 800 Scudders Mill Road,
Plainsboro, NJ 08536. Mailing address: P.O. Box 9011, Princeton, NJ
08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 12/31/05
Date of reporting period: 01/01/05 - 06/30/05
Item 1 - Report to Stockholders
Dow 30(SM) Premium &
Dividend Income Fund Inc.
Semi-Annual Report
June 30, 2005
Dow 30(SM) Premium & Dividend Income Fund Inc.
Portfolio Information as of June 30, 2005
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Caterpillar, Inc. ................................................... 7.1%
International Business Machines Corp. ............................... 5.5
3M Co. .............................................................. 5.4
Boeing Co. .......................................................... 4.9
Johnson & Johnson ................................................... 4.8
Altria Group, Inc. .................................................. 4.8
American International Group, Inc. .................................. 4.3
Exxon Mobil Corp. ................................................... 4.3
American Express Co. ................................................ 4.0
Procter & Gamble Co. ................................................ 3.9
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries* Net Assets
- --------------------------------------------------------------------------------
Aerospace & Defense ................................................. 11.5%
Pharmaceuticals ..................................................... 9.2
Industrial Conglomerates ............................................ 8.0
Computers & Peripherals ............................................. 7.3
Machinery ........................................................... 7.1
- --------------------------------------------------------------------------------
Percent of
Sector* Representation Total Investments
- --------------------------------------------------------------------------------
Industrials ......................................................... 26.5%
Consumer Staples .................................................... 15.4
Financials .......................................................... 14.4
Information Technology .............................................. 11.1
Consumer Discretionary .............................................. 9.4
Health Care ......................................................... 9.2
Materials ........................................................... 5.1
Telecommunication Services .......................................... 4.3
Energy .............................................................. 4.3
Other** ............................................................. 0.3
- --------------------------------------------------------------------------------
* For Fund compliance purposes ,"Industries" and "Sector" mean any one or
more of the industry and sector sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine such industry and sector
sub-classifications for reporting ease.
** Includes portfolio holdings in short-term investments and options.
"Dow Jones Industrial Average(SM)", "DJIA(SM)", "Dow 30(SM)", "Dow
Industrials(SM)" and "The Dow(SM)" are service marks of Dow Jones & Company,
Inc. and have been licensed for use for certain purposes by IQ Investment
Advisors LLC. The Fund is not sponsored, endorsed, sold or promoted by Dow
Jones, and Dow Jones makes no representation regarding the advisability of
investing in the Fund.
2 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005
A Letter From the President
Dear Shareholder
As you know, the investment objective of the Dow 30(SM) Premium & Dividend
Income Fund Inc. (the "Fund") is to provide a high level of current income, with
a secondary objective of capital appreciation.
The total return of the Dow Jones Industrial Average(SM) Index (the "Dow 30(SM)
Index") was +1.22% from the inception of the Fund (April 29, 2005) through June
30, 2005. Over the same period, the Fund returned +.84% (as measured by the
change in per share net asset value plus dividend reinvestment).
The Fund's performance over this period is consistent with our expectations. To
seek to achieve its investment objective, the Fund owns a Dow 30(SM) portfolio,
and writes (sells) call options on some or all of the Fund's assets. Because the
performance of the Dow 30(SM) Index was relatively moderate over the period, the
premium that the Fund received added incrementally to the positive performance
of the underlying stocks.
The Fund declared and paid its first monthly dividend in June ($.15 per share).
IQ Investment Advisors continues to take a non-traditional approach to asset
management by seeking to identify specific economic or strategic investment
themes that aim to fulfill particular investor needs. We encourage you to
revisit your portfolio and your asset allocation strategy to ensure you are well
positioned to take advantage of the opportunities that lie ahead during the
second half of 2005. We thank you for trusting IQ Investment Advisors with your
investment assets, and we look forward to serving you in the months and years
ahead.
Sincerely,
/s/ Mitchell M. Cox
Mitchell M. Cox
President, IQ Investment Advisors LLC
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005 3
A Discussion With Your Fund's Portfolio Manager
We are pleased to provide you with this first shareholder report for Dow
30(SM) Premium and Dividend Income Fund Inc. (the "Fund"), a newly organized
closed-end investment company. While the Fund is advised by IQ Investment
Advisors LLC (the "Adviser"), the following discussion is provided to you by
Nuveen Asset Management, the Fund's subadviser.
How has the Fund performed since its inception?
Since inception (April 29, 2005) through June 30, 2005, the Common Stock of the
Fund had a total investment return of +.84%, based on a change in net asset
value from $19.10 to $19.11, and assuming reinvestment of all distributions in
additional shares of the Fund. For comparison purposes, the Dow Jones Industrial
Average (DJIA) had a total return of +1.22% for the same period. The portfolio
continues to meet its goal of providing a high dividend yield plus the potential
for capital appreciation. The Fund's first dividend was paid on June 27, 2005,
with an indicative annualized dividend yield of 9.00%, based on the initial
offering price of $20 per share.
For a description of the Fund's total investment return based on a change in per
share market value of the Fund's Common Stock (as measured by the trading price
of the Fund's shares on the NYSE), and assuming reinvestment of dividends,
please refer to the Financial Highlights section of this report. As a closed-end
fund, the Fund's shares may trade in the secondary market at a premium or a
discount to the Fund's net asset value. As a result, total investment returns
based on changes in the market value of the Fund's Common Stock can vary
significantly from total investment returns based on changes in the Fund's net
asset value.
Describe the market environment during the reporting period.
After a moderate decline in the major stock indexes during the first quarter,
stocks rebounded during the second quarter recouping the majority of the first
quarter losses. During the life of the Fund, April 29th through June 30th, the
total returns of the S&P 500 Index and the DJIA were +3.33% and +1.22%,
respectively.
Equity returns were buoyed by positive earnings announcements during the second
quarter. Year-over-year first quarter earnings for the broader markets as
measured by the S&P 500 Index were up 14.43%. Of 497 companies reporting, 324
posted earnings in excess of analysts' concensus expectations versus 105
reporting earnings below analysts' concensus expectations.
In addition to positive earnings surprises, the macro economic background for
equities continued to be favorable. Gross domestic product (GDP) growth for the
second quarter is widely expected to be above 3.5%, inflation continues to be
well contained, and 10-year Treasury yields are low and supportive at a
quarter-end rate of 3.92%. Long Treasury rates actually declined during the
second quarter, even as the Federal Reserve Board raised its short-term target
rate by 25 basis points to 3.25% at the June 30 meeting.
How have you managed the portfolio since its inception?
As this was the first quarter of the Fund's existence, the sub-adviser actively
invested the portfolio and structured the Fund's overwritten position through
the first ten days of May. Investment activity focused on replicating the
underlying DJIA index and selling at-the-money call options on each of the
stocks in the Fund's portfolio. Approximately 50% of the Fund's portfolio is
overwritten through these call options. The option premium received for selling
the calls was in line with expectations.
How would you characterize the portfolio's position at the close of the period?
Given the economic back drop of modest GDP growth, low inflation, low Treasury
rates, and good earnings growth, the subadviser believes that the portfolio is
well positioned to meet its stated objectives of high current income and capital
appreciation.
4 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005
How does St. Paul Travelers' sale of its stake in Nuveen Investments affect me
as a stockholder?
Pursuant to an investment management agreement between the Fund and the Adviser,
the Adviser has served as the Fund's investment adviser and has been responsible
for the overall investment strategy of the Fund. As the investment adviser of
your Fund, IQ Investment Advisors entered into an investment subadvisory
agreement (the "Original Subadvisory Agreement") for the Fund pursuant to which
Nuveen Asset Management ("NAM") was retained to furnish investment advisory
services to the Fund. NAM is a wholly-owned subsidiary of Nuveen Investments,
Inc. ("Nuveen"). Nuveen is a publicly traded company and was until recently a
majority-owned subsidiary of The St. Paul Travelers Companies, Inc. ("St.
Paul"). St. Paul previously announced a three-part program to sell its interest
in Nuveen to the public in a registered, broadly disseminated offering (the
"Sale").
In anticipation of the Sale, the Board of Directors met in person on April 20,
2005 for purposes of, among other things, considering whether it would be in the
best interest of the Fund and its stockholders to approve a new subadvisory
agreement between the Adviser and the Subadviser (the "New Subadvisory
Agreement" and together with the Original Subadvisory Agreement, the
"Subadvisory Agreements") to take effect upon the termination of the Original
Subadvisory Agreement. On July 28, 2005, the three-part program that comprises
the Sale was completed and the Original Subadvisory agreement between NAM and IQ
was terminated by operation of law and the New Subadvisory Agreement went into
effect.
Your investment in the Fund will not change as a result of the Sale. You will
still own the same shares in the Fund, and the value of your investment will not
change as a direct result of the Sale. The portfolio manager and other members
of the Fund's investment team at NAM will not change and the terms of the New
SubAdvisory Agreement will be identical to the terms of the original
subadvisory agreement but for effective and termination dates. In addition, it
is not anticipated that the Sale will have any effect on the personnel advising
the Fund.
Rob A. Guttschow
Portfolio Manager
July 29, 2005
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005 5
Schedule of Investments
Shares
Industry* Common Stocks Held Value
===================================================================================
Aerospace & Defense--11.5%
Boeing Co. 160,803 $ 10,612,998
Honeywell International, Inc. 160,803 5,890,214
United Technologies Corp. 160,803 8,257,234
------------
24,760,446
- -----------------------------------------------------------------------------------
Automobiles--2.5%
General Motors Corp. 160,803 5,467,302
- -----------------------------------------------------------------------------------
Beverages--3.1%
The Coca-Cola Co. 160,803 6,713,525
- -----------------------------------------------------------------------------------
Chemicals--3.2%
E.I. du Pont de Nemours & Co. 160,803 6,916,137
- -----------------------------------------------------------------------------------
Computers & Peripherals--7.3%
Hewlett-Packard Co. 160,803 3,780,479
International Business Machines Corp. 160,803 11,931,583
------------
15,712,062
- -----------------------------------------------------------------------------------
Consumer Finance--4.0%
American Express Co. 160,803 8,559,544
- -----------------------------------------------------------------------------------
Diversified Financial Services--6.1%
Citigroup, Inc. 160,803 7,433,923
JPMorgan Chase & Co. 160,803 5,679,562
------------
13,113,485
- -----------------------------------------------------------------------------------
Diversified Telecommunication Services--4.4%
SBC Communications, Inc. 160,803 3,819,071
Verizon Communications, Inc. 160,803 5,555,744
------------
9,374,815
- -----------------------------------------------------------------------------------
Food & Staples Retailing--3.6%
Wal-Mart Stores, Inc. 160,803 7,750,705
- -----------------------------------------------------------------------------------
Hotels, Restaurants & Leisure--2.1%
McDonald's Corp. 160,803 4,462,283
- -----------------------------------------------------------------------------------
Household Products--3.9%
Procter & Gamble Co. 160,803 8,482,358
- -----------------------------------------------------------------------------------
Industrial Conglomerates--8.0%
3M Co. 160,803 11,626,057
General Electric Co. 160,803 5,571,824
------------
17,197,881
- -----------------------------------------------------------------------------------
Insurance--4.3%
American International Group, Inc. 160,803 9,342,654
- -----------------------------------------------------------------------------------
Machinery--7.1%
Caterpillar, Inc. 160,803 15,326,134
- -----------------------------------------------------------------------------------
Media--1.9%
Walt Disney Co. 160,803 4,049,020
- -----------------------------------------------------------------------------------
Metals & Mining--1.9%
Alcoa, Inc. 160,803 4,201,782
- -----------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels--4.3%
Exxon Mobil Corp. 160,803 9,241,348
- -----------------------------------------------------------------------------------
Pharmaceuticals--9.2%
Johnson & Johnson 160,803 10,452,195
Merck & Co., Inc. 160,803 4,952,732
Pfizer, Inc. 160,803 4,434,947
------------
19,839,874
- -----------------------------------------------------------------------------------
Shares
Industry* Common Stocks Held Value
===================================================================================
Semiconductors & Semiconductor
Equipment--1.9%
Intel Corp. 160,803 $ 4,190,526
- -----------------------------------------------------------------------------------
Software--1.9%
Microsoft Corp. 160,803 3,994,346
- -----------------------------------------------------------------------------------
Specialty Retail--2.9%
Home Depot, Inc. 160,803 6,255,237
- -----------------------------------------------------------------------------------
Tobacco--4.8%
Altria Group, Inc. 160,803 10,397,522
- -----------------------------------------------------------------------------------
Total Common Stocks
(Cost--$214,991,802)--99.9% 215,348,986
===================================================================================
Face
Short-Term Securities Amount
===================================================================================
Time Deposits
State Street Bank & Trust Co.,
2.50% due 7/01/2005 $ 1,766,623 1,766,623
- -----------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$1,766,623)--0.8% 1,766,623
===================================================================================
Number of
Options Purchased Contracts
===================================================================================
Call Options Purchased
United Technologies Corp., expiring
July 2005 at USD 53.81,
Broker Deutsche Bank AG London 800 56
- -----------------------------------------------------------------------------------
Total Options Purchased
(Premiums Paid--$47,200)--0.0% 56
===================================================================================
Total Investments
(Cost--$216,805,625)--100.7% 217,115,665
===================================================================================
Options Written
===================================================================================
Call Options Written
3M Co., expiring July 2005 at USD 77.32,
Broker Banc of America 800 (2,982)
Alcoa, Inc., expiring July 2005 at
USD 26.78, Broker BNP Paribas 800 (17,600)
Altria Group, Inc., expiring July 2005
at USD 67.098, Broker UBS Warburg 800 (2,160)
American Express Co., expiring July 2005
at USD 54.884, Broker Deutsche Bank
AG London 800 (14,400)
American International Group, Inc.,
expiring July 2005 at USD 55.80,
Broker Deutsche Bank AG London 800 (195,400)
Boeing Co., expiring July 2005 at
USD 65.77, Broker Banc of America 800 (116,861)
Caterpillar, Inc., expiring July 2005 at
USD 95.53, Broker Banc of America 800 (121,541)
Citigroup, Inc., expiring July 2005 at
USD 47.94, Broker Banc of America 800 (4,605)
6 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005
Schedule of Investments (concluded)
Number of
Options Written Contracts Value
===================================================================================
Call Options Written (continued)
The Coca-Cola Co., expiring July 2005 at
USD 44.46, Broker JPMorgan
Chase Bank 800 $ (113)
E.I. du Pont de Nemours & Co., expiring
July 2005 at USD 46.127, Broker
Deutsche Bank AG London 800 (392)
Exxon Mobil Corp., expiring July 2005
at USD 57.178, Broker Deutsche Bank
AG London 800 (59,096)
General Electric Co., expiring July 2005
at USD 37.086, Broker UBS Warburg 800 (80)
General Motors Corp., expiring July 2005
at USD 30.90, Broker Banc of America 800 (259,071)
Hewlett-Packard Co., expiring July 2005
at USD 22.498, Broker UBS Warburg 800 (86,160)
Home Depot, Inc., expiring July 2005
at USD 40.431, Broker JPMorgan
Chase Bank 800 (7,200)
Honeywell International, Inc., expiring
July 2005 at USD 36.65, Broker
UBS Warburg 800 (46,480)
Intel Corp., expiring July 2005 at
USD 27.58, Broker UBS Warburg 800 (2,560)
International Business Machines Corp.,
expiring July 2005 at USD 75.77,
Broker Banc of America 800 (39,870)
JPMorgan Chase & Co., expiring July
2005 at USD 35.788, Broker
UBS Warburg 800 (5,280)
Johnson & Johnson, expiring July 2005
at USD 66.81, Broker Banc of America 800 (7,964)
McDonald's Corp., expiring July 2005 at
USD 30.942, Broker JPMorgan
Chase Bank 800 (12)
Number of
Options Written Contracts Value
===================================================================================
Call Options Written (concluded)
Merck & Co., Inc., expiring July 2005 at
USD 32.075, Broker JPMorgan
Chase Bank 800 $ (4,000)
Microsoft Corp., expiring July 2005 at
USD 25.83, Broker JPMorgan
Chase Bank 800 (25)
Pfizer, Inc., expiring July 2005 at
USD 28.15, Broker Deutsche Bank
AG London 800 (3,568)
Procter & Gamble Co., expiring July 2005
at USD 55.85, Broker Banc of America 800 (25)
SBC Communications, Inc., expiring July
2005 at USD 23.26, Broker JPMorgan
Chase Bank 800 (23,200)
United Technologies Corp., expiring July
2005 at USD 107.622, Broker
JPMorgan Chase Bank 600 (112)
Verizon Communications, Inc.,
expiring July 2005 at USD 35.36,
Broker JPMorgan Chase Bank 800 (267)
Wal-Mart Stores, Inc., expiring
July 2005 at USD 47.823,
Broker JPMorgan Chase Bank 800 (49,600)
Walt Disney Co., expiring July 2005 at
USD 27.55, Broker BNP Paribas 800 (3,200)
- -----------------------------------------------------------------------------------
Total Options Written
(Premiums Received--$2,643,828)--(0.5%) (1,073,824)
===================================================================================
Total Investments,
Net of Options Written
(Cost--$214,161,797**)--100.2% 216,041,841
Liabilities in Excess of Other Assets--(0.2%) (471,801)
------------
Net Assets--100.0% $215,570,040
============
- -----------------------------------------------------------------------------------
* For Fund compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease.
** The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ........................................... $214,161,797
============
Gross unrealized appreciation ............................ $ 7,276,193
Gross unrealized depreciation ............................ (5,396,149)
------------
Net unrealized appreciation .............................. $ 1,880,044
============
See Notes to Financial Statements.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005 7
Statement of Assets, Liabilities and Capital
As of June 30, 2005
========================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified
cost--$216,758,425) $217,115,609
Options purchased, at value (premiums paid--$47,200) ............ 56
Receivables:
Dividends .................................................... $ 291,195
Interest ..................................................... 122 291,317
------------
Other assets .................................................... 45,242
------------
Total assets .................................................... 217,452,224
------------
========================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received--$2,643,828) ....... 1,073,824
Payables:
Offering costs ............................................... 373,432
Securities purchased ......................................... 275,847
Investment adviser ........................................... 145,835 795,114
------------
Accrued expenses ................................................ 13,246
------------
Total liabilities ............................................... 1,882,184
------------
========================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Net assets ...................................................... $215,570,040
============
========================================================================================================================
Capital
- ------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value, 100,000,000 shares authorized .... $ 11,279
Paid-in capital in excess of par ................................ 214,965,279
Accumulated distributions in excess of investment income--net ... $ (1,078,731)
Accumulated realized capital losses--net ........................ (207,831)
Unrealized appreciation--net .................................... 1,880,044
------------
Total accumulated earnings--net ................................. 593,482
------------
Total capital--Equivalent to $19.11 per share based on 11,278,828
shares of capital stock outstanding (market price--$19.60) ..... $215,570,040
============
See Notes to Financial Statements.
8 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005
Statement of Operations
For the Period April 29, 2005+ to June 30, 2005
========================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------
Dividends ....................................................... $ 890,939
Interest ........................................................ 94,772
------------
Total income .................................................... 985,711
------------
========================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ........................................ $ 333,572
Directors' fees and expenses .................................... 15,033
Accounting services ............................................. 8,902
Printing and shareholder reports ................................ 4,520
Professional fees ............................................... 4,234
Transfer agent fees ............................................. 3,940
Custodian fees .................................................. 2,845
Pricing services ................................................ 69
Other ........................................................... 3,041
------------
Total expenses .................................................. 376,156
------------
Investment income--net .......................................... 609,555
------------
========================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- ------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ............................................. 369,425
Options written--net ......................................... (577,256) (207,831)
------------
Unrealized appreciation on:
Investments--net ............................................. 310,040
Options written--net ......................................... 1,570,004 1,880,044
----------------------------
Total realized and unrealized gain--net ......................... 1,672,213
------------
Net Increase in Net Assets Resulting from Operations ............ $ 2,281,768
============
+ Commencement of operations.
See Notes to Financial Statements.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005 9
Statement of Changes in Net Assets
For the Period
April 29,
2005+ to
June 30,
Increase (Decrease) in Net Assets: 2005
========================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------
Investment income--net ......................................................... $ 609,555
Realized loss--net ............................................................. (207,831)
Unrealized appreciation--net ................................................... 1,880,044
------------
Net increase in net assets resulting from operations ........................... 2,281,768
------------
========================================================================================================================
Dividends to Shareholders
- ------------------------------------------------------------------------------------------------------------------------
Investment income .............................................................. (1,688,286)
------------
Net decrease in net assets resulting from dividends to shareholders ............ (1,688,286)
------------
========================================================================================================================
Capital Stock Transactions
- ------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of Common Stock ......................................... 214,875,000
Value of shares issued to Common Stock shareholders in reinvestment of dividends 451,550
Offering costs resulting from the issuance of Common Stock ..................... (450,000)
------------
Net increase in net assets resulting from capital stock transactions ........... 214,876,550
------------
========================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ................................................... 215,470,032
Beginning of period ............................................................ 100,008
------------
End of period* ................................................................. $215,570,040
============
* Accumulated distributions in excess of investment income--net ............... $ (1,078,731)
============
+ Commencement of operations.
See Notes to Financial Statements.
10 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005
Financial Highlights
For the Period
April 29,
2005+ to
The following per share data and ratios have been derived June 30,
from information provided in the financial statements. 2005
========================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........................................... $ 19.10
------------
Investment income--net*** ...................................................... .05
Realized and unrealized gain--net .............................................. .15
------------
Total from investment operations ............................................... .20
------------
Less dividends from investment income--net ..................................... (.15)
------------
Offering costs resulting from the issuance of Common Stock ..................... (.04)
------------
Net asset value, end of period ................................................. $ 19.11
============
Market price per share, end of period .......................................... $ 19.60
============
========================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............................................. .84%@
============
Based on market price per share ................................................ (1.23%)@
============
========================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Expenses ....................................................................... 1.01%*
============
Investment income--net ......................................................... 1.64%*
============
========================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ....................................... $ 215,570
============
Portfolio turnover ............................................................. 7.62%
============
* Annualized.
** Total investment returns based on market price, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Based on average shares outstanding.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005 11
Notes to Financial Statements
1. Significant Accounting Policies:
Dow 30(SM) Premium & Dividend Income Fund Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. Prior to commencement of operations on April 29,
2005, the Fund had no operations other than those relating to organizational
matters and the sale of 5,236 shares of Common Stock on April 15, 2005 to
Merrill Lynch Investment Managers, L.P. ("MLIM") for $100,008. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. The Fund
determines and makes available for publication the net asset value of its Common
Stock on a daily basis. The Fund's Common Stock shares are listed on the New
York Stock Exchange ("NYSE") under the symbol DPD. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments -- Equity securities that are held by the Fund that
are traded on stock exchanges or the Nasdaq National Market are valued at the
last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available asked
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the Fund.
Long positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap
or Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Directors of the Fund. Short positions traded in the OTC market are valued at
the last available asked price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last asked
price. Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued daily based upon quotations from
market makers. Financial futures contracts and options thereon, which are traded
on exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Fund employs
pricing services to provide certain securities prices for the Fund. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by the pricing services
retained by the Fund, which may use a matrix system for valuations. The
procedures of a pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Fund's Board of Directors. Such
valuations and procedures will be reviewed periodically by the Board of
Directors of the Fund.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the NYSE. The values of such securities
used in computing the net asset value of the Fund's shares are determined as of
such times. Foreign currency exchange rates also are generally determined prior
to the close of business on the NYSE. Occasionally, events affecting the values
of such securities and such exchange rates may occur between the times at which
they are determined and the close of business on the NYSE that may not be
reflected in the computation of the Fund's net asset value. If events (for
example, a company announcement, market volatility or a natural disaster) occur
during such periods that are expected to materially affect the value of such
securities, those securities may be valued at their fair value as determined in
good faith by the Fund's Board of Directors or by the Investment Adviser using a
pricing service and/or procedures approved by the Fund's Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
12 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005
Notes to Financial Statements (continued)
o Options -- The Fund may write covered call options. When the Fund writes
an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market
value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written options are non-income producing investments.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, 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.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(e) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(f) Offering expenses -- Direct expenses relating to the public offering of the
Fund's Common Stock were charged to capital at the time of issuance of the
shares.
(g) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005 13
Notes to Financial Statements (concluded)
2. Investment Advisory and Management Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory and Management Agreement with
IQ Investment Advisors LLC ("IQ"), an indirect subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co.").
IQ is responsible for the investment advisory, management and administrative
services to the Fund. In addition, IQ provides the necessary personnel,
facilities, equipment and certain other services necessary to the operations of
the Fund. For such services, the Fund will pay a monthly fee at an annual rate
equal to .90% of the average daily value of the Fund's net assets plus
borrowings for leverage and other investment purposes. IQ has entered into a
Subadvisory Agreement with Nuveen Asset Management, Inc. ("Nuveen") pursuant to
which Nuveen provides certain investment advisory services to IQ with respect to
the Fund. For such services, IQ will pay Nuveen a monthly fee at an annual rate
equal to .39% of the average daily value of the Fund's net assets plus
borrowings for leverage and other investment purposes. There was no increase in
the aggregate fees paid by the Fund for these services.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to ML & Co. and its
affiliates including Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), an affiliate of IQ. Pursuant to that order, the Fund may retain
Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of IQ, as the
securities lending agent for a fee based on a share of the returns on investment
of cash collateral. MLIM, LLC may, on behalf of the Fund, invest cash collateral
received by the Fund for such loans, among other things, in a private investment
company managed by MLIM, LLC or in registered money market funds advised by IQ
or its affiliates.
For the period April 29, 2005 to June 30, 2005, MLPF&S received gross fees from
underwriting of $4,969,600 in connection with the issuance of the Fund's Common
Stock. In addition, the Fund reimbursed MLPF&S $41,436 as a partial
reimbursement of expenses incurred in connection with the issuance of the Fund's
Common Stock.
Certain officers and/or directors of the Fund are officers and/or directors of
MLIM, PSI, IQ, MLPF&S, ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period April 29, 2005 to June 30, 2005 were $230,991,889 and $16,369,513,
respectively.
Transactions in options written for the period April 29, 2005 to June 30, 2005
were as follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of period ............................ -- --
Options written ................................... 48,800 $ 5,392,516
Options expired ................................... (4,800) (604,000)
Options closed .................................... (19,200) (2,144,688)
-------------------------
Outstanding call options written,
end of period .................................. 24,800 $ 2,643,828
=========================
4. Capital Share Transactions:
The Fund is authorized to issue 100,000,000 shares of capital stock, par value
$.001, all of which are initially classified as Common Stock. The Board of
Directors is authorized, however, to classify and reclassify any unissued shares
of capital stock without approval of the holders of Common Stock.
Shares issued and outstanding during the period April 29, 2005 to June 30, 2005
increased by 11,250,000 from shares sold and 23,592 as a result of dividend
reinvestment.
5. Subsequent Event:
The Fund paid an ordinary income dividend in the amount of $.150000 per share on
July 29, 2005 to shareholders of record on July 22, 2005.
14 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005
Officers and Directors
Alan R. Batkin, Director and Chairman of the Board
Paul Glasserman, Director and Chairman of the Audit Committee
William J. Rainer, Director and Chairman of the Nominating Committee
Andrew J. Donohue, Director and Chief Legal Officer
Steven W. Kohlhagen, Director
Mitchell M. Cox, President
Donald C. Burke, Vice President, Secretary and Treasurer
Justin C. Ferri, Vice President
Jay M. Fife, Vice President
Colleen R. Rusch, Vice President
Jeffrey Hiller, Chief Compliance Officer
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
The Bank of New York
101 Barclay Street -- 11 East
New York, NY 10286
NYSE Symbol
DPD
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005 15
Disclosure of Investment Advisory Agreement
The Board of Directors of Dow 30(SM) Premium & Dividend Income Fund Inc. (the
"Fund")
The Board of Directors (the "Board") currently consists of five individuals,
four of whom are not "interested persons" of the Fund as defined in the
Investment Company Act of 1940 (the "1940 Act") (the "independent directors").
The fifth individual is an interested person of the Fund because of his
affiliation with IQ Investment Advisors LLC ("IQ Advisors") and other Merrill
Lynch affiliates. The Board is chaired by an independent director. The
Nominating and Corporate Governance Committee, composed entirely of independent
directors, is responsible for selecting new director nominees and, in doing so,
applies a standard of independence that is more rigorous than current applicable
regulations. All independent directors are also members of the Board's Audit
Committee. The independent directors convene at quarterly in-person Board and
Audit Committee meetings and, as necessary, conduct additional in-person and
telephonic meetings throughout the year. The independent directors have retained
independent counsel to assist them in the performance of their duties under the
1940 Act. It is the practice of the Board to have independent counsel attend all
in-person Board and Audit Committee meetings and any additional meetings at the
request of the independent directors.
The Board's Consideration of the Advisory Agreements
The investment advisory and management agreement between IQ Advisors and the
Fund (the "Management Agreement") and the subadvisory agreement between Nuveen
Asset Management (the "Subadviser") and IQ Advisors (the "Subadvisory Agreement"
and together with the Management Agreement, the "Advisory Agreements") were both
initially approved by the Board, including by all of the independent directors,
at an in-person Board meeting held on January 24, 2005. The Management Agreement
obligates IQ Advisors to provide investment advisory, management and
administrative services to the Fund, in exchange for which, the Fund pays IQ
Advisors a monthly fee at the annual rate of .90% of an aggregate of the Fund's
average daily net assets plus any borrowings for investment purposes (the
"Management Fee"). Under the Subadvisory Agreement, IQ Advisors has delegated
certain investment advisory responsibilities to the Subadviser. For its
services, IQ Advisors pays the Subadviser a monthly fee at the annual rate of
..39% of an aggregate of the Fund's average daily net assets plus any borrowings
for investment purposes.
In determining whether to approve the Advisory Agreements, the Board met with
certain investment advisory personnel from each of IQ Advisors and the
Subadviser and considered all information it deemed reasonably necessary to
evaluate the terms of each Agreement. The Board requested and received materials
specifically relating to its consideration of each of the Advisory Agreements,
including: (a) information compiled by Lipper Inc. ("Lipper"), an entity
unaffiliated with IQ Advisors and the Subadviser, regarding the proposed fee
rate for advisory and administrative services and projected expense ratios for
the first year of operations compared to a peer group of funds as selected and
classified by Lipper; (b) a copy of the forms of Management Agreement and
Subadvisory Agreement; (c) a memorandum prepared by the Fund's counsel relating
to the responsibilities and duty of directors under the 1940 Act in approving
advisory contracts; and (d) due diligence materials for the Subadviser,
including information regarding the resources and capabilities of the
Subadviser, as well as its regulatory and compliance history. The matters
discussed below with respect to each Advisory Agreement were considered
separately by the independent directors in an executive session of the Board
attended by independent counsel.
The Management Agreement
Nature, Extent and Quality of Services -- In connection with its consideration
of the Management Agreement, the Board, including the independent directors,
reviewed the nature, extent and quality of services to be provided by IQ
Advisors to the Fund. The Board focused on the innovative nature of the Fund,
the creativity of IQ Advisors in developing the Fund's investment strategy, and
the complexity of execution that would be involved in the implementation of the
Fund's strategy. The Board noted that IQ Advisors designed the investment
program of the Fund and proposed that the Subadviser would implement its
investment strategy. The Board discussed the experience, resources and strengths
of IQ Advisors and its affiliates in managing investment companies. The Board
also discussed the nature of the Fund and the services required by the Fund in
relation to those required by a traditional portfolio of equity securities, and
considered the entrepreneurial risk undertaken by IQ Advisors in forming,
registering and funding the Fund.
16 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005
In addition to investment advisory services, the Board took into consideration
that IQ Advisors and its affiliates would provide the Fund with administrative
and other services, including assistance in meeting legal and regulatory
requirements and certain other services necessary for the operation of the Fund.
The Board reviewed the administrative services to be provided to the Fund by IQ
Advisors, including its oversight of the Fund's day-to-day operations and Fund
accounting. The Board reviewed the fact that IQ Advisors and its affiliates had
an extensive administrative, oversight and compliance infrastructure in place.
The Board noted that IQ Advisors and its affiliates provide compliance and
administrative services to numerous other funds advised by IQ Advisors'
affiliates, as well as to a number of third party fund groups. The Board also
noted the supervisory responsibilities that would be required of IQ Advisors in
connection with its monitoring of the Subadviser's compliance with respect to
the Fund's investment policies and restrictions. In view of these facts, the
Board concluded that IQ Advisors' existing administrative and compliance
infrastructure and the services to be provided by IQ Advisors were of a high
quality and would benefit the Fund.
Fund Performance -- The Board, including the independent directors, noted the
fact that the Fund had not yet commenced operations at the time of the approval
of the Management Agreement, and therefore had no performance history. The
Board, however, discussed factors that might be relevant to the future
performance of the Fund.
Management Fee and Other Expenses -- In reviewing the Management Agreement, the
Board, including the independent directors, placed significant emphasis on the
fee rate for advisory and administrative services and projected expense ratios
for the Fund's first year of operations as compared to those of closed-end
unleveraged core funds, growth funds and value funds, as provided by Lipper. In
particular, the Board noted that at the estimated asset level, the Fund would
have a contractual fee rate below the median of its peer group, and noted that
the Fund also is expected to have a comparatively low expense ratio at the
projected asset level. Following consideration of this information, the Board
concluded that the fee rate under the Management Agreement was reasonable in
light of the services to be provided by IQ Advisors to the Fund.
Profitability -- The Board, including the independent directors, considered the
anticipated costs to IQ Advisors and its affiliates in managing the Fund and its
potential profitability. In discussing this issue, the Board took into account
the fee rate that IQ Advisors would receive from the Fund. The Board also
reviewed and considered statements from the representatives of IQ Advisors as to
the anticipated costs to IQ Advisors and its affiliates in managing the Fund and
its anticipated initial financial loss from these activities. The Board also
considered the financial obligations of IQ Advisors to the Subadviser with
respect to the Fund and the entrepreneurial risk assumed by IQ Advisors in
establishing the Fund. The Board concluded that the potential profitability of
IQ Advisors was consistent with the risks assumed by, and the anticipated costs
to, IQ Advisors.
Economies of Scale -- The Board also considered whether the Fund would be able
to participate in any economies of scale that IQ Advisors may experience in the
event that the Fund attracts a large amount of assets. The Board noted the
uncertainty of the estimated asset levels and discussed the renewal requirements
for advisory agreements, and determined that they would revisit this issue from
time to time. Based on the information reviewed and its discussions, the Board,
including all of the independent directors, concluded that the fee rate was
reasonable in relation to the services to be provided to the Fund.
Other Benefits to IQ Advisors -- The Board, including the independent directors,
also took into account potential direct and indirect benefits to IQ Advisors
beyond the Management Fee, such as the engagement of affiliates of IQ Advisors
as service providers to the Fund, including services relating to the initial
distribution of Fund shares. The Board also considered potential benefits to IQ
Advisors and its affiliates from acting as investment adviser to the Fund and
concluded that these potential benefits, which were not readily quantifiable,
appeared typical of the types of benefits potentially inuring to an adviser
affiliated with a large financial services firm offering innovative investment
products.
Conclusion
No single factor was considered in isolation or to be determinative to the
decision of the Board to approve the Management Agreement. Rather, the Board
concluded, in light of a weighing and balancing of all factors considered, that
it was in the best interest of the Fund and its stockholders to approve the
Management Agreement.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005 17
Disclosure of Investment Advisory Agreement (continued)
The Subadvisory Agreement
As noted above, the Board, including all of the independent directors, initially
met at an in-person Board meeting held on January 24, 2005 to consider the
Subadvisory Agreement. The Subadvisory Agreement was unanimously approved by the
Board at such meeting. However, on March 25, 2005, Nuveen Investments, Inc.
("Nuveen"), the parent company of the Subadviser, and St. Paul Travelers
Companies, Inc. ("St. Paul"), the controlling owner of Nuveen, announced that
St. Paul was implementing a three-part program to sell its equity interest in
Nuveen. The Board was informed that the objective of the three-part program was
for St. Paul to sell its entire interest in Nuveen, resulting in Nuveen becoming
a fully independent, publicly traded company.
The Board also was informed that the completion of the three-part program could
be deemed to be an "assignment" (as defined in the 1940 Act) of the Subadvisory
Agreement, which would result in the automatic termination of such Agreement.
Consequently, on April 20, 2005 the Board, including all of the independent
directors, met at an in-person meeting to reconsider the Subadvisory Agreement
in light of the proposed change of control of the Subadviser. At this meeting,
the Board reapproved the Subadvisory Agreement and also approved a new
subadvisory agreement (the "New Subadvisory Agreement") to take effect upon
consummation of the change of control.
In connection with the Board's determination to reapprove the Subadvisory
Agreement and approve the New Subadvisory Agreement (collectively, the
"Subadvisory Agreements"), the Board considered many of the matters discussed
above with respect to the Management Agreement. In addition, the Board took into
account all of the information previously received and considered in connection
with the original approval of the Subadvisory Agreement. During its
deliberations, the Board considered the following factors in reapproving the
Subadvisory Agreement and approving the New Subadvisory Agreement.
Nature, Extent and Quality of Services -- In reviewing the Subadvisory
Agreements, the Board considered the personnel who will provide the subadvisory
services and the experience of the Subadviser in managing other investment
companies. In particular, the Board focused on the experience of the Subadviser
in managing registered investment companies with investment strategies similar
to the investment program of the Fund. The Board considered the reputation and
investment experience of the Subadviser and its investment professionals, taking
into account the substantial number of investment companies that the Subadviser
has sponsored or managed, noting that the Subadviser had assets under management
of approximately $155 billion. The Board met in person with a member of the
portfolio management team and discussed with him the implementation of the
Fund's investment strategy. The Board also considered representations by
representatives of IQ Advisors and the Subadviser that there would be no
diminution in the services to be rendered by IQ Advisors and the Subadviser,
respectively, to the Fund as a result of the change in control of the Subadviser
and the effectiveness of the New Subadvisory Agreement. The Board noted that
representatives of the Subadviser stated that they did not anticipate any change
in the personnel of the Subadviser responsible for providing services to the
Fund, and in particular that the investment and compliance personnel of the
Subadviser were not expected to change, as a result of the change in control of
the Subadviser.
The Board also considered the compliance history of the Subadviser and its
compliance procedures. The Board noted statements from the Subadviser's
representatives that the financial position of the Subadviser would not be
negatively affected by the change in control. The Board discussed the due
diligence performed by officers of IQ Advisors with respect to the Subadviser.
Specifically, officers of IQ Advisors reviewed the due diligence questionnaire
completed by the Subadviser, conducted an onsite inspection of the offices and
facilities of the Subadviser, and reviewed its compliance program. The Board
also considered representations from the Subadviser that the change in control
would not have an effect on the Subadviser's compliance personnel or compliance
procedures. In addition, the Board took into account its favorable experience
with the Subadviser and its portfolio manager in connection with another
closed-end fund subadvised by the Subadviser for which the directors serve on
the board. Based on these factors, the Board determined that the Subadviser's
experience in advising other mutual funds would contribute to the successful
operation of the Fund. In addition, the Board was of the view that the
Subadviser had evidenced a commitment
18 DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005
Disclosure of Investment Advisory Agreement (concluded)
to maintaining a culture of compliance that would continue after the change in
control.
Fund Performance -- The Board, including the independent directors, noted the
fact that the Fund had not yet commenced operations at the time of the approval
of each of the Subadvisory Agreements, and therefore had no performance history.
The Board, however, discussed factors that might be relevant to the future
performance of the Fund.
Subadvisory Fee and Other Expenses -- The Board also considered the proposed
subadvisory fee in relation to the Management Fee and the services to be
provided by the Subadviser and IQ Advisors, respectively. The Board reviewed
with representatives of IQ Advisors and the Subadviser, including one of the
portfolio managers, the complexity of the Fund's investment strategy and the
basis for the proposed fee rate. The Board received and reviewed fee comparison
data from Lipper (which included information regarding the fees paid by certain
investment advisers to subadvisers of peer funds) taking into account the Fund's
strategy. The Board also considered representations by representatives of IQ
Advisors and the Subadviser that there would be no change in the allocation of
the management fee between IQ Advisors and the Subadviser in relation to the
services provided by the Subadviser, as a result of the change in control of
Nuveen and the effectiveness of the New Subadvisory Agreement. In considering
the compensation to be paid to the Subadviser, noting that no change to such
compensation from that payable under the Subadvisory Agreement approved by the
Board at the January 24, 2005 meeting was proposed, the Board referred to the
materials presented and discussions held in connection with their initial
consideration of the Subadvisory Agreement for the Fund. Taking into account the
totality of the information and materials provided to the Board, including,
among other things, the fact that the subadvisory fee was negotiated with IQ
Advisors on an arm's length basis, the Board concluded that the subadvisory fee
for the Fund was reasonable for the services proposed to be rendered.
Profitability -- The Board, including the independent directors, considered the
anticipated costs to the Subadviser in providing services to the Fund and its
potential profitability, taking into account the subadvisory fee rate that it
would receive from IQ Advisors. The Board concluded that the Subadviser's
anticipated profitability was consistent with the anticipated costs to the
Subadviser.
Economies of Scale -- The Board also considered whether the Fund would be able
to participate in any economies of scale that the Subadviser may experience in
the event that the Fund attracts a large amount of assets. The Board noted the
uncertainty of the estimated asset levels and discussed the renewal requirements
for advisory agreements, and determined that they would revisit this issue from
time to time.
Conclusion
No single factor was considered in isolation or to be determinative to the
decision of the Board to approve the Subadvisory Agreements. Rather, the Board
concluded, in light of a weighing and balancing of all factors considered, that
it was in the best interest of the Fund and its stockholders to approve the
Subadvisory Agreements.
DOW 30(SM) PREMIUM & DIVIDEND INCOME FUND INC. JUNE 30, 2005 19
Dow 30(SM) Premium & Dividend Income Fund Inc. seeks to provide stockholders
with a high level of current income, with a secondary objective of capital
appreciation.
This report, including the financial information herein, is transmitted to
shareholders of Dow 30(SM) Premium & Dividend Income Fund Inc. for their
information. It is not a prospectus. Past performance results shown in this
report should not be considered a representation of future performance.
Statements and other information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by calling toll-free 1-877-449-4742 or through the Securities and
Exchange Commission's Web site at http://www.sec.gov.
Dow 30(SM) Premium & Dividend Income Fund Inc.
Box 9011
Princeton, NJ
08543-9011
#IQD30PDI -- 6/05
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable to this semi-annual report
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 - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year 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 attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
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.
Dow 30(SM) Premium & Dividend Income Fund Inc.
By: /s/ Mitchell M. Cox
-----------------------
Mitchell M. Cox,
Chief Executive Officer of
Dow 30(SM) Premium & Dividend Income Fund Inc.
Date: August 19, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Mitchell M. Cox
-----------------------
Mitchell M. Cox,
Chief Executive Officer of
Dow 30(SM) Premium & Dividend Income Fund Inc.
Date: August 19, 2005
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
Dow 30(SM) Premium & Dividend Income Fund Inc.
Date: August 19, 2005