UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21407
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Nuveen Diversified Dividend and Income Fund
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(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
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Date of fiscal year end: December 31
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Date of reporting period: March 31, 2006
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. SS. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
QUARTERLY REPORT March 31, 2006
(Unaudited)
Nuveen Investments
Exchange-Traded
Closed-End
Funds
NUVEEN
DIVERSIFIED
DIVIDEND AND
INCOME FUND
JDD
HIGH CURRENT INCOME AND TOTAL RETURN FROM A PORTFOLIO OF DIVIDEND-PAYING COMMON
STOCKS, REIT STOCKS, EMERGING MARKETS SOVEREIGN DEBT, AND SENIOR LOANS
Chairman's Letter
For period ended March 31, 2006
Dear Shareholder:
I am very pleased to report that over the 3-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.
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 R. SCHWERTFEGER
Chairman of the Board
May 3, 2006
Callout:
"In addition to providing regular monthly income, an investment like your Fund
may help you achieve and benefit from greater portfolio diversification."
Portfolio Managers' Comments
THE NUVEEN DIVERSIFIED DIVIDEND AND INCOME FUND FEATURES PORTFOLIO MANAGEMENT BY
TEAMS AT FOUR SUBADVISERS:
NWQ Investment Management Company, LLC, an affiliate of Nuveen Investments,
invests its portion of the Fund's assets in dividend-paying common stocks. Jon
Bosse, Chief Investment Officer of NWQ, leads the Fund's management team at that
firm. He has more than 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, a wholly-owned subsidiary of J. P. Morgan
Chase & Co. Anthony R. Manno Jr. and Kenneth D. Statz, who each have more than
22 years experience in managing real estate investments, lead the team.
Wellington Management Company, LLP invests its portion of the Fund's assets in
emerging markets sovereign debt and foreign corporate bonds. James W. Valone,
who has more than 18 years of investment management experience, heads the team.
Symphony Asset Management, LLC, an affiliate of Nuveen Investments, invests its
portion of the Fund's assets in senior loans. The Symphony team is led by
Gunther Stein and Lenny Mason, who have more than 25 years of combined
investment management experience.
Here representatives from NWQ, Security Capital, Wellington Management and
Symphony talk about the markets, their management strategies and the performance
of the Fund for the 3-month period ended March 31, 2006.
WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE 3 MONTH PERIOD ENDED MARCH 31,
2006?
We view the leveraged loan market favorably but given the current credit
environment we continued to take a defensive stance in positioning our loan
portfolios. The loan market continued to demonstrate many positive
characteristics that we think make the asset class attractive. Market liquidity
was better than it has ever been, investor appetite remained strong and many
high quality deals came to market. Strong investor demand, however, also allowed
many deals to be structured with aggressive leverage levels. It is this
environment and market dynamic that leads us to avoid credits we feel are too
aggressively leveraged or do not have a sound credit profile. We still do not
feel that now is the appropriate time to be reaching for yield or getting
involved with what we consider to be marginal credits.
We avoided many small loans that are supporting leveraged buyouts as we feel
that market liquidity could be challenged if the credit
experiences any negative events. We focused on adding high quality new-issue
loans at par as we do not believe that paying 101 or higher for loans is prudent
in the current environment. We also continued to avoid the vast majority of
second lien loans. At current trading levels we do not believe that most second
lien loans compensate investors for the risk these credits pose over a credit
cycle. Should the economy weaken, we believe that second lien loans could see
significant downside from current levels.
For the dividend-paying common stock portion of the Fund's portfolio, we
continued to employ an opportunistic, bottom-up strategy that focuses on
identifying undervalued companies that possess favorable risk/reward
characteristics as well as emerging catalysts that can unlock value or improve
profitability. These catalysts include management changes, restructuring
efforts, recognition of hidden assets, or a positive change in the underlying
fundamentals. We also focus on downside protection, and pay a great deal of
attention to a company's balance sheet and cash flow statement, not just the
income statement. We believed that cash flow analysis offers a more objective
and truer picture of a company's financial position than an evaluation based on
earnings alone.
During the course of the quarter, we took new common stock positions in CBS
Corp., Clear Channel Communications Inc., and Stora Enso OYJ - a Finland-based
paper and board manufacturer. We believe investors have low expectations for CBS
and Clear Channel, which gives these stocks very attractive risk reward profiles
at current levels. We eliminated Albertson's Inc. from the portfolio after the
company received a buyout offer from a consortium led by Supervalu Inc., and
trimmed our stakes in Aon Corp., Alumina Ltd, Dow Jones & Company Inc., Energias
de Portugal SA, and Rio Tinto PLC based on valuation.
The JP Morgan Emerging Markets Bond Index Global Diversified (EMBIGD) rose by
1.73% in the first quarter of 2006, as the market confronted two strong but
countervailing forces. On the negative side, bond markets in developed countries
came under pressure, as fears of tightening global liquidity resurfaced. On the
positive side, credit trends remained constructive in emerging markets, which
drove spread levels tighter. In the face of these market tensions, the Portfolio
outperformed its benchmark with a return of 2.13%.
Finally, for the real estate portion of the fund we continued to focus on
finding what we believed would be the best opportunities to generate sustainable
income and potential price appreciation over the long-run. In particular, we
sought to maintain significant diversification within this sector while taking
into account company credit quality, sector and geographic exposure and
security-type allocations. Every investment decision was based on a
multi-layered analysis of the company, the real estate it owns, its management
and the relative price of the security.
HOW DID THE FUND PERFORM DURING THE PERIOD?
Fund performance results, as well as the performance of a comparative benchmark,
are shown in the accompanying table:
Total Return on Net Asset Value*
For 3-month period ended March 31, 2006
JDD 7.73%
Comparative Benchmark(1) 6.29%
*Three-month returns are cumulative
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.
----------
(1) Comparative benchmark performance is a blended return consisting
of 1) 18.75% of the return of the Russell 3000 Value Index, which measures the
performance of those Russell 3000 Index companies with lower price-to book
ratios and lower forecasted growth values, 2) 6.25% of the return of the MSCI
EAFE ex-Japan Value Index, a capitalization weighted index that selects the
lower 50% of the price-to-book ranked value stocks traded in the developed
markets of Europe, Asia and the Far East, excluding Japan, 3) 25% of the return
of the Dow Jones Wilshire Real Estate Securities Index, an unmanaged,
market-capitalization-weighted index comprised of publicly traded REITs and
real estate companies, 4) 25% of the return of the JP Morgan EMBI Global
Diversified Index, which tracks total returns for U.S.-dollar denominated debt
instruments issued by emerging markets sovereign and quasi-sovereign entities,
and 5) 25% of the return of the CSFB Leveraged Loan Index, which consists of
approximately $150 billion of tradable term loans with at least one year to
maturity and rated BBB or lower. Index returns do not include the effects of any
sales charges or management fees. It is not possible to invest directly in an
index.
Several securities positively impacted the performance of the senior loan
component of the portfolio. Federal Mogul, SunGard Data Systems and Charter
Communications all positively impacted the fund's performance over the first
quarter. The Federal Mogul term loan and revolver traded up during the period
due to the expectation that the company will emerge out of bankruptcy soon.
Steady operations and financial results have showed progress in the company's
Chapter 11 emergence.
Our common equity investments in the domestic telecommunication sector
appreciated during the quarter as investor sentiment has recently turned
positive due to the group's attractive valuations and more stable near-term
fundamentals. Significant consolidation has occurred, including SBC
Communications' acquisition of AT&T Inc., and the recent agreement to purchase
Bellsouth Corp. Another of our telecommunication holdings, Verizon
Communications, may be negotiating with Vodafone Group Inc. to acquire the 45%
stake of Verizon Wireless that it does not already own. These telecommunication
investments appreciated between 10-13% for the period, while Telecom Italia SPA
was flat, and Korean-based KT Corp. declined 1%.
As we have noted in past commentaries, global consolidation of the steel sector
is driving more favorable industry fundamentals. This quarter we saw more
consolidation as the world's largest steel manufacturer, Mittal Steel Co. NV,
launched a hostile takeover for its closest rival, Luxemburg-based Arcelor. This
move helped drive steel stocks higher on speculation that more deals will
emerge. Korean-based POSCO has been mentioned as a likely target given its high
profitability, exposure to China, and large foreign shareholder base. Our
investment in POSCO appreciated 29% for the period, while iron ore producer Rio
Tinto Plc contributed with a 13% gain.
Fundamentals of the paper and packaging industry continued to improve. Our
positions in International Paper Inc. and Stora Enso OYJ rose 3% and 14%,
respectively. Our other paper holding, Packaging Corporation of America, posted
a modest decline for the quarter.
The release of the federal government budget review was a strong catalyst for
the rise of our defense stocks as the review suggested a secure multi-year
industry outlook with no severe congressional spending cuts for key defense
programs. Our investments in Lockheed Martin Corp. and Raytheon Co. gained 18%
and 14%, respectively.
Lastly, despite a couple of setbacks, our financial stocks also performed
reasonably well. Mortgage originator IndyMac Bancorp Inc. gained 5% due to its
attractive valuation and benign inflation news that appears to be keeping a
ceiling on long-term interest rates. Our investment in Fannie Mae also rose 5%
as government regulators near completion of their investigation into the
company's accounting practices.
In the emerging markets sovereign debt portion of the portfolio, positive alpha
was generated by overweight positions in Argentina, Brazil, and the Philippines,
and underweight positions in Poland, Hungary and Egypt. Security selection was
positive in Ecuador, Russia and Mexico.
In general over this period for the real estate stock segment of the fund, we
favored real estate companies with high quality management teams, strong balance
sheets and potential for price appreciation generally situated in urban markets
characterized by high barriers-to-entry. In each case, we sought real estate
securities that were priced at a discount according to our long-term discounted
cash flow valuation analysis. As described above, this analysis benefited the
portfolio's performance as we owned five major M&A targets that experienced
significant price appreciation during the year. We also actively researched a
growing number of IPO's in the past 12 months and have selectively invested in
those we believe will thrive in the public arena.
Each Fund had holdings that constrained the Fund's performance over this
reporting period. In the senior loan sleeve of the fund, one position that
had a negative impact on the portfolio was D.R. Horton. These bonds have
generally traded down because they are "yield to call," shorter dated bonds that
are now accreting down to their call
price. Additionally, the homebuilding sector has generally traded down due to
the slowdown in the housing market.
The equity portfolio experienced modest declines of roughly 3-5% in some of our
larger holdings such as Altria Group Inc., Citigroup Inc., and Kimberly-Clark
Corp. that served as a hindrance on performance. Other underperformers include
our investment in Hartford Financial Services Group Inc., which declined 6% due
to increased competition in its domestic variable annuity business, as well as
concerns that pricing in the property casualty insurance industry is not holding
up to the positive expectations which followed in the aftermath of Hurricane
Katrina.
Our investment in Dominion Resources Inc., an integrated gas and electric
utility company, declined 10% as the company lowered its 2006 earnings forecast
due to rising exploration & production costs, and our stake in CBS Corp. fell
10% since purchased in January on concerns of the soft advertising environment
and weakness in their radio division. Lastly, American Home Mortgage Investment
Corp. a mortgage REIT, suffered a 4% decline as the company missed its fourth
quarter earnings forecast because its mortgage holdings were adversely affected
by extremely weak market conditions late in the quarter. These market conditions
have greatly improved over the last three months, and the company continued to
provide a double-digit dividend yield.
In its emerging markets sovereign debt sleeve security selection in Argentina
and Venezuela detracted from the Fund's relative performance.
In the real estate portion of the fund, holding preferred real estate stocks
hurt the Fund's overall relative performance during this period. The inclusion
of preferred stock in the portfolio reflected our belief that many of the higher
dividend-paying real estate securities are overvalued and are unattractive total
rate of return candidates for the future.
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 securities as well as from net realized capital gains and/or returns
of capital, generally representing net unrealized capital gains. In January of
this period, the Fund increased its monthly distribution to $0.110 per share.
As of March 31, 2006, the Fund was trading at a -5.15% discount to its net asset
value. This discount was greater than the average -4.02% discount the Fund
exhibited over the course of the three-month reporting period.
Nuveen Diversified Dividend and Income Fund
JDD
Performance
OVERVIEW As of March 31, 2006
PORTFOLIO ALLOCATION
(as a % of total investments)
------------------------------------
Real Estate Investment Trust
Common Stock, $25 Par
(or similar) Securities, and
Convertible Bonds 30.3%
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Common Stocks 25.0%
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Emerging Markets
Sovereign Debt and
Foreign Corporate Bonds 22.1%
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Variable Rate Senior
Loan Interests 18.1%
------------------------------------
Corporate Bonds 1.7%
------------------------------------
Short-Term Investments 2.8%
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Bar Chart:
2005-2006 MONTHLY DISTRIBUTIONS PER SHARE
Apr 0.1025
May 0.1025
Jun 0.1025
Jul 0.1025
Aug 0.1025
Sep 0.1075
Oct 0.1075
Nov 0.1075
Dec 0.1075
Jan 0.1100
Feb 0.1100
Mar 0.1100
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
4/1/2005 14.40
4/8/2005 14.33
4/15/2005 14.09
4/22/2005 14.60
4/29/2005 14.88
5/6/2005 15.15
5/13/2005 14.72
5/20/2005 15.11
5/27/2005 15.14
6/3/2005 15.31
6/10/2005 15.41
6/17/2005 15.33
6/24/2005 15.21
7/1/2005 15.27
7/8/2005 15.53
7/15/2005 15.77
7/22/2005 15.66
7/29/2005 16.00
8/5/2005 16.20
8/12/2005 15.80
8/19/2005 16.00
8/26/2005 15.53
9/2/2005 15.90
9/9/2005 16.24
9/16/2005 15.92
9/23/2005 15.76
9/30/2005 15.82
10/7/2005 16.05
10/14/2005 15.24
10/21/2005 14.84
10/28/2005 15.12
11/4/2005 15.75
11/11/2005 15.55
11/18/2005 15.71
11/25/2005 15.64
12/2/2005 15.90
12/9/2005 16.05
12/16/2005 16.12
12/23/2005 16.03
12/30/2005 16.35
1/6/2006 16.34
1/13/2006 16.81
1/20/2006 16.65
1/27/2006 16.71
2/3/2006 16.75
2/10/2006 17.00
2/17/2006 16.72
2/24/2006 16.84
3/3/2006 17.08
3/10/2006 17.17
3/17/2006 16.90
3/24/2006 17.05
3/31/2006 16.93
FUND SNAPSHOT
------------------------------------
Common Share Price $16.93
------------------------------------
Common Share Net
Asset Value $17.85
------------------------------------
Premium / (Discount) to NAV -5.15%
------------------------------------
Market Yield(1) 7.80%
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Net Assets Applicable to
Common Shares ($000) $359,641
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AVERAGE ANNUAL TOTAL RETURN
(Inception 9/25/03)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
3-Month
(Cumulative) 5.58% 7.73%
------------------------------------
1-Year 30.75% 22.11%
------------------------------------
Since Inception 14.43% 18.45%
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INDUSTRIES
(as a % of total investments)
------------------------------------
Real Estate 30.3%
------------------------------------
Sovereign Debt 22.1%
------------------------------------
Media 4.6%
------------------------------------
Diversified Telecommunication
Services 3.5%
------------------------------------
Oil, Gas & Consumable Fuels 3.2%
------------------------------------
Hotels, Restaurants & Leisure 3.1%
------------------------------------
Aerospace & Defense 2.9%
------------------------------------
Tobacco 2.4%
------------------------------------
Containers & Packaging 1.7%
------------------------------------
Diversified Financial Services 1.7%
------------------------------------
Thrifts & Mortgage Finance 1.7%
------------------------------------
Metals & Mining 1.5%
------------------------------------
Electric Utilities 1.5%
------------------------------------
Paper & Forest Products 1.5%
------------------------------------
Household Durables 1.5%
------------------------------------
Short-Term Investments 2.8%
------------------------------------
Other 14.0%
------------------------------------
REAL ESTATE INVESTMENT TRUST
TOP FIVE SUB-INDUSTRIES
(as a % of total investments)
------------------------------------
Office 10.4%
------------------------------------
Residential 6.1%
------------------------------------
Specialized 5.9%
------------------------------------
Retail 4.6%
------------------------------------
Diversified 1.7%
------------------------------------
EMERGING MARKETS SOVEREIGN DEBT
AND FOREIGN CORPORATE BONDS
TOP FIVE COUNTRIES
(as a % of total investments)
------------------------------------
Russian Federation 1.8%
------------------------------------
Mexico 1.5%
------------------------------------
Philippines 1.4%
------------------------------------
Argentina 1.4%
------------------------------------
Uruguay 1.2%
------------------------------------
(1) Market yield is based on the Fund's current annualized monthly distribution
divided by the Fund's current market price. The Fund's monthly distributions
to its shareholders may be comprised of ordinary income, net realized
capital gains and, if at the end of the calendar year the Fund's cumulative
net ordinary income and net realized gains are less than the amount of the
Fund's distributions, a tax return of capital.
Nuveen Diversified Dividend and Income Fund (JDD)
PORTFOLIO OF INVESTMENTS March 31, 2006 (Unaudited)
SHARES DESCRIPTION (1) VALUE
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COMMON STOCKS - 33.4% (25.0% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 2.1%
50,000 Lockheed Martin Corporation $ 3,756,500
85,000 Raytheon Company 3,896,400
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Total Aerospace & Defense 7,652,900
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CHEMICALS - 0.0%
2,944 Tronox Incorporated, Class B 50,019
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COMMERCIAL BANKS - 1.9%
69,200 Bank of America Corporation 3,151,368
65,000 Wachovia Corporation 3,643,250
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Total Commercial Banks 6,794,618
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COMMERCIAL SERVICES & SUPPLIES - 1.3%
105,000 Pitney Bowes Inc. 4,507,650
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CONTAINERS & PACKAGING - 0.9%
146,300 Packaging Corp. of America 3,282,972
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DIVERSIFIED FINANCIAL SERVICES - 2.3%
100,000 Citigroup Inc. 4,723,000
85,000 JPMorgan Chase & Co. 3,539,400
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Total Diversified Financial Services 8,262,400
--------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.1%
175,500 AT&T Inc. 4,745,520
90,000 KT Corporation, Sponsored ADR 1,917,000
135,000 Sprint Nextel Corporation 3,488,400
52,500 Telecom Italia S.p.A., Sponsored ADR 1,533,000
90,600 Verizon Communications Inc. 3,085,836
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Total Diversified Telecommunication Services 14,769,756
--------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.4%
67,100 EDP - Energias de Portugal, S.A., Sponsored ADR 2,628,978
118,000 Korea Electric Power Corporation (KEPCO), Sponsored ADR 2,548,800
-----------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 5,177,778
--------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.4%
60,812 J. Sainsbury PLC, Sponsored ADR 1,398,676
-----------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.8%
112,000 Newell Rubbermaid Inc. 2,821,280
-----------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 1.2%
73,000 Kimberly-Clark Corporation 4,219,400
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INSURANCE - 1.4%
60,000 Aon Corporation 2,490,600
30,000 Hartford Financial Services Group, Inc. 2,416,500
-----------------------------------------------------------------------------------------------------------------------------------
Total Insurance 4,907,100
--------------------------------------------------------------------------------------------------------------------
MEDIA - 1.2%
55,000 CBS Corporation, Class B 1,318,900
57,300 Clear Channel Communications, Inc. 1,662,273
33,900 Dow Jones & Company, Inc. 1,332,270
-----------------------------------------------------------------------------------------------------------------------------------
Total Media 4,313,443
--------------------------------------------------------------------------------------------------------------------
METALS & MINING - 1.8%
84,900 Alumina Limited, Sponsored ADR 1,790,541
33,000 POSCO, ADR 2,105,400
12,100 Rio Tinto PLC, Sponsored ADR 2,504,700
-----------------------------------------------------------------------------------------------------------------------------------
Total Metals & Mining 6,400,641
--------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 1.0%
25,000 Dominion Resources, Inc. 1,725,750
82,800 United Utilities PLC, Sponsored ADR 2,007,900
-----------------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 3,733,650
--------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 3.7%
33,000 Chevron Corporation 1,913,010
41,800 ConocoPhillips 2,639,670
57,500 Eni S.p.A., Sponsored ADR 3,276,350
14,605 Kerr-McGee Corporation 1,394,485
30,000 Total SA, Sponsored ADR 3,951,900
-----------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 13,175,415
--------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.4%
105,500 International Paper Company 3,647,135
97,000 Stora Enso Oyj, Sponsored ADR 1,488,950
-----------------------------------------------------------------------------------------------------------------------------------
Total Paper & Forest Products 5,136,085
--------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 1.1%
110,000 Merck & Co. Inc. 3,875,300
-----------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.2%
81,600 Fannie Mae 4,194,240
94,100 IndyMac Bancorp, Inc. 3,851,513
-----------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 8,045,753
--------------------------------------------------------------------------------------------------------------------
TOBACCO - 3.2%
88,200 Altria Group, Inc. 6,249,852
113,000 Loews Corp - Carolina Group 5,341,510
-----------------------------------------------------------------------------------------------------------------------------------
Total Tobacco 11,591,362
--------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $92,624,141) 120,116,198
====================================================================================================================
SHARES DESCRIPTION (1) VALUE
-----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST COMMON STOCKS - 38.2% (28.7% OF TOTAL INVESTMENTS)
DIVERSIFIED - 2.3%
455,000 Newkirk Realty Trust, Inc. $8,230,950
-----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 1.3%
106,000 First Industrial Realty Trust, Inc. 4,525,140
-----------------------------------------------------------------------------------------------------------------------------------
MORTGAGE - 0.8%
45,000 American Home Mortgage Investment Corp. 1,404,450
220,000 MFA Mortgage Investments, Inc. 1,397,000
-----------------------------------------------------------------------------------------------------------------------------------
Total Mortgage 2,801,450
--------------------------------------------------------------------------------------------------------------------
OFFICE - 12.7%
200,300 Brandywine Realty Trust 6,361,528
219,100 Equity Office Properties Trust 7,357,378
192,000 Glenborough Realty Trust Incorporated 4,176,000
435,600 HRPT Properties Trust 5,113,944
158,900 Mack-Cali Realty Corporation 7,627,200
146,800 Maguire Properties, Inc. 5,358,200
115,400 Reckson Associates Realty Corporation 5,287,628
416,000 Republic Property Trust 4,896,320
-----------------------------------------------------------------------------------------------------------------------------------
Total Office 46,178,198
--------------------------------------------------------------------------------------------------------------------
RESIDENTIAL - 7.1%
114,900 Archstone-Smith Trust 5,603,673
57,500 AvalonBay Communities, Inc. 6,273,250
86,200 Camden Property Trust 6,210,710
164,400 Post Properties, Inc. 7,315,800
-----------------------------------------------------------------------------------------------------------------------------------
Total Residential 25,403,433
--------------------------------------------------------------------------------------------------------------------
RETAIL - 6.2%
252,900 Cedar Shopping Centers Inc. 4,005,936
73,500 Federal Realty Investment Trust 5,527,200
221,000 Kite Realty Group Trust 3,524,950
49,900 Macerich Company 3,690,105
107,100 New Plan Excel Realty Trust 2,778,174
32,400 Simon Property Group, Inc. 2,726,136
-----------------------------------------------------------------------------------------------------------------------------------
Total Retail 22,252,501
--------------------------------------------------------------------------------------------------------------------
SPECIALIZED - 7.8%
78,500 Cogdell Spencer Inc. 1,673,620
350,000 DiamondRock Hospitality Company 4,833,500
338,736 Hersha Hospitality Trust 3,316,225
166,000 Nationwide Health Properties, Inc. 3,569,000
293,800 Senior Housing Properties Trust 5,317,780
90,700 Shurgard Storage Centers, Inc., Class A 6,043,341
165,800 U-Store-It Trust 3,340,870
-----------------------------------------------------------------------------------------------------------------------------------
Total Specialized 28,094,336
--------------------------------------------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUST COMMON STOCKS (COST $101,686,468) 137,486,008
====================================================================================================================
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST $25 PAR (OR SIMILAR) SECURITIES - 1.0% (0.8% OF TOTAL INVESTMENTS)
RESIDENTIAL - 1.0%
150,000 Apartment Investment & Management Company, Series U 7.750% Ba3 $3,744,000
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUST $25 PAR (OR SIMILAR)
SECURITIES (COST $3,750,000) 3,744,000
====================================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST CONVERTIBLE BONDS - 1.1% (0.8% OF TOTAL INVESTMENTS)
OFFICE - 1.1%
$ 4,215 Trizec Hahn Corporation 3.000% 1/29/21 N/R $3,856,725
-----------------------------------------------------------------------------------------------------------------------------------
$ 4,215 TOTAL REAL ESTATE INVESTMENT TRUST CONVERTIBLE BONDS (COST $3,070,426) 3,856,725
===================================================================================================================================
WEIGHTED
PRINCIPAL AVERAGE
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (3) RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS - 24.2% (18.1% OF TOTAL INVESTMENTS) (4)
AEROSPACE & DEFENSE - 1.8%
$ 2,467 Hexcel Corporation, Term Loan B 6.375% 3/01/12 BB- $2,494,417
1,825 K&F Industries, Inc., Term Loan B 7.008% 11/18/12 B2 1,851,234
1,617 Vought Aircraft Industries, Inc., Term Loan 7.330% 12/22/11 B+ 1,637,326
364 Vought Aircraft Industries, Inc., Tranche B, Letter of Credit 6.885% 12/22/10 B+ 368,352
-------------------------------------------------------------------------------------------------------------------------------
6,273 Total Aerospace & Defense 6,351,329
-------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 1.7%
2,500 Federal-Mogul Corporation, Term Loan A, (5) 7.080% 2/24/04 N/R 2,417,188
1,879 Gen Tek Inc., Term Loan B 7.525% 12/31/10 B2 1,889,961
1,217 Tenneco Automotive Inc., Term Loan B 7.020% 12/12/10 B+ 1,236,338
534 Tenneco Automotive Inc., Term Loan B-1 7.076% 12/12/10 B+ 543,101
-------------------------------------------------------------------------------------------------------------------------------
6,130 Total Auto Components 6,086,588
-------------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS - 1.1%
1,970 Nortek, Inc., Term Loan B 6.695% 8/27/11 B 1,991,240
989 Stile Acquisition Corp., Canadien Term Loan 6.634% 4/08/13 B2 978,872
991 Stile Acquisition Corp., Term Loan B 6.634% 4/08/13 B2 980,540
-------------------------------------------------------------------------------------------------------------------------------
3,950 Total Building Products 3,950,652
-------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.6%
1,980 Rockwood Specialties Group, Inc., Term Loan E 6.668% 7/30/12 B+ 2,008,617
-------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.7%
669 Allied Waste North America, Inc., Letter of Credit 6.000% 3/21/12 B1 672,514
1,723 Allied Waste North America, Inc., Term Loan B 6.796% 1/15/12 B1 1,732,622
-------------------------------------------------------------------------------------------------------------------------------
2,392 Total Commercial Services & Supplies 2,405,136
-------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 1.4%
2,963 Graham Packaging Company, L.P., Term Loan B 6.970% 10/07/11 B 3,005,086
175 Smurfit-Stone Container Corporation, Deposit-Funded Commitment 2.100% 11/01/11 B+ 177,236
1,253 Smurfit-Stone Container Corporation, Term Loan B 7.103% 11/01/11 B+ 1,271,854
425 Smurfit-Stone Container Corporation, Term Loan C 7.064% 11/01/11 B+ 431,469
133 Smurfit-Stone Container Corporation, Tranche C-1 6.938% 11/01/11 B+ 135,392
-------------------------------------------------------------------------------------------------------------------------------
4,949 Total Containers & Packaging 5,021,037
-------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.6%
1,975 Intelsat, Ltd., Term Loan B 6.750% 7/06/11 B 1,995,985
-------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.6%
2,000 Mirant Corporation, Term Loan 6.441% 1/03/13 BB- 2,019,107
-------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.5%
1,583 Sensus Metering Systems Inc., Term Loan B-1 7.297% 12/17/10 B2 1,599,918
210 Sensus Metering Systems Inc., Term Loan B-2 7.351% 12/17/10 B2 212,517
-------------------------------------------------------------------------------------------------------------------------------
1,793 Total Electrical Equipment 1,812,435
-------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.8%
2,926 Michael Foods, Inc., Term Loan B 6.698% 11/20/10 B+ 2,967,813
-------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.2%
877 Kinteic Concepts, Inc., Term Loan B-2 6.730% 8/11/10 Ba3 887,945
-------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 1.6%
1,883 Davita Inc., Term Loan B 6.689% 10/05/12 B1 1,909,912
2,085 LifePoint Hospitals Holdings, Inc., Term Loan B 6.185% 4/15/12 Ba3 2,100,066
2,000 Quintiles Transnational Corporation, Term Loan B, WI/DD TBD TBD B1 2,013,750
-------------------------------------------------------------------------------------------------------------------------------
5,968 Total Health Care Providers & Services 6,023,728
-------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.8%
2,000 24 Hour Fitness Worldwide, Inc., Term Loan B 7.620% 6/08/12 B 2,030,000
3,491 Burger King Corporation, Term Loan B 6.500% 6/30/12 B+ 3,516,313
1,990 Penn National Gaming, Inc., Term Loan B 6.387% 10/03/12 BB 2,019,540
513 Venetian Casino Resort, LLC, Delayed Draw, Term Loan 6.730% 6/15/11 BB- 518,790
2,487 Venetian Casino Resort, LLC, Term Loan 6.730% 6/15/11 BB- 2,516,132
-------------------------------------------------------------------------------------------------------------------------------
10,481 Total Hotels, Restaurants & Leisure 10,600,775
-------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.4%
1,294 Conseco, Inc., Term Loan 6.503% 6/22/10 BB- 1,306,940
-------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 1.1%
1,755 Fidelity National Information Services, Term Loan B 6.470% 3/09/13 BB+ 1,771,179
1,990 SunGard Data Systems Inc., Term Loan B 7.215% 2/11/13 B+ 2,018,873
-------------------------------------------------------------------------------------------------------------------------------
3,745 Total IT Services 3,790,052
-------------------------------------------------------------------------------------------------------------------------------
MEDIA - 4.9%
2,000 Cablevision Systems Corporation, Incremental Term Loan, WI/DD TBD TBD Ba3 2,017,875
1,963 Charter Communications Operating, LLC, Term Loan B 7.920% 4/07/11 B 1,982,403
1,386 Dex Media West, LLC, Term Loan B 6.530% 3/09/10 BB 1,400,290
863 Emmis Operating Company, Term Loan 6.530% 11/10/11 B+ 869,274
2,000 Metro-Goldwyn-Mayer Studios, Inc., Term Loan B 7.229% 4/08/12 B+ 2,027,125
1,726 R. H. Donnelley Inc., Tranche D 6.625% 6/30/11 Ba3 1,741,536
1,980 Rainbow Media Holdings LLC, Term Loan 7.563% 3/31/12 Ba3 2,005,988
1,900 Regal Cinemas Corporation, Term Loan 6.729% 11/10/10 BB- 1,921,481
2,000 UPC Financing Partnership, Term Loan H2 7.280% 9/30/12 B 2,015,208
1,957 WMG Acquisition Corp., Term Loan 6.679% 2/28/11 B+ 1,983,816
-------------------------------------------------------------------------------------------------------------------------------
17,775 Total Media 17,964,996
-------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.3%
944 Amsted Industries Incorporated, Term Loan B 7.150% 10/15/10 B1 958,965
-------------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL - 0.3%
949 Neiman Marcus Group Inc., Term Loan 7.340% 3/28/13 B+ 964,328
-------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.6%
371 NRG Energy Inc., Credit-Linked Deposit 6.979% 2/01/13 BB- 375,910
1,629 NRG Energy Inc., Term Loan 6.820% 2/01/13 BB- 1,650,615
-------------------------------------------------------------------------------------------------------------------------------
2,000 Total Multi-Utilities 2,026,525
-------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.6%
387 Targa Resources Inc., Synthetic Letter of Credit 7.229% 10/10/12 B+ 393,145
1,605 Targa Resources Inc., Term Loan B 7.091% 10/10/12 B+ 1,629,914
-------------------------------------------------------------------------------------------------------------------------------
1,992 Total Oil, Gas & Consumable Fuels 2,023,059
-------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.6%
1,995 Georgia-Pacific Corporation, Term Loan B 6.885% 12/20/12 BB- 2,011,444
-------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.5%
1,811 LNR Property Corporation, Term Loan 7.642% 2/03/08 B2 1,829,265
-------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.2%
130 Hertz Corporation, Delayed Draw Term Loan (6) 2.250% 12/21/12 Ba2 1,672
111 Hertz Corporation, Synthetic Term Loan 4.930% 12/21/12 Ba2 112,756
757 Hertz Corporation, Term Loan 6.980% 12/21/12 BB 767,976
-------------------------------------------------------------------------------------------------------------------------------
998 Total Road & Rail 882,404
-------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.3%
196 Brenntag Holdings, Acquisition Facility Term Loan 7.440% 1/20/14 B2 199,555
804 Brenntag Holdings, Term Loan 7.440% 1/20/14 B- 816,495
-------------------------------------------------------------------------------------------------------------------------------
1,000 Total Trading Companies & Distributors 1,016,050
-------------------------------------------------------------------------------------------------------------------------------
$ 86,197 TOTAL VARIABLE RATE SENIOR LOAN INTERESTS (COST $86,037,367) 86,905,175
===============================================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS SOVEREIGN DEBT AND FOREIGN CORPORATE BONDS - 29.5% (22.1% OF TOTAL INVESTMENTS)
ARGENTINA - 1.9%
$ 885 Argentine Beverages Financial Trust, 144A 7.375% 3/22/12 N/R $ 880,575
570 Banco de Galicia y Buenos Aires SA, Reg S 8.190% 1/01/10 N/R 570,000
2,555 Republic of Argentina 4.889% 8/03/12 B 2,101,488
7,350 Republic of Argentina 1.330% 12/31/38 B 2,800,350
545 Transportadora de Gas del Sur SA, Series B-A, Reg S 7.500% 12/15/13 CCC+ 547,725
-----------------------------------------------------------------------------------------------------------------------------------
11,905 Total Argentina 6,900,138
-----------------------------------------------------------------------------------------------------------------------------------
BRAZIL - 1.6%
550 Banco Votorantim SA, 144A 6.875% 10/14/15 BB 554,125
450 Braskem S.A., Reg S 11.750% 1/22/14 BB 550,125
405 Centrais Eletricas Brasileiras S.A., 144A 7.750% 11/30/15 BB 423,225
400 Cia Brasileira de Bebidas 10.500% 12/15/11 BBB 485,000
250 Federative Republic of Brazil 12.000% 4/15/10 BB 305,750
1,240 Federative Republic of Brazil 7.875% 3/07/15 BB 1,341,680
800 Federative Republic of Brazil 5.188% 4/15/24 BB 804,000
110 Federative Republic of Brazil 8.250% 1/20/34 BB 121,495
285 Federative Republic of Brazil 7.125% 1/20/37 BB 280,013
425 Vale Overseas Limited 6.250% 1/11/16 BBB 420,219
390 Vale Overseas Limited 8.250% 1/17/34 BBB 449,475
-----------------------------------------------------------------------------------------------------------------------------------
5,305 Total Brazil 5,735,107
-----------------------------------------------------------------------------------------------------------------------------------
BULGARIA - 0.4%
1,100 Republic of Bulgaria, Reg S 8.250% 1/15/15 BBB 1,290,300
-----------------------------------------------------------------------------------------------------------------------------------
CHILE - 1.2%
600 Coldelco Inc., Reg S 6.375% 11/30/12 A2 626,760
1,100 Corporacion Nacional del Cobre, 144A 4.750% 10/15/14 Aa3 1,031,445
430 Corporacion Nacional del Cobre, 144A 5.500% 10/15/13 Aa3 425,770
550 Enersis SA 7.375% 1/15/14 BBB- 576,480
1,100 Empresa Nacional del Petroleo, 144A 4.875% 3/15/14 A 1,027,808
550 Republic of Chile 6.875% 4/28/09 A 573,925
-----------------------------------------------------------------------------------------------------------------------------------
4,330 Total Chile 4,262,188
-----------------------------------------------------------------------------------------------------------------------------------
CHINA - 0.2%
610 China Development Bank 5.000% 10/15/15 A2 580,134
-----------------------------------------------------------------------------------------------------------------------------------
COLOMBIA - 0.5%
700 Republic of Colombia 10.000% 1/23/12 BB 828,800
350 Republic of Colombia 11.750% 2/25/20 BB 500,500
445 Republic of Colombia 8.125% 5/21/24 BB 500,625
-----------------------------------------------------------------------------------------------------------------------------------
1,495 Total Colombia 1,829,925
-----------------------------------------------------------------------------------------------------------------------------------
DOMINICAN REPUBLIC - 1.1%
1,525 Dominican Republic, 144A 8.625% 4/20/27 B 1,574,563
2,031 Dominican Republic, Reg S 4.520% 1/23/18 B 2,211,498
-----------------------------------------------------------------------------------------------------------------------------------
3,556 Total Dominican Republic 3,786,061
-----------------------------------------------------------------------------------------------------------------------------------
ECUADOR - 1.0%
1,125 Republic of Ecuador, 144A 9.375% 12/15/15 CCC+ 1,186,875
2,525 Republic of Ecuador, Reg S 9.000% 8/15/30 CCC+ 2,537,625
------------------------------------------------------------------------------------------------------------------------------------
3,650 Total Ecuador 3,724,500
------------------------------------------------------------------------------------------------------------------------------------
EL SALVADOR - 0.9%
850 Republic of El Salvador, 144A 7.650% 6/15/35 Baa3 896,750
400 Republic of El Salvador, Reg S 7.650% 6/15/35 Baa3 423,000
750 Republic of El Salvador, Reg S 8.500% 7/25/11 Baa3 838,125
1,080 Republic of El Salvador, Reg S 7.750% 1/24/23 Baa3 1,204,200
------------------------------------------------------------------------------------------------------------------------------------
3,080 Total El Salvador 3,362,075
------------------------------------------------------------------------------------------------------------------------------------
GUATEMALA - 0.3%
880 Republic of Guatemala, 144A 8.125% 10/06/34 Ba2 1,003,200
175 Republic of Guatemala, Reg S 10.250% 11/08/11 Ba2 208,862
------------------------------------------------------------------------------------------------------------------------------------
1,055 Total Guatemala 1,212,062
------------------------------------------------------------------------------------------------------------------------------------
HONG KONG - 0.2%
890 HKSAR Government, 144A 5.125% 8/01/14 AA- 870,667
------------------------------------------------------------------------------------------------------------------------------------
INDONESIA - 1.3%
390 Adaro Finance B.V., 144A 8.500% 12/08/10 Ba3 402,675
315 Excelcomindo Finance Company B.V., 144A 7.125% 1/18/13 BB- 315,788
2,030 Republic of Indonesia, 144A 7.250% 4/20/15 B+ 2,075,675
906 Republic of Indonesia, 144A 7.500% 1/15/16 B+ 937,710
850 Republic of Indonesia, 144A 6.875% 3/09/17 B+ 839,375
------------------------------------------------------------------------------------------------------------------------------------
4,491 Total Indonesia 4,571,223
------------------------------------------------------------------------------------------------------------------------------------
KAZAKHSTAN - 0.2%
500 Kazkommerts International BV, 144A 8.000% 11/03/15 Baa2 518,000
300 Tengizchevroil Finance Company, 144A 6.124% 11/15/14 BBB- 300,000
------------------------------------------------------------------------------------------------------------------------------------
800 Total Kazakhstan 818,000
------------------------------------------------------------------------------------------------------------------------------------
MALAYSIA - 1.2%
1,100 Malaysia 8.750% 6/01/09 A- 1,203,940
1,000 Malaysia 7.500% 7/15/11 A- 1,088,706
1,125 Petronas Capital Limited, Reg S 7.000% 5/22/12 A1 1,205,830
200 Petronas Capital Limited, Reg S 7.875% 5/22/22 A- 238,132
550 Sarawak International 5.500% 8/03/15 A- 526,208
------------------------------------------------------------------------------------------------------------------------------------
3,975 Total Malaysia 4,262,816
------------------------------------------------------------------------------------------------------------------------------------
MEXICO - 1.9%
550 America Movil S.A. de C.V. 5.500% 3/01/14 A3 528,491
895 Conproca SA, Reg S 12.000% 12/16/10 BBB- 1,051,625
1,200 Pemex Project Funding Master Trust 8.500% 2/15/08 Baa1 1,259,100
590 Pemex Project Funding Master Trust 9.375% 12/02/08 Baa1 648,705
750 Pemex Project Funding Master Trust 6.625% 6/15/35 Baa1 725,437
1,395 Pemex Project Funding Master Trust 5.750% 12/15/15 Baa1 1,337,456
405 Pemex Project Funding Master Trust, 144A 5.750% 12/15/15 Baa1 388,294
275 Petroleos Mexicanos 8.850% 9/15/07 Baa1 288,063
721 United Mexican States 7.500% 1/14/12 Baa1 780,483
------------------------------------------------------------------------------------------------------------------------------------
6,781 Total Mexico 7,007,654
------------------------------------------------------------------------------------------------------------------------------------
PANAMA - 0.8%
390 Republic of Panama 9.625% 2/08/11 Ba1 451,425
984 Republic of Panama 6.700% 1/26/36 Ba1 986,952
1,300 Republic of Panana 7.125% 1/29/26 Ba1 1,332,500
-----------------------------------------------------------------------------------------------------------------------------------
2,674 Total Panama 2,770,877
-----------------------------------------------------------------------------------------------------------------------------------
PERU - 0.7%
1,334 Republic of Peru 5.000% 3/07/17 BB 1,263,728
1,126 Republic of Peru 5.000% 3/07/17 BB 1,075,091
-----------------------------------------------------------------------------------------------------------------------------------
2,460 Total Peru 2,338,819
-----------------------------------------------------------------------------------------------------------------------------------
PHILIPPINES - 1.9%
255 Bangko Sentral Pilipinas, Series A 8.600% 6/15/27 BB- 274,763
750 National Power Corporation, 144A 8.630% 8/23/11 BB- 827,259
1,193 Republic of the Philippines 8.375% 2/15/11 BB- 1,300,370
1,500 Republic of the Philippines 8.875% 3/17/15 BB- 1,700,625
1,500 Republic of the Philippines 9.375% 1/18/17 BB- 1,751,250
1,075 Republic of the Philippines 7.750% 1/14/31 BB- 1,088,438
-----------------------------------------------------------------------------------------------------------------------------------
6,273 Total Philippines 6,942,705
-----------------------------------------------------------------------------------------------------------------------------------
QATAR - 0.5%
329 Ras Laffan Liquefied Natural Gas Company, 144A 3.437% 9/15/09 A- 317,917
689 Ras Laffan Liquefied Natural Gas Company, Reg S 3.437% 9/15/09 A- 667,292
550 State of Qatar, Reg S 9.750% 6/15/30 A+ 809,875
-----------------------------------------------------------------------------------------------------------------------------------
1,568 Total Qatar 1,795,084
-----------------------------------------------------------------------------------------------------------------------------------
RUSSIAN FEDERATION - 2.4%
500 Aries Vermogensverwaltung GmbH, Russian Federation Sovereign 9.600% 10/25/14 BBB- 625,852
Collateralized Debt Obligation, Reg S
805 GazStream SA, 144A 5.625% 7/22/13 Baa1 792,861
1,500 Russia Federation, Reg S 5.000% 3/31/30 BBB 1,649,357
2,050 Russia Ministry of Finance 3.000% 5/14/08 BBB 1,947,090
750 Russian Federation, Reg S 11.000% 7/24/18 BBB 1,078,965
400 Russian Federation, Reg S 12.750% 6/24/28 BB+ 714,647
550 UBS Luxembourg SA 6.230% 2/11/15 Baa2 550,880
1,000 VTB Capital SA, 144A 7.500% 10/12/11 A2 1,060,000
-----------------------------------------------------------------------------------------------------------------------------------
7,555 Total Russian Federation 8,419,652
-----------------------------------------------------------------------------------------------------------------------------------
SERBIA - 0.6%
2,500 Republic of Serbia, 144A 3.750% 11/01/24 BB- 2,271,875
-----------------------------------------------------------------------------------------------------------------------------------
SOUTH AFRICA - 1.2%
3,980 Republic of South Africa 9.125% 5/19/09 BBB+ 4,378,000
-----------------------------------------------------------------------------------------------------------------------------------
SOUTH KOREA - 0.8%
380 C&M Finance Limited, 144A 8.100% 2/01/16 BB+ 380,898
410 Hanarotelecom Inc., 144A 7.000% 2/01/12 BB 405,219
2,020 Korea Development Bank 4.625% 9/16/10 A 1,949,039
-----------------------------------------------------------------------------------------------------------------------------------
2,810 Total South Korea 2,735,156
-----------------------------------------------------------------------------------------------------------------------------------
THAILAND - 0.1%
250 Bangkok Bank Public Company Limited, Reg S 9.025% 3/15/29 Baa2 306,596
180 National Gas Company of Trinidad and Tobago, 144A 6.050% 1/15/36 A3 173,332
-----------------------------------------------------------------------------------------------------------------------------------
430 Total Thailand 479,928
-----------------------------------------------------------------------------------------------------------------------------------
TRINIDAD AND TOBAGO - 0.6%
300 First Citizens Saint Lucia, Reg S 5.125% 2/14/11 A2 292,325
1,233 Republic of Trinidad and Tobago, Reg S 9.750% 7/01/20 A- 1,676,116
-----------------------------------------------------------------------------------------------------------------------------------
1,533 Total Trinidad and Tobago 1,968,441
-----------------------------------------------------------------------------------------------------------------------------------
TUNISIA - 0.5%
1,700 Banque Cent de Tunisie 7.375% 4/25/12 BBB 1,838,125
-----------------------------------------------------------------------------------------------------------------------------------
TURKEY - 0.9%
350 Republic of Turkey 11.750% 6/15/10 BB- 422,625
825 Republic of Turkey 9.000% 6/30/11 BB- 927,094
425 Republic of Turkey 7.250% 3/15/15 BB- 444,656
1,350 Republic of Turkey 7.375% 2/05/25 BB- 1,405,688
117 Republic of Turkey 6.875% 3/17/36 BB- 113,490
-----------------------------------------------------------------------------------------------------------------------------------
3,067 Total Turkey 3,313,553
-----------------------------------------------------------------------------------------------------------------------------------
UKRAINE - 0.7%
2,000 Ukraine Government, Reg S 7.650% 6/11/13 BB- 2,103,800
429 Ukraine Government, Reg S 11.000% 3/15/07 B1 446,133
-----------------------------------------------------------------------------------------------------------------------------------
2,429 Total Ukraine 2,549,933
-----------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - 0.1%
550 Vedanta Resources PLC, Reg S 6.625% 2/22/10 BB+ 536,174
-----------------------------------------------------------------------------------------------------------------------------------
URUGUAY - 1.6%
800 Oriental Republic of Uruguay 7.625% 3/21/36 B 804,000
2,150 Republic of Uruguay 7.250% 2/15/11 B 2,246,750
315 Republic of Uruguay 7.500% 3/15/15 B 329,175
970 Republic of Uruguay 9.250% 5/17/17 B 1,130,050
1,300 Republic of Uruguay 8.000% 11/18/22 B 1,365,000
-----------------------------------------------------------------------------------------------------------------------------------
5,535 Total Uruguay 5,874,975
-----------------------------------------------------------------------------------------------------------------------------------
VENEZUELA - 1.3%
505 Petrozuata Finance Inc., Reg S 8.220% 4/01/17 Ba3 498,688
550 Republic of Venezuela 8.500% 10/08/14 BB- 617,375
1,215 Republic of Venezuela 5.750% 2/26/16 BB- 1,131,160
1,935 Republic of Venezuela, Reg S 5.375% 8/07/10 B+ 1,878,885
580 Republic of Venezuela, Reg S 7.000% 12/01/18 B+ 591,600
-----------------------------------------------------------------------------------------------------------------------------------
4,785 Total Venezuela 4,717,708
-----------------------------------------------------------------------------------------------------------------------------------
VIETNAM - 0.9%
2,470 Socialist Republic of Vietnam 5.875% 3/14/16 BB- 2,451,026
595 Socialist Republic of Vietnam, 144A 6.875% 1/15/16 BB- 615,825
-----------------------------------------------------------------------------------------------------------------------------------
3,065 Total Vietnam 3,066,851
-----------------------------------------------------------------------------------------------------------------------------------
$ 105,937 TOTAL EMERGING MARKETS SOVEREIGN DEBT AND FOREIGN CORPORATE BONDS (COST $102,364,849) 106,210,706
===================================================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 2.3% (1.7% OF TOTAL INVESTMENTS)
HOTELS, RESTAURANTS & LEISURE - 1.1%
$ 2,000 Aztar Corporation 9.000% 8/15/11 Ba3 $2,123,000
2,000 MGM Mirage, Inc. 6.750% 8/01/07 BB 2,027,500
-----------------------------------------------------------------------------------------------------------------------------------
4,000 Total Hotels, Restaurants & Leisure 4,150,500
-----------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 1.2%
2,000 D.R. Horton, Inc. 7.500% 12/01/07 BBB- 2,064,428
2,000 KB Home 8.625% 12/15/08 Ba2 2,119,490
-----------------------------------------------------------------------------------------------------------------------------------
4,000 Total Household Durables 4,183,918
-----------------------------------------------------------------------------------------------------------------------------------
$ 8,000 TOTAL CORPORATE BONDS (COST $8,408,218) 8,334,418
===================================================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 3.7% (2.8% OF TOTAL INVESTMENTS)
Repurchase Agreement with State Street Bank, dated 3/31/06,
repurchase price $13,240,520, collateralized by $10,940,000,
$ 13,236 U.S. Treasury Bonds, 7.500%, due 11/15/16, value $13,504,631 4.250% 4/03/06 $ 13,235,832
===============------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $13,235,832) 13,235,832
============================================================================================================
TOTAL INVESTMENTS (COST $411,177,301) - 133.4% 479,889,062
============================================================================================================
OTHER ASSETS LESS LIABILITIES - 0.0% (248,515)
============================================================================================================
FUNDPREFERRED SHARES, AT LIQUIDATION VALUE - (33.4)% (120,000,000)
============================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $359,640,547
============================================================================================================
(1) All percentages shown in the Portfolio of Investments are
based on net assets applicable to Common shares unless
otherwise noted.
(2) Ratings: Using the higher of Standard & Poor's or Moody's
rating. Ratings below BBB by Standard & Poor's Group or
Baa by Moody's Investor Service, Inc. are considered to
be below investment grade.
(3) Senior Loans in the Fund's portfolio generally are
subject to mandatory and/or optional prepayment. Because
of these mandatory prepayment conditions and because
there may be significant economic incentives for a
Borrower to prepay, prepayments of Senior Loans in the
Fund's portfolio may occur. As a result, the actual
remaining maturity of Senior Loans held in the Fund's
portfolio may be substantially less than the stated
maturities shown.
(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 March 31, 2006, this issue was under
the protection of the Federal Bankruptcy Court.
(6) Position represents an unfunded loan commitment at March
31, 2006.
N/R Not rated.
WI/DD Purchased on a when-issued or delayed delivery basis.
ADR American Depositary Receipt.
144A Investments are 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.
Reg S Regulation S allows U.S. companies to sell securities to
persons or entities located outside of the U.S. without
registering those securities with the Securities and
Exchange Commission. Specifically, Reg S provides a safe
harbor from the registration requirements of the
Securities Act for the offers and sales of securities by
both foreign and domestic issuers that are made outside
the United States.
TBD Senior Loan purchased on a when-issued or
delayed-delivery basis. Certain details associated with
this purchase are not known prior to the settlement date
of the transaction. In addition, Senior Loans typically
trade without accrued interest and therefore a weighted
average coupon rate is not available prior to settlement.
At settlement, if still unknown, the borrower or
counterparty will provide the Fund with the final
weighted average coupon rate and maturity date.
See accompanying notes to financial statements.
Statement of
ASSETS AND LIABILITIES March 31, 2006 (Unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $411,177,301) $ 479,889,062
Receivables:
Dividends 1,377,361
Interest 2,522,520
Investments sold 1,854,867
Reclaims 10,480
Other assets 27,855
--------------------------------------------------------------------------------
Total assets 485,682,145
--------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 5,678,874
Accrued expenses:
Management fees 230,311
Other 96,088
FundPreferred share dividends payable 36,325
--------------------------------------------------------------------------------
Total liabilities 6,041,598
--------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 120,000,000
--------------------------------------------------------------------------------
Net assets applicable to Common shares $ 359,640,547
================================================================================
Common shares outstanding 20,145,123
================================================================================
Net asset value per Common share outstanding
(net assets applicable to Common shares,
divided by Common shares outstanding) $ 17.85
================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
--------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 201,451
Paid-in surplus 284,729,686
Undistributed (Over-distribution of) net investment income (2,978,831)
Accumulated net realized gain (loss) from investments 8,976,480
Net unrealized appreciation (depreciation) of investments 68,711,761
--------------------------------------------------------------------------------
Net assets applicable to Common shares $ 359,640,547
================================================================================
Authorized shares:
Common Unlimited
FundPreferred Unlimited
================================================================================
See accompanying notes to financial statements.
Statement of
OPERATIONS Three Months Ended March 31, 2006 (Unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $20,598) $ 1,765,333
Interest (net of foreign tax withheld of $6,849) 3,467,624
--------------------------------------------------------------------------------
Total investment income $ 5,232,957
--------------------------------------------------------------------------------
EXPENSES
Management fees 1,035,443
FundPreferred shares - auction fees 73,973
FundPreferred shares - dividend disbursing agent fees 3,329
Shareholders' servicing agent fees and expenses 402
Custodian's fees and expenses 29,561
Trustees' fees and expenses 3,019
Professional fees 10,590
Shareholders' reports - printing and mailing expenses 18,592
Stock exchange listing fees 2,583
Investor relations expense 16,939
Other expenses 6,312
--------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 1,200,743
Custodian fee credit (665)
Expense reimbursement (372,753)
--------------------------------------------------------------------------------
Net expenses 827,325
--------------------------------------------------------------------------------
Net investment income 4,405,632
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from investments 9,028,668
Change in net unrealized appreciation (depreciation) of investments 13,955,915
--------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 22,984,583
--------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (1,215,247)
From accumulated net realized gains --
--------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares
from distributions to FundPreferred shareholders (1,215,247)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares
from operations $26,174,968
================================================================================
See accompanying notes to financial statements.
Statement of
CHANGES IN NET ASSETS (Unaudited)
THREE MONTHS ENDED YEAR ENDED
3/31/06 12/31/05
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 4,405,632 $ 16,705,911
Net realized gain (loss) from investments 9,028,668 21,214,600
Change in net unrealized appreciation (depreciation) of investments 13,955,915 (928,498)
Distributions to FundPreferred shareholders:
From net investment income (1,215,247) (1,861,555)
From accumulated net realized gains from investments -- (1,922,933)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares
from operations 26,174,968 33,207,525
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (6,647,891) (14,320,955)
From accumulated net realized gains from investments -- (18,211,404)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (6,647,891) (32,532,359)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common share offering cost adjustments -- (4,043)
FundPreferred shares offering costs adjustments -- (4,043)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares from
capital share transactions -- (8,086)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares 19,527,077 667,080
Net assets applicable to Common shares at the beginning of period 340,113,470 339,446,390
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $ 359,640,547 $340,113,470
====================================================================================================================================
Undistributed (Over-distribution of) net investment income at the end of period $ (2,978,831) $ 478,675
====================================================================================================================================
See accompanying notes to financial statements.
Statement of
CASH FLOWS Three Months Ended March 31, 2006 (Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHARES FROM OPERATIONS $ 26,174,968
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 investment securities (45,271,098)
Proceeds from sales of investment securities 52,062,577
Proceeds from (Purchase of) short-term investment securities, net (5,807,260)
Amortization/(Accretion) of premiums and discounts, net 31,886
(Increase) Decrease in receivable for dividends (94,031)
(Increase) Decrease in receivable for interest 183,803
(Increase) Decrease in receivable for investments sold (804,260)
(Increase) Decrease in receivable for reclaims 9,160
(Increase) Decrease in other assets (16,248)
Increase (Decrease) in payable for investments purchased 2,748,496
Increase (Decrease) in accrued management fees 4,810
Increase (Decrease) in accrued other liabilities (26,274)
Increase (Decrease) in FundPreferred share dividends payable (15,138)
Net realized (gain) loss from investments (9,028,668)
Net realized (gain) loss from paydowns 56,121
Change in net unrealized (appreciation) depreciation of investments (13,955,915)
Capital gain and return of capital distributions from investments 847,028
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 7,099,957
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to Common shareholders (6,647,891)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (6,647,891)
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 452,066
Cash at the beginning of period (452,066)
------------------------------------------------------------------------------------------------------------------------------------
CASH AT THE END OF PERIOD $ --
====================================================================================================================================
See accompanying notes to financial statements.
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Diversified Dividend and Income Fund (the "Fund") is a diversified,
closed-end management investment company registered under the Investment Company
Act of 1940, as amended. The Fund's Common shares are listed on the New York
Stock Exchange and trade under the ticker symbol "JDD." The Fund was organized
as a Massachusetts business trust on July 18, 2003.
The Fund seeks to provide high current income and total return by investing
primarily in a portfolio of dividend-paying common stocks, securities issued by
Real Estate Investment Trusts ("REITs"), debt securities and other non-equity
instruments that are issued by, or that are related to, government,
government-related and supernational issuers located, or conducting their
business, in emerging market countries ("emerging markets sovereign debt and
foreign corporate bonds") and senior loans.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. The prices of fixed-income securities and senior
loans are generally provided by an independent pricing service approved by the
Fund's Board of Trustees and based on the mean between the bid and asked prices.
When price quotes are not readily available, the pricing service or, in the
absence of a pricing service for a particular security, the Board of Trustees of
the Fund, or its designee, may establish fair market value using a wide variety
of market data including yields or prices of investments of comparable quality,
type of issue, coupon, maturity and rating, market quotes or indications of
value from security dealers, evaluations of anticipated cash flows or
collateral, general market conditions and other information and analysis,
including the obligor's credit characteristics considered relevant by the
pricing service or the Board of Trustee's designee. Short-term investments are
valued at amortized cost, which approximates market value.
The senior loans in which the Fund invests are not listed on an organized
exchange and the secondary market for such investments may be less liquid
relative to markets for other fixed income securities. Consequently, the value
of senior loans, determined as described above, may differ significantly from
the value that would have been determined had there been an active market for
that senior loan.
Investment Transactions
Investment transactions are recorded on a trade date basis. Trade date for
senior loans purchased in the "primary market" is considered the date on which
the loan allocations are determined. Trade date for senior loans purchased in
the "secondary market" is the date on which the transaction is entered into.
Realized gains and losses from investment transactions are determined on the
specific identification method. Investments purchased on a when-issued or
delayed delivery basis may have extended settlement periods. Any investments so
purchased are subject to market fluctuation during this period. The Fund
maintains liquid assets with a current value at least equal to the amount of the
when-issued and delayed delivery purchase commitments. At March 31, 2006,
the Fund had outstanding when-issued/delayed delivery commitments of $4,000,000.
Investment Income
Dividend income is recorded on the ex-dividend date or, for foreign securities,
when information is available. Interest income, which includes the amortization
of premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis. Interest income also includes paydown gains and
losses on senior loans. Fee income, if any, consists primarily of amendment
fees. Amendment fees are earned as compensation for evaluating and accepting
changes to the original loan agreement and are recognized when received.
Federal Income Taxes
The Fund intends to distribute substantially all net investment income and net
capital gains to shareholders and to otherwise comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no federal income tax provision is required.
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
The Fund makes monthly cash distributions to Common Shareholders of a stated
dollar amount based on the Fund's net investment income, net realized capital
gains and/or on net unrealized capital gains in the Fund's portfolio (stated in
terms of a fixed cents per Common Share dividend rate) ("Managed Distribution
Policy"). The Fund seeks to maintain a stable distribution level, subject to
approval and oversight by the Fund's Board of Trustees. Distributions will be
made only after paying any accrued dividends or making any redemption or
liquidation payments to FundPreferred shares, if any, and interest and required
principal payments on borrowings, if any. Under the Managed Distribution Policy,
if, for any monthly distribution, net investment income and net realized capital
gain were less than the amount of the distribution, the difference would be
distributed from the Fund's assets and would be treated by shareholders as a
return of capital for tax purposes. Distributions during the first three months
of the fiscal year are classified as having been paid from net investment
income; consequently, this will negatively impact the amount of undistributed
net investment income shown in the financial statements in this interim report.
The final determination of the source of all distributions for the year are made
after the end of the year and reflected in the financial statements contained in
the annual report.
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 year-end. For the fiscal year ended
December 31, 2005, the character of distributions to the Fund from the REITs was
46.22% ordinary income, 37.32% long-term and short-term capital gains, and
16.46% return of REIT capital.
For the three months ended March 31, 2006, the Fund applied the actual
percentages for the twelve months ended December 31, 2005, described above, to
its receipts from the REITs and treated as income in the Statement of Operations
only the amount of ordinary income so calculated. The Fund adjusts that
estimated breakdown of income type (and consequently its net investment income)
as necessary early in the following calendar year when the REITs inform their
shareholders of the actual breakdown of income type. For the fiscal year ended
December 31, 2005, the Fund applied the actual character of distributions
reported by the REITs in which the Fund invests to its receipts from the REITS.
If a REIT held in the portfolio of investments did not report the actual
character of its distributions during the period, the Fund treated the
distributions as ordinary income.
During the three months ended March 31, 2006, the Fund treated each
distribution to its shareholders from the portfolio REITs as being entirely from
net investment income. The Fund will recharacterize those distributions as being
from ordinary income, long-term and short-term capital gains, and return of
capital, if necessary, at the beginning of the subsequent year, based upon the
income type breakdown information conveyed at the time by the REITs whose
securities are held in the Fund's portfolio. Consequently, the financial
statements at March 31, 2006, reflect an over-distribution of net investment
income that is at least partly attributable to the fact that some of the amounts
received by the Fund from the portfolio REITS, but none of the dividends paid by
the Fund to shareholders, were treated as something other than ordinary income.
For the fiscal year ended December 31, 2005, the Fund applied the actual
character of distributions reported by the REITs in which the Fund invests to
the distributions paid to the Fund shareholders.
FundPreferred Shares
The Fund has issued and outstandings 2,400 Series T and 2,400 Series W,
FundPreferred shares, $25,000 stated value per share, as a means of effecting
financial leverage. The dividend rate paid by the Fund on each Series is
determined every seven days, pursuant to a dutch auction process overseen by the
auction agent, and is payable at the end of each rate period.
Derivative Financial Instruments
The Fund is authorized to invest in derivatives or other transactions for the
purpose of hedging the portfolio's exposure to common stock risk, high yield
credit risk, foreign currency exchange risk and the risk of increases in
interest rates. Although the Fund is authorized to invest in such financial
instruments, and may do so in the future, it did not engage in any such
investments during the three months ended March 31, 2006.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Fund's organizational documents, its Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
The Fund did not engage in transactions in its own shares during the three
months ended March 31, 2006, nor during the fiscal year ended December 31, 2005.
3. INVESTMENT TRANSACTIONS
Purchases and sales (excluding short-term investments) during the three months
ended March 31, 2006, aggregated $45,271,098 and $52,062,577, respectively.
4. INCOME TAX INFORMATION The following information is presented on an income
tax basis. Differences between amounts for financial statement and federal
income tax purposes are primarily due to the treatment of paydown gains and
losses, recognition of premium amortization, recognition of income on REIT
investments and timing differences in recognizing certain gains and losses on
investment transactions.
At March 31, 2006, the cost of investments was $412,473,071.
Gross unrealized appreciation and gross unrealized depreciation of investments
at March 31, 2006, were as follows:
--------------------------------------------------------------------------------
Gross unrealized:
Appreciation $72,117,471
Depreciation (4,701,480)
--------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $67,415,991
================================================================================
The tax components of undistributed net ordinary income and net realized gains
at December 31, 2005, the Fund's last tax year end, were as follows:
--------------------------------------------------------------------------------
Undistributed net ordinary income * $ 1,742,465
Undistributed net long-term capital gains --
================================================================================
*Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
The tax character of distributions paid during the Fund's last tax year end
December 31, 2005, was designated for purposes of the dividends paid deduction
as follows:
--------------------------------------------------------------------------------
Distributions from net ordinary income * $ 20,166,376
Distributions from net long-term capital gains 16,120,736
================================================================================
*Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
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., and a specific fund-level component, based only on the amount
of assets within the Fund. This pricing structure enables Nuveen fund
shareholders to benefit from growth in the assets within each individual fund as
well as from growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly, is based upon the average daily
Managed Assets of the Fund as follows:
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
================================================================================
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 March 31, 2006, the complex-level fee rate was .1887%.
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion (2) .1400
================================================================================
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds
in the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level
fee rate for such complex-wide Managed Assets shall be .1400% until such
time as a different rate or rates is determined.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with NWQ Investment Management Company, LLC
("NWQ"), Security Capital Research & Management Incorporated ("Security
Capital"), Symphony Asset Management, LLC ("Symphony") and Wellington Management
Company, LLP ("Wellington"). Nuveen owns a controlling interest in NWQ while key
management of NWQ owns a non-controlling minority interest. Symphony is an
indirect wholly owned subsidiary of Nuveen. NWQ manages the portion of the
Fund's investment portfolio allocated to dividend-paying common stocks including
American Depositary Receipts ("ADRs"). Security Capital manages the portion of
the Fund's investment portfolio allocated to securities issued by real estate
companies including REITs. Symphony manages the portion of the Fund's investment
portfolio allocated to senior loans. Wellington manages the portion of the
Fund's investment portfolio allocated to emerging markets sovereign debt and
foreign corporate bonds. NWQ, Security Capital, Symphony and Wellington are
compensated for their services to the Fund from the management fee paid to the
Adviser.
The Fund pays no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its officers, all of whom receive remuneration
for their services to the Fund from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
For the first eight years of the Fund's operations, the Adviser has agreed to
reimburse the Fund, as a percentage of average daily Managed Assets, for fees
and expenses in the amounts and for the time periods set forth below:
YEAR ENDING YEAR ENDING
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------------------------
2003* .32% 2008 .32%
2004 .32 2009 .24
2005 .32 2010 .16
2006 .32 2011 .08
2007 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond September 30, 2011.
6. COMMITMENTS
Pursuant to the terms of certain of the variable rate senior loan agreements,
the Fund may have unfunded senior loan commitments. The Fund will maintain with
its custodian, cash, liquid securities and/or liquid senior loans having an
aggregate value at least equal to the amount of unfunded senior loan
commitments. At March 31, 2006, the Fund had unfunded senior loan commitments of
$130,222.
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 March 31, 2006, there
were no such outstanding participation commitments.
8. SUBSEQUENT EVENT -- DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Fund declared a distribution of $.1100 per Common share which was paid on
May 1, 2006, to shareholders of record on April 15, 2006.
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
-------------------------------------------------------------- ---------------------------------------
Distributions Distributions
from Net from Net
Beginning Net Investment Capital Investment Capital
Common Realized/ Income to Gains to Income to Gains to Tax
Share Net Unrealized FundPreferred FundPreferred Common Common Return
Net Asset Investment Investment Share- Share- Share- Share- of
Value Income(a) Gain holders+ holders+ Total holders holders Capital Total
====================================================================================================================================
Period Ended 12/31:
2006(c) $16.88 $.22 $1.14 $(.06) $ -- $1.30 $(.33) $ -- $ -- $ (.33)
2005 16.85 .83 1.00 (.09) (.10) 1.64 (.71) (.90) -- (1.61)
2004 15.13 .81 2.23 (.06) (.03) 2.95 (.81) (.41) (.01) (1.23)
2003(b) 14.33 .18 1.01 (.01) -- 1.18 (.18) (.02) (.01) (.21)
====================================================================================================================================
Total Returns
-------------------
Based
Offering on
Costs and Ending Common
FundPreferred Common Based Share
Share Share Ending on Net
Underwriting Net Asset Market Market Asset
Discounts Value Value Value** Value**
==========================================================================================
Period Ended 12/31:
2006(c) $ -- $17.85 $16.93 5.58% 7.73%
2005 -- 16.88 16.35 16.36 10.21
2004 -- 16.85 15.57 8.04 20.44
2003(b) (.17) 15.13 15.65 5.76 7.04
==========================================================================================
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
------------------------------- -------------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
=============================================================================================================================
Period Ended 12/31:
2006(c) $359,641 1.38%* 4.63* .95%* 5.06* 10%
2005 340,113 1.42 4.53 .99 4.96 49
2004 339,446 1.50 4.74 1.06 5.19 46
2003(b) 304,387 1.26* 4.51* .87* 4.89* 28
=============================================================================================================================
FundPreferred Shares at End of Period
--------------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
===========================================================================
Period Ended 12/31:
2006(c) $120,000 $25,000 $99,925
2005 120,000 25,000 95,857
2004 120,000 25,000 95,718
2003(b) 120,000 25,000 88,414
===========================================================================
* Annualized.
** Total Return on Market Value is the combination of changes in the market
price per share and the effect of reinvested dividend income and reinvested
capital gains distributions, if any, at the average price paid per share at
the time of reinvestment. Total Return on Common Share Net Asset Value is
the combination of changes in Common Share net asset value, reinvested
dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders; income ratios reflect income earned on assets attributable to
FundPreferred shares.
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) For the period September 25, 2003 (commencement of operations) through
December 31, 2003.
(c) For the three months ended March 31, 2006.
See accompanying notes to financial statements.
ITEM 2. CODE OF ETHICS.
Not applicable to this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During this reporting period, the registrant's Board of Trustees implemented a
change to the procedures by which shareholders may recommend nominees to the
registrant's board of trustees by amending the registrant's by-laws to include a
provision specifying the date by which shareholder nominations for election as
trustee at a subsequent meeting must be submitted to the registrant.
Shareholders must deliver or mail notice to the registrant not less than
forty-five days nor more than sixty days prior to the first anniversary date of
the date on which the registrant first mailed its proxy materials for the prior
year's annual meeting; provided, however, if and only if the annual meeting is
not scheduled to be held within a period that commences thirty days before the
first anniversary date of the annual meeting for the preceding year and ends
thirty days after such anniversary date (an annual meeting date outside such
period being referred to as an "Other Annual Meeting Date" hereafter), the
shareholder notice must be given no later than the close of business on the date
forty-five days prior to such Other Annual Meeting Date or the tenth business
day following the date such Other Annual Meeting Date is first publicly
announced or disclosed. The shareholder's notice must be in writing and set
forth the name, age, date of birth, business address, residence address and
nationality of the person(s) being nominated and the class or series, number of
all shares of the registrant owned of record or beneficially be each such
person(s), any other information regarding such person required by Item 401 of
Regulation S-K or Item 22 of Rule 14a-101 (Schedule 14A) under the Securities
Exchange Act of 1934, as amended, any other information regarding the person(s)
to be nominated that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitation of proxies for
election of trustees, and whether such shareholder believes any nominee is or
will be an "interested person" (as that term is defined in the Investment
Company Act of 1940, as amended) of the registrant or sufficient information to
enable the registrant to make that determination and the written and signed
consent of the person(s) to be nominated.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of this report that
includes the disclosure required by this paragraph, based on their
evaluation of the controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")(17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable to
this filing.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons: Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Diversified Dividend and Income Fund
By (Signature and Title)* /s/ Jessica R. Droeger
---------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: June 8, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
---------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: June 8, 2006
By (Signature and Title)* /s/ Stephen D. Foy
---------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: June 8, 2006
* Print the name and title of each signing officer under his or her signature.