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 811-22058
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Nuveen Tax-Advantaged Dividend Growth 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)
Kevin J. McCarthy
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
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Date of fiscal year end: December 31
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Date of reporting period: June 30, 2007
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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 SHAREHOLDERS
Semi-Annual Report
JUNE 30, 2007
Nuveen Investments
CLOSED-END FUNDS
NUVEEN TAX-ADVANTAGED
DIVIDEND GROWTH
FUND
JTD
Chairman's
LETTER TO SHAREHOLDERS
(TIMOTHY
SCHWERTFEGER
PHOTO) Timothy R. Schwertfeger Chairman of the Board
Dear Shareholder:
On behalf of all of us at Nuveen Investments, I'd like to use this first report
of the Nuveen Tax-Advantaged Dividend Growth Fund (JTD) to welcome the
shareholders of this Fund to our closed-end fund family. JTD was introduced in
late June 2007. As of June 30, 2007, the initial proceeds from the common share
offering had been received and are in the process of being invested. I look
forward to reporting on this Fund's progress and performance in the next
shareholder report.
I also wanted to take this opportunity to report some important news about
Nuveen Investments. We have accepted a "growth buyout" offer from a private
equity investment firm. While this may affect the corporate structure of Nuveen
Investments, it will have no impact on the investment objectives of the Fund,
its portfolio management strategies or its dividend policies. We will provide
you with additional information about this transaction as more details become
available.
We also are pleased to be able to offer you a choice concerning how you receive
your shareholder reports and other Fund information. As an alternative to mailed
copies, you can sign up to receive future Fund reports and other Fund
information by e-mail and the internet.
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. 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.
Sincerely,
(TIMOTHY SCHWERTFEGER SIG)
Timothy R. Schwertfeger
Chairman of the Board
August 15, 2007
Nuveen/Tax-Advantaged Dividend Growth Fund (JTD)
Portfolio of Investments
June 30, 2007(Unaudited)
Principal
Amount (000) Description Coupon Maturity Value
271,605 Repurchase Agreement with State Street Bank,
dated 6/29/07, repurchase price $271,695,535, 4.000% 7/02/07 271,605,000
collateralized by:
$195,000,000 U.S. Treasury
Notes, 3.000%, due 7/15/12, value $230,831,250
$25,500,000 U.S. Treasury
Notes, 2.500%, due 7/15/16, value $26,010,000
$20,455,000 U.S. Treasury
Notes, 2.000%, due 4/15/12, value $20,199,313
(cost $271,605,000) - 100.0%
Other Assets Less Liabilities - 0.0% 123,879
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Net Assets - 100% 271,728,879
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See accompanying notes to financial statements.
Statement of
ASSETS AND LIABILITIES June 30, 2007 (Unaudited)
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ASSETS
Repurchase agreement, at cost (which approximates value) $271,605,000
Cash 100,084
Interest receivable 60,357
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Total assets 271,765,441
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LIABILITIES
Accrued expenses:
Management fees 14,663
Other 21,899
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Total liabilities 36,562
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Net assets applicable to Common shares $271,728,879
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Common shares outstanding 14,255,240
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Net asset value per Common share outstanding $ 19.06
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NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
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Shares, $.01 par value per share $ 142,552
Paid-in surplus 271,562,532
Undistributed (Over-distribution of) net investment income 23,795
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Net assets applicable to Common shares $271,728,879
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Authorized shares:
Common Unlimited
Preferred Unlimited
===========================================================================
See accompanying notes to financial statements.
Statement of
OPERATIONS For the Period June 26, 2007 (commencement of operations)
through June 30, 2007 (Unaudited)
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INVESTMENT INCOME $60,357
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EXPENSES
Management fees 14,663
Shareholders' servicing agent fees and expenses 10
Custodian's fees and expenses 338
Trustees' fees and expenses 37
Professional fees 326
Shareholders' reports - printing and mailing expenses 20,555
Investor relations expense 582
Other expenses 51
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Total expenses 36,562
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Net investment income 23,795
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Net increase (decrease) in net assets from operations $23,795
=============================================================================
See accompanying notes to financial statements.
Statement of
CHANGES IN NET ASSETS For the Period June 26, 2007 (commencement of
operations) through June 30, 2007 (Unaudited)
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OPERATIONS
Net investment income $ 23,795
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Net increase (decrease) in net assets applicable to Common
shares from operations 23,795
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CAPITAL SHARE TRANSACTIONS
Proceeds from sale of Common shares, net of offering
costs 271,605,000
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Net increase (decrease) in net assets applicable to Common
shares from capital share transactions 271,605,000
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Net increase (decrease) in net assets applicable to Common
shares 271,628,795
Net assets applicable to Common shares at the beginning of
period 100,084
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Net assets applicable to Common shares at the end of period $271,728,879
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Undistributed (Over-distribution of) net investment income
at the end of period $ 23,795
================================================================================
See accompanying notes to financial statements.
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Tax-Advantaged Dividend Growth Fund (the "Fund") is a diversified,
closed-end management investment company registered under the Investment Company
Act of 1940, as amended. The Fund's shares are listed on the New York Stock
Exchange and trade under the ticker symbol "JTD." The Fund was organized as a
Massachusetts business trust on February 22, 2007.
The Fund seeks to provide an attractive level of tax-advantaged distributions
and capital appreciation by investing primarily in common stocks and preferred
stocks of mid- to large-cap companies.
Prior to the commencement of operations, the Fund had no operations other than
those related to organizational matters, the initial capital contribution of
$100,084 by Nuveen Asset Management (the "Adviser"), a wholly owned subsidiary
of Nuveen Investments, Inc. ("Nuveen"), and the recording of the organization
expenses ($11,000) and their reimbursement by Nuveen Investments, LLC, also a
wholly owned subsidiary of Nuveen.
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 are
generally provided by an independent pricing service approved by the Fund's
Board of Trustees. When price quotes are not readily available, the pricing
service or, in the absence of a pricing service for a particular investment, the
Board of Trustees of the Fund, or its designee, may establish fair value using a
wide variety of market data including yields or prices of investments of
comparable quality, type of issue, coupon, maturity and rating, market quotes or
indications of value from security dealers, evaluations of anticipated cash
flows or collateral, general market conditions and other information and
analysis, including the obligor's credit characteristics considered relevant by
the pricing service or the Board of Trustee's designee. If the pricing service
is unable to supply a price for a fixed-income security, the Fund may use a
market quote provided by a major broker/dealer in such investments. If it is
determined that the market price for an investment is unavailable or
inappropriate, the Board of Trustees of the Fund, or its designee, may establish
fair value in accordance with procedures established in good faith by the Board
of Trustees. Short-term investments are valued at amortized cost, which
approximates market value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. Investments purchased on a when-issued/delayed delivery
basis may have extended settlement periods. Any investments so purchased are
subject to market fluctuation during this period. The Fund has instructed the
custodian to segregate assets with a current value at least equal to the amount
of the when-issued/delayed delivery purchase commitments. At June 30, 2007, the
Fund had no such outstanding purchase commitments.
Investment Income
Dividend income is recorded on the ex-dividend date. Interest income, which
includes the amortization of premiums and accretion of discounts for financial
reporting purposes, is recorded on an accrual basis.
Federal Income Taxes
The Fund intends to comply with the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. The Fund intends to
distribute substantially all of its investment company taxable income to
shareholders. In any year when the Fund realizes net capital gains, the Fund may
choose to distribute all or a portion of its net capital gains to shareholders,
or alternatively, to retain all or a portion of its net capital gains and pay
federal corporate income taxes on such retained gains.
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 intends to make quarterly cash distributions to Common shareholders of
a stated dollar amount per share. Subject to approval and oversight by the
Fund's Board of Trustees, the Fund seeks to maintain a stable distribution level
designed to deliver the long-term return potential of the Fund's investment
strategy through regular quarterly distributions (a "Managed Distribution
Policy"). Total distributions during a calendar year generally will be made from
the Fund's net investment income, net realized capital gains and net unrealized
capital gains in the Fund's portfolio, if any. The portion of distributions paid
from net unrealized gains, if any, would be distributed from the Fund's assets
and would be treated by shareholders as a non-taxable distribution for tax
purposes. If the Fund's total return on net asset value exceeds total
distributions during a calendar year, the excess will be reflected as an
increase in net asset value per share. In the event that total distributions
during a calendar year exceed the Fund's total return on net asset value, the
difference will be treated as a return of capital for tax purposes and will
reduce net asset value per share. The final determination of the source and
character of all distributions for the fiscal year are made after the end of the
fiscal year and reflected in the financial statements contained in the annual
report as of December 31 each year.
Leverage
The Fund is authorized by its Declaration of Trust to utilize financial leverage
through borrowing, issuing commercial paper or notes and/or offering Preferred
shares ("FundPreferred shares"). FundPreferred shares may have a liquidation
value of $25,000 per share and may be issued in one or more classes or series,
with dividend, liquidation preference and other rights as determined by the
Fund's Board of Trustees without approval of the Common shareholders.
Derivative Financial Instruments
The Fund is authorized to invest in derivative instruments, such as call
options, swaps, futures and forward contracts for the purposes of managing risk,
hedging, creating investment exposure and generating current income and gains.
Although the Fund is authorized to invest in such financial instruments, and may
do so in the future, it did not invest in any such instruments during the period
June 26, 2007 (commencement of operations) through June 30, 2007.
Organization and Offering Costs
Nuveen Investments, LLC has agreed to reimburse all organization expenses
(approximately $11,000) and pay all Common share offering costs (other than the
sales load) that exceed $.04 per Common share. The Fund's Common share of
offering costs of $570,000 was recorded as a reduction of the proceeds from the
sale of shares.
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. Credits for cash balances may be offset by charges for any days on
which the Fund overdraws its account at the custodian bank.
Indemnifications
Under the Fund's organizational documents, its Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
During the period June 26, 2007 (commencement of operations) through June 30,
2007, the Fund sold 14,250,000 Common shares.
3. INVESTMENT TRANSACTIONS
The Fund did not make any investment purchases or sales (excluding short-term
investments) during the period June 26, 2007 (commencement of operations)
through June 30, 2007.
4. INCOME TAX INFORMATION
At June 30, 2007, the cost of investments was the same for both financial
statement and federal income tax purposes. During the period June 26, 2007
(commencement of operations) through June 30, 2007, the Fund made no
distributions to its shareholders.
5. MANAGEMENT FEES 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 fund assets managed by the
Adviser, 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 .8000%
For the next $500 million .7750
For the next $500 million .7500
For the next $500 million .7250
For Managed Assets over $2 billion .7000
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Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the tables below. As
of June 30, 2007, the complex level fee rate was .1828%.
Effective August 20, 2007, the complex-level fee schedule is as follows:
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL(1) EFFECTIVE RATE AT BREAKPOINT LEVEL
---------------------------------------------------------------------------------------------------
$55 billion .2000%
$56 billion .1996
$57 billion .1989
$60 billion .1961
$63 billion .1931
$66 billion .1900
$71 billion .1851
$76 billion .1806
$80 billion .1773
$91 billion .1691
$125 billion .1599
$200 billion .1505
$250 billion .1469
$300 billion .1445
---------------------------------------------------------------------------------------------------
Prior to August 20, 2007, the complex-level fee schedule was as follows:
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL(1) EFFECTIVE RATE AT BREAKPOINT LEVEL
---------------------------------------------------------------------------------------------------
$55 billion .2000%
$56 billion .1996
$57 billion .1989
$60 billion .1961
$63 billion .1931
$66 billion .1900
$71 billion .1851
$76 billion .1806
$80 billion .1773
$91 billion .1698
$125 billion .1617
$200 billion .1536
$250 billion .1509
$300 billion .1490
---------------------------------------------------------------------------------------------------
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
preferred stock issued by or borrowings by the Nuveen funds) of
Nuveen-sponsored funds in the U.S.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser is
responsible for the overall strategy and asset allocation decisions. The Adviser
has entered into Sub-Advisory Agreements with Santa Barbara Asset Management,
LLC ("Santa Barbara"), a wholly owned subsidiary of Nuveen, and NWQ Investment
Management Company, LLC ("NWQ"), of which Nuveen owns a controlling interest
while key management of NWQ owns a non-controlling minority interest. Santa
Barbara manages the portion of the Fund's investment portfolio allocated to
dividend-paying equity securities. NWQ manages the portion of the Fund's
investment portfolio allocated to preferred securities and other fixed-income
securities. The Adviser is also responsible for the writing of index call
options on various equity market indices, if any. Santa Barbara and NWQ are
compensated for their services to the Fund from the management fees 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.
Agreement and Plan of Merger
On June 20, 2007, Nuveen Investments announced that it had entered into a
definitive Agreement and Plan of Merger ("Merger Agreement") with an investor
group majority-led by Madison Dearborn Partners, LLC. Madison Dearborn Partners,
LLC is a private equity investment firm based in Chicago, Illinois. The investor
group includes affiliates of Merrill Lynch, Wachovia, Citigroup, Deutsche Bank
and Morgan Stanley. It is anticipated that Merrill Lynch and its affiliates will
be indirect "affiliated persons" (as that term is defined in the Investment
Company Act of 1940) of the Fund. One important implication is that the Fund
will not be able to buy or sell securities to or from Merrill Lynch, but the
portfolio management teams and Fund management do not expect that this will
significantly impact the ability of the Fund to pursue its investment objectives
and policies. Under the terms of the merger, each outstanding share of Nuveen
Investments' common stock (other than dissenting shares) will be converted into
the right to receive a specified amount of cash, without interest. The merger is
expected to be completed by the end of the year, subject to customary
conditions, including obtaining the approval of Nuveen Investments shareholders,
obtaining necessary fund and client consents sufficient to satisfy the terms of
the Merger Agreement, and expiration of certain regulatory waiting periods. The
obligations of Madison Dearborn Partners, LLC to consummate the merger are not
conditioned on its obtaining financing.
The consummation of the merger will be deemed to be an "assignment" (as defined
in the 1940 Act) of the investment management agreement between the Fund and the
Adviser, and will result in the automatic termination of the Fund's agreement.
Prior to the consummation of the merger, it is anticipated that the Board of
Trustees of the Fund will consider a new investment management agreement with
the Adviser. If approved by the Board, the new agreement would be presented to
the Fund's shareholders for approval, and, if so approved by shareholders, would
take effect upon consummation of the merger. There can be no assurance that the
merger described above will be consummated as contemplated or that necessary
shareholder approvals will be obtained.
6. NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 48
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48).
FIN 48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006, and is to be
applied to all open tax years as of the effective date, however, SEC guidance
allows funds which commence operations after December 15, 2006 to delay
implementing FIN 48 into NAV calculations until the fund's last NAV calculation
in the second required financial statement reporting period. As a result, the
Fund will begin to incorporate FIN 48 into its NAV calculations by December 31,
2007. At this time, management is continuing to evaluate the implications of FIN
48 and does not expect the adoption of FIN 48 will have a significant impact on
the net assets or results of operations of the Fund.
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 157.
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The changes to current generally accepted accounting principles from the
application of this standard relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. As of June 30, 2007, the Fund does not believe the adoption of
SFAS No. 157 will impact the financial statement amounts; however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements included within the Statement of
Operations for the period.
7. SUBSEQUENT EVENTS
Distributions to Common Shareholders
On August 8, 2007, the Fund declared a distribution of $.4050 per Common share
which will be paid on October 1, 2007, to shareholders of record on
September 15, 2007.
On August 14, 2007, the Fund issued an additional 600,000 Common shares in
connection with an exercise by the underwriters of their over allotment option.
Financial
HIGHLIGHTS (Unaudited)
Selected data for a share outstanding throughout each period:
Investment Operations
------------------------
Net Net Offering
Beginning Investment Realized/ Costs and Ending Ending
Net Asset Income Unrealized Underwriting Net Asset Market
Value (a) Gain (Loss) Total Discounts Value Value
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2007(b) $ 19.10 $ --*** $ -- $ -- $ (.04) $ 19.06 $ 20.00
------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
-----------------------------------------------------
Total Returns
-------------------
Based Ratio of Net
Based on Ratio of Investment
on Net Ending Net Expenses Income (Loss) Portfolio
Market Asset Assets to Average to Average Turnover
Value** Value** (000) Net Assets Net Assets Rate
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
.00% (.21)% $ 271,729 1.23%* .80%* 0%
--------------------------------------------------------------------------------------
See accompanying notes to financial statements.
* 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. The last dividend declared in the period, which
is typically paid on the first business day of the following month, is
assumed to be reinvested at the ending market price. The actual
reinvestment for the last dividend declared in the period takes place over
several days, and in some instances may not be based on the market price,
so the actual reinvestment price may be different from the price used in
the calculation. Total returns are not annualized.
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. The last dividend declared in the period, which is typically paid on
the first business day of the following month, is assumed to be reinvested
at the ending net asset value. The actual reinvest price for the last
dividend declared in the period may often be based on the Fund's market
price (and not its net asset value), and therefore may be different from
the price used in the calculation. Total returns are not annualized.
*** Per share Net Investment Income rounds to less than $.01 per share.
(a) Per share Net Investment Income is calculated using the average
daily shares method.
(b) For the period June 26, 2007 (commencement of operations) through
June 30, 2007.
Annual Investment
Management Agreement
APPROVAL PROCESS
The Board Members are responsible for overseeing the performance of the
investment adviser to the Fund and determining whether to approve the advisory
arrangements. At a meeting held on November 14-16, 2006 (the "Initial Approval
Meeting"), the Board Members of the Fund, including the Independent Board
Members, unanimously approved the Investment Management Agreement between the
Fund and Nuveen Asset Management ("NAM" or "Fund Adviser"). The Fund is
sometimes referred to herein as a "New Fund." The foregoing Investment
Management Agreement with NAM is hereafter referred to as an "Original
Investment Management Agreement".
Subsequent to the Initial Approval Meeting, Nuveen Investments, Inc. ("Nuveen"),
the parent company of NAM, entered into a merger agreement providing for the
acquisition of Nuveen by Windy City Investments, Inc., a corporation formed by
investors led by Madison Dearborn Partners, LLC ("MDP"), a private equity
investment firm (the "Transaction"). The Original Investment Management
Agreement, as required by Section 15 of the Investment Company Act of 1940 (the
"1940 Act") provides for its automatic termination in the event of its
"assignment" (as defined in the 1940 Act). Any change in control of the adviser
is deemed to be an assignment. The consummation of the Transaction will result
in a change of control of NAM as well as its affiliated sub-advisers and
therefore cause the automatic termination of the Original Investment Management
Agreement, as required by the 1940 Act. Accordingly, in anticipation of the
Transaction, at a meeting held on July 31, 2007 (the "July Meeting"), the Board
Members, including the Independent Board Members, unanimously approved a new
Investment Management Agreement (the "New Investment Management Agreement") with
NAM on behalf of the Fund to take effect immediately after the Transaction or
shareholder approval of the new advisory contract, whichever is later. The 1940
Act also requires that the New Investment Management Agreement be approved by
the Fund's shareholders in order for it to become effective. Accordingly, to
ensure continuity of advisory services, the Board Members, including the
Independent Board Members, unanimously approved an Interim Investment Management
Agreement to take effect upon the closing of the Transaction if shareholders
have not yet approved the New Investment Management Agreement.
As NAM serves as adviser to other Nuveen funds, the Board Members already have a
good understanding of the organization, operations and personnel of NAM. At a
meeting held on May 21, 2007 (the "May Meeting"), many of the investment
management contracts with other Nuveen funds advised by NAM ("Existing Funds")
were subject to their annual review. Although the Original Investment Management
Agreement with the New Fund was recently initially approved and therefore not
subject to the annual review at the May Meeting, the information provided and
considerations made regarding NAM at the annual review as well as the initial
approval continue to be relevant with respect to the evaluation of the New
Investment Management Agreement. The Board therefore considered the foregoing as
part of its deliberations of the New Investment Management Agreement.
Accordingly, as indicated, the discussions immediately below outline the
materials and information presented to the Board in connection with the Board's
prior annual review of NAM (to the extent applicable) and the analysis
undertaken and the conclusions reached by the Board Members when determining to
approve the Original Investment Management Agreement.
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
I. APPROVAL OF THE ORIGINAL INVESTMENT MANAGEMENT AGREEMENT
During the course of the year, the Board received a wide variety of materials
relating to the services provided by NAM and the performance of the Nuveen funds
(as applicable). At each of its quarterly meetings, the Board reviewed
investment performance (as applicable) and various matters relating to the
operations of the Fund and other Nuveen funds, including the compliance program,
shareholder services, valuation, custody, distribution and other information
relating to the nature, extent and quality of services provided by NAM. Between
the regularly scheduled quarterly meetings, the Board Members received
information on particular matters as the need arose. In addition, as noted,
because NAM already serves as adviser to other Nuveen funds, the information
provided regarding NAM at the annual review at the May Meeting supplemented the
information received at the initial approval.
In preparation for their consideration of NAM at the May Meeting, the
Independent Board Members also received extensive materials, well in advance of
the meeting, which outlined or are related to, among other things:
- the nature, extent and quality of services provided by the Fund
Adviser;
- the organization and business operations of the Fund Adviser,
including the responsibilities of various departments and key
personnel;
- each Existing Fund's past performance as well as the Existing Fund's
performance compared to funds with similar investment objectives based
on data and information provided by an independent third party and to
recognized and/or customized benchmarks (as appropriate);
- the profitability of the Fund Adviser and certain industry
profitability analyses for unaffiliated advisers;
- the expenses of the Fund Adviser in providing the various services;
- the advisory fees and total expense ratios of each Existing Fund,
including comparisons of such fees and expenses with those of
comparable, unaffiliated funds based on information and data provided
by an independent third party (the "Peer Universe") as well as
compared to a subset of funds within the Peer Universe (the "Peer
Group") of the respective Existing Fund (as applicable);
- the advisory fees the Fund Adviser assesses to other types of
investment products or clients;
- the soft dollar practices of the Fund Adviser, if any; and
- from independent legal counsel, a legal memorandum describing among
other things, applicable laws, regulations and duties in reviewing and
approving advisory contracts.
At the Initial Approval Meeting, the Board Members received in advance of such
meeting or at prior meetings similar materials, including the nature, extent and
quality of services expected to be provided; the organization and operations of
the Fund Adviser (including the responsibilities of various departments and key
personnel); the expertise and background of the Fund Adviser; the profitability
of Nuveen (which includes its wholly-owned advisory subsidiaries); the proposed
management fees, including comparisons with peers; the expected expenses of the
New Fund, including comparisons of the expense ratios with peers; and the soft
dollar practices of the Fund Adviser. However, unlike Existing Funds, the New
Fund did not have actual past performance at the time of approval.
At the May Meeting, NAM made a presentation to, and responded to questions from,
the Board. At the May Meeting and applicable Initial Approval Meeting, the
Independent Board Members met privately with their legal counsel to review the
Board's duties in reviewing advisory contracts and considering the approval or
renewal of the advisory contracts (which include the sub-advisory contracts).
The Independent Board Members, in consultation with independent counsel,
reviewed the factors set out in judicial decisions and Securities and Exchange
Commission ("SEC") directives relating to the approval or renewal of advisory
contracts. As outlined in more detail below, the Board Members considered all
factors they believed relevant with respect to the New Fund, including, but not
limited to, the following: (a) the nature, extent and quality of the services to
be provided by the Fund Adviser; (b) the investment performance of the Fund and
the Fund Adviser (as applicable); (c) the costs of the services to be provided
and profits to be realized by the Fund Adviser and its affiliates; (d) the
extent to which economies of scale would be realized; and (e) whether fee levels
reflect those economies of scale for the benefit of the Fund's investors. In
addition, as noted, the Board Members met regularly throughout the year to
oversee the Nuveen funds. In evaluating the advisory contracts, the Board
Members also relied upon their knowledge of NAM, its services and the Nuveen
funds resulting from their meetings and other interactions throughout the year.
It is with this background that the Board Members considered each advisory
contract.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In considering the approval of the Original Investment Management Agreement, the
Board Members considered the nature, extent and quality of the Fund Adviser's
services. The Board Members reviewed materials outlining, among other things,
the Fund Adviser's organization and business; the types of services that the
Fund Adviser or its affiliates provide or are expected to provide to the Fund;
and at the annual review, any initiatives Nuveen had taken for the applicable
fund product line. As noted, the Board Members were already familiar with the
organization, operations and personnel of NAM due to the Board Members'
experience in governing the other Nuveen funds and working with NAM on matters
relating to the Nuveen funds.
At the May Meeting, the Board Members also recognized NAM's investment in
additional qualified personnel throughout the various groups in the organization
and recommended to NAM that it continue to review staffing needs as necessary.
The Board Members also recognized NAM's investment of resources and efforts to
continue to enhance and refine its investment processes.
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
In addition to advisory services, the Independent Board Members considered the
quality of administrative and non-advisory services provided by NAM and noted
that NAM and its affiliates provide the Fund with a wide variety of services and
officers and other personnel as are necessary for the operations of the Fund,
including:
- product management;
- fund administration;
- oversight by shareholder services and other fund service providers;
- administration of Board relations;
- regulatory and portfolio compliance; and
- legal support.
As the Fund operates in a highly regulated industry and given the importance of
compliance, the Board Members considered, in particular, NAM's compliance
activities for the Fund and enhancements thereto. In this regard, the Board
Members recognized the quality of NAM's compliance team. The Board Members
further noted NAM's negotiations with other service providers and the
corresponding reduction in certain service providers' fees at the May Meeting.
Based on their review, the Board Members found that, overall, the nature, extent
and quality of services provided (and expected to be provided) to the Fund under
the Original Investment Management Agreement were satisfactory.
B. THE INVESTMENT PERFORMANCE OF THE NEW FUND AND THE FUND ADVISER
The Fund did not have its own performance history at its Initial Approval
Meeting. The Board Members, however, were familiar with NAM's performance record
on other Existing Funds.
C. FEES, EXPENSES AND PROFITABILITY
1. FEES AND EXPENSES
With respect to the New Fund, at the Initial Approval Meeting, the Board
considered the New Fund's proposed management fee structure, its
sub-advisory fee arrangements and expected expense ratios in absolute terms
as well as compared with the fees and expense ratios of comparable,
unaffiliated funds and comparable, affiliated funds (if any). The Board
Members also considered the applicable fund-level breakpoint schedule and
complex-wide breakpoint schedule. Based on their review of the overall fee
arrangements of the New Fund, the Board Members determined that the
advisory fees and expected expenses of the New Fund were reasonable.
2. COMPARISONS WITH THE FEES OF OTHER CLIENTS
Due to their experience with other Nuveen funds, the Board Members are
familiar with the fees assessed to other clients of Nuveen or its
affiliates. At the annual review, the Board Members further reviewed data
comparing the advisory fees of NAM with fees NAM
charges to other clients. Such clients include NAM's separately managed
accounts and funds that are not offered by Nuveen but are sub-advised by
one of Nuveen's investment management teams. In general, the advisory fees
charged for separate accounts are somewhat lower than the advisory fees
assessed to the Nuveen funds, including the New Fund. The Board Members
considered the differences in the product types, including, but not limited
to, the services provided, the structure and operations, product
distribution and costs thereof, portfolio investment policies, investor
profiles, account sizes and regulatory requirements. The Board Members
noted, in particular, that the range of services provided to the Nuveen
funds (as discussed above) is much more extensive than that provided to
separately managed accounts. As described in further detail above, such
additional services include, but are not limited to: product management,
fund administration, oversight of third party service providers,
administration of Board relations, and legal support. The Board Members
noted that the Nuveen funds operate in a highly regulated industry
requiring extensive compliance functions compared to other investment
products. Given the inherent differences in the products, particularly the
extensive services provided to the Nuveen funds, the Board Members believe
such facts justify the different levels of fees.
3. PROFITABILITY OF FUND ADVISERS
In conjunction with its review of fees at the May Meeting, the Board
Members also considered the profitability of Nuveen for its advisory
activities (which incorporated Nuveen's wholly-owned affiliated
sub-advisers) and its financial condition. At the annual review, the Board
Members reviewed the revenues and expenses of Nuveen's advisory activities
for the last three years, the allocation methodology used in preparing the
profitability data as well as the 2006 Annual Report for Nuveen. The Board
Members noted this information supplemented the profitability information
requested and received during the year to help keep them apprised of
developments affecting profitability (such as changes in fee waivers and
expense reimbursement commitments). In this regard, the Board Members noted
the enhanced dialogue and information regarding profitability with NAM
during the year, including more frequent meetings and updates from Nuveen's
corporate finance group. The Board Members considered Nuveen's
profitability compared with other fund sponsors prepared by three
independent third party service providers as well as comparisons of the
revenues, expenses and profit margins of various unaffiliated management
firms with similar amounts of assets under management prepared by Nuveen.
In reviewing profitability, the Board Members recognized the subjective
nature of determining profitability which may be affected by numerous
factors, including the allocation of expenses. Further, the Board Members
recognized the difficulties in making comparisons as the profitability of
other advisers generally is not publicly available and the profitability
information that is available for certain advisers or management firms may
not be representative of the industry and may be affected by, among other
things, the adviser's particular business mix, capital costs, types of
funds managed and expense allocations.
Notwithstanding the foregoing, the Board Members reviewed Nuveen's methodology
at the annual review and assumptions for allocating expenses across product
lines to determine profitability. Last year, the Board Members also designated
an Independent Board Member as a point person for the Board to review the
methodology determinations during the year and any
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
refinements thereto, which relevant information produced from such process was
reported to the full Board. In reviewing profitability, the Board Members
recognized Nuveen's increased investment in its fund business. Based on its
review, the Board Members concluded that Nuveen's level of profitability for its
advisory activities was reasonable in light of the services provided.
In evaluating the reasonableness of the compensation, the Board Members also
considered other amounts paid to a Fund Adviser by the Fund as well as any
indirect benefits (such as soft dollar arrangements, if any) the Fund Adviser
and its affiliates receive, or are expected to receive, that are directly
attributable to the management of the Fund, if any. See Section E below for
additional information on indirect benefits the Fund Adviser may receive as a
result of its relationship with the Fund.
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
With respect to economies of scale, the Board Members recognized the potential
benefits resulting from the costs of the Fund being spread over a larger asset
base. To help ensure the shareholders share in these benefits, the Board Members
reviewed and considered the breakpoints in the advisory fee schedules that
reduce advisory fees. In addition to advisory fee breakpoints, the Board also
approved a complex-wide fee arrangement in 2004. Pursuant to the complex-wide
fee arrangement, the fees of the funds in the Nuveen complex, including the New
Fund, are reduced as the assets in the fund complex reach certain levels. In
evaluating the complex-wide fee arrangement, the Board Members noted that the
last complex-wide asset level breakpoint for the complex-wide fee schedule was
at $91 billion and that the Board Members anticipated further review and/or
negotiations prior to the assets of the Nuveen complex reaching such threshold.
Based on their review, the Board Members concluded that the breakpoint schedule
and complex-wide fee arrangement were acceptable and desirable in providing
benefits from economies of scale to shareholders, subject to further evaluation
of the complex-wide fee schedule as assets in the complex increase. See Section
II, Paragraph D - "Approval of the New Investment Management Agreement -
Economies of Scale and Whether Fee Levels Reflect These Economies of Scale" for
information regarding subsequent modifications to the complex-wide fee.
E. INDIRECT BENEFITS
In evaluating fees, the Board Members also considered any indirect benefits or
profits the Fund Adviser or its affiliates may receive as a result of its
relationship with the Fund. In this regard, during the annual review, the Board
Members considered, among other things, any sales charges and distribution fees
received and retained by the Fund's principal underwriter, Nuveen Investments,
LLC, an affiliate of NAM. The Board Members also recognized that an affiliate of
NAM provides distribution and shareholder services to the Funds and their
shareholders for which it may be compensated pursuant to a 12b-1 plan. The Board
Members, therefore, considered the 12b-1 fees retained by Nuveen during the last
calendar year.
In addition to the above, the Board Members considered whether the Fund Adviser
received any benefits from soft dollar arrangements whereby a portion of the
commissions paid by a Fund for brokerage may be used to acquire research that
may be useful to the Fund Adviser in managing the assets of the Fund and other
clients. With respect to NAM, the Board Members noted that
NAM does not currently have any soft dollar arrangements; however, to the extent
certain bona fide agency transactions that occur on markets that traditionally
trade on a principal basis and riskless principal transactions are considered as
generating "commissions," NAM intends to comply with the applicable safe harbor
provisions.
Based on their review, the Board Members concluded that any indirect benefits
received by the Fund Adviser as a result of its relationship with the Fund were
reasonable and within acceptable parameters.
F. OTHER CONSIDERATIONS
The Board Members did not identify any single factor discussed previously as
all-important or controlling in their considerations to initially approve an
advisory contract. The Board Members, including the Independent Board Members,
unanimously concluded that the terms of the Original Investment Management
Agreement are fair and reasonable, that the Fund Adviser's fees are reasonable
in light of the services provided to the Fund and that the Original Investment
Management Agreement be approved.
II. APPROVAL OF THE NEW INVESTMENT MANAGEMENT AGREEMENTS
Following the May Meeting, the Board Members were advised of the potential
Transaction. As noted above, the completion of the Transaction would terminate
the Original Investment Management Agreement. Accordingly, at the July Meeting,
the Board of the New Fund, including the Independent Board Members, unanimously
approved the New Investment Management Agreement on behalf of the Fund. Leading
up to the July Meeting, the Board Members had several meetings and deliberations
with and without Nuveen management present, and with the advice of legal
counsel, regarding the proposed Transaction as outlined below.
On June 8, 2007, the Board Members held a special telephonic meeting to discuss
the proposed Transaction. At that meeting, the Board Members established a
special ad hoc committee comprised solely of Independent Board Members to focus
on the Transaction and to keep the Independent Board Members updated with
developments regarding the Transaction. On June 15, 2007, the ad hoc committee
discussed with representatives of NAM the Transaction and modifications to the
complex-wide fee schedule that would generate additional fee savings at
specified levels of complex-wide asset growth. Following the foregoing meetings
and several subsequent telephonic conferences among Independent Board Members
and independent counsel, and between Independent Board Members and
representatives of Nuveen, the Board met on June 18, 2007 to further discuss the
proposed Transaction. Immediately prior to and then again during the June 18,
2007 meeting, the Independent Board Members met privately with their independent
legal counsel. At that meeting, the Board met with representatives of MDP, of
Goldman Sachs, Nuveen's financial adviser in the Transaction, and of the Nuveen
Board to discuss, among other things, the history and structure of MDP, the
terms of the proposed Transaction (including the financing terms), and MDP's
general plans and intentions with respect to Nuveen (including with respect to
management, employees, and future growth prospects). On July 9, 2007, the Board
also met to be updated on the Transaction as part of a special telephonic Board
meeting. The Board Members were further updated at a special in-person Board
meeting held on July 19, 2007 (one Independent Board Member participated
telephonically). Subsequently, on July 27, 2007, the ad hoc committee held a
telephonic
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
conference with representatives of Nuveen and MDP to further discuss, among
other things, the Transaction, the financing of the Transaction, retention and
incentive plans for key employees, the effect of regulatory restrictions on
transactions with affiliates after the Transaction, and current volatile market
conditions and their impact on the Transaction.
In connection with their review of the New Investment Management Agreement, the
Independent Board Members, through their independent legal counsel, also
requested in writing and received additional information regarding the proposed
Transaction and its impact on the provision of services by NAM and its
affiliates.
The Independent Board Members received, well in advance of the July Meeting,
materials which outlined, among other things:
- the structure and terms of the Transaction, including MDP's
co-investor entities and their expected ownership interests, and the
financing arrangements that will exist for Nuveen following the
closing of the Transaction;
- the strategic plan for Nuveen following the Transaction;
- the governance structure for Nuveen following the Transaction;
- any anticipated changes in the operations of the Nuveen funds
following the Transaction, including changes to NAM's and Nuveen's
day-to-day management, infrastructure and ability to provide advisory,
distribution or other applicable services to the Fund;
- any changes to senior management or key personnel who work on Fund
related matters (including portfolio management, investment oversight,
and legal/compliance) and any retention or incentive arrangements for
such persons;
- any anticipated effect on the Fund's expense ratio (including advisory
fees) following the Transaction;
- any benefits or undue burdens imposed on the Fund as a result of the
Transaction;
- any legal issues for the Fund as a result of the Transaction;
- the nature, quality and extent of services expected to be provided to
the Fund following the Transaction, changes to any existing services
and policies affecting the Fund, and cost-cutting efforts, if any,
that may impact such services or policies;
- any conflicts of interest that may arise for Nuveen or MDP with
respect to the Fund;
- the costs associated with obtaining necessary shareholder approvals
and who would bear those costs; and
- from legal counsel, a memorandum describing the applicable laws,
regulations and duties in approving advisory contracts, including, in
particular, with respect to a change of control.
Immediately preceding the July Meeting, representatives of MDP met with the
Board to further respond to questions regarding the Transaction. After the
meeting with MDP, the Independent Board Members met with independent legal
counsel in executive session. At the July Meeting, Nuveen also made a
presentation and responded to questions. Following the presentations and
discussions of the materials presented to the Board, the Independent Board
Members met again in executive session with their counsel. As outlined in more
detail below, the Independent Board Members considered all factors they believed
relevant with respect to the Fund, including the impact that the Transaction
could be expected to have on the following: (a) the nature, extent and quality
of services to be provided; (b) the investment performance of the Fund; (c) the
costs of the services and profits to be realized by Nuveen and its affiliates;
(d) the extent to which economies of scale would be realized; and (e) whether
fee levels reflect those economies of scale for the benefit of investors. As
noted above, during the past year, the Board Members had completed their annual
review of various investment management agreements with NAM and the Existing
Funds and initially approved the Original Investment Management Agreement and
many of the factors considered at such reviews were applicable to their
evaluation of the New Investment Management Agreement. Accordingly, in
evaluating such agreement, the Board Members relied upon their knowledge and
experience with the Fund Adviser and considered the information received and
their evaluations and conclusions drawn at the reviews. While the Board reviewed
many Nuveen funds at the July Meeting, the Independent Board Members evaluated
all information available to them on a fund-by-fund basis, and their
determinations were made separately in respect of the Fund.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In evaluating the nature, quality and extent of the services expected to be
provided by the Fund Adviser under the New Investment Management Agreement, the
Independent Board Members considered, among other things, the expected impact,
if any, of the Transaction on the operations, facilities, organization and
personnel of NAM; the potential implications of regulatory restrictions on the
Fund following the Transaction; the ability of NAM and its affiliates to perform
their duties after the Transaction; and any anticipated changes to the current
investment and other practices of the Fund.
The Board noted that the terms of the New Investment Management Agreement,
including the fees payable thereunder, are substantially identical to those of
the Original Investment Management Agreement (with both reflecting reductions to
fee levels in the complex-wide fee schedule for complex-wide assets in excess of
$80 billion that have an effective date of August 20, 2007). The Board
considered that the services to be provided and the standard of care under the
New Investment Advisory Agreement are the same as the corresponding original
agreement. The Board Members further noted that key personnel of the Adviser who
have responsibility for the Fund in each area, including portfolio management,
investment oversight, fund management,
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
fund operations, product management, legal/compliance and board support
functions, are expected to be the same following the Transaction. The Board
Members considered and are familiar with the qualifications, skills and
experience of such personnel. The Board also considered certain information
regarding any anticipated retention or incentive plans designed to retain key
personnel. Further, the Board Members noted that no changes to Nuveen's
infrastructure (including at the affiliated sub-adviser level) or operations as
a result of the Transaction were anticipated other than potential enhancements
as a result of an expected increase in the level of investment in such
infrastructure and personnel. The Board noted MDP's representations that it does
not plan to have a direct role in the management of Nuveen, appointing new
management personnel, or directly impacting individual staffing decisions. The
Board Members also noted that there were not any planned "cost cutting" measures
that could be expected to reduce the nature, extent or quality of services.
After consideration of the foregoing, the Board Members concluded that no
diminution in the nature, quality and extent of services provided to the Fund
and its shareholders by NAM is expected.
In addition to the above, the Board Members considered potential changes in the
operations of the Fund. In this regard, the Board Members considered the
potential effect of regulatory restrictions on the Fund's transactions with
future affiliated persons. During their deliberations, it was noted that, after
the Transaction, a subsidiary of Merrill Lynch is expected to have an ownership
interest in Nuveen at a level that will make Merrill Lynch an affiliated person
of Nuveen. The Board Members recognized that applicable law would generally
prohibit the Fund from engaging in securities transactions with Merrill Lynch as
principal, and would also impose restrictions on using Merrill Lynch for agency
transactions. They recognized that having MDP and Merrill Lynch as affiliates
may restrict the Nuveen funds' ability to invest in securities of issuers
controlled by MDP or issued by Merrill Lynch and its affiliates even if not
bought directly from MDP or Merrill Lynch as principal. They also recognized
that various regulations may require the Nuveen funds to apply investment
limitations on a combined basis with affiliates of Merrill Lynch. The Board
Members considered information provided by NAM regarding the potential impact on
the Nuveen funds' operations as a result of these regulatory restrictions. The
Board Members considered, in particular, the Nuveen funds that may be impacted
most by the restricted access to Merrill Lynch, including: municipal funds
(particularly certain state-specific funds), senior loan funds, taxable fixed
income funds, preferred security funds and funds that heavily use derivatives.
The Board Members considered such funds' historic use of Merrill Lynch as
principal in their transactions and information provided by NAM regarding the
expected impact resulting from Merrill Lynch's affiliation with Nuveen and
available measures that could be taken to minimize such impact. NAM informed the
Board Members that, although difficult to determine with certainty, its
management did not believe that MDP's or Merrill Lynch's status as an affiliate
of Nuveen would have a material adverse effect on any Nuveen fund's ability to
pursue its investment objectives and policies.
In addition to the regulatory restrictions considered by the Board, the Board
Members also considered potential conflicts of interest that could arise between
the Nuveen funds and various parties to the Transaction and discussed possible
ways of addressing such conflicts.
Based on its review along with its considerations regarding services at the
annual and/or initial review, the Board concluded that the Transaction was not
expected to adversely affect the nature,
quality or extent of services provided by the Fund Adviser and that the expected
nature, quality and extent of such services supported approval of the New
Investment Management Agreement.
B. PERFORMANCE OF THE FUND
With respect to the performance of the Fund, the Board considered that the
portfolio management personnel responsible for the management of the Fund's
portfolio were expected to continue to manage the portfolio following the
completion of the Transaction. As a New Fund, the Fund did not have its own
performance history at its Initial Approval Meeting. The Board Members noted
that the New Fund has only been operating for a short period since inception.
The Board Members further noted that the investment policies and strategies were
not expected to change as a result of the Transaction.
In light of the foregoing factors, the Board concluded that its findings with
respect to performance supported approval of the New Investment Management
Agreement.
C. FEES, EXPENSES AND PROFITABILITY
As described in more detail above, during the initial review, the Board Members
considered, among other things, the management fees and expenses of the Fund,
the breakpoint schedules, and comparisons of such fees and expenses with peers.
At the initial review, the Board Members determined that the Fund's advisory
fees and expenses were reasonable. In evaluating the profitability of the Fund
Adviser under the New Investment Management Agreement, the Board Members
considered their conclusions at their prior reviews and whether the management
fees or other expenses would change as a result of the Transaction. As described
above, the investment management fee for NAM is composed of two components -- a
fund-level component and complex-wide level component. The fee schedule under
the New Investment Management Agreement to be paid to NAM is identical to that
under the Original Investment Management Agreement, including the modified
complex-wide fee schedule. As noted above, the Board recently approved a
modified complex-wide fee schedule that would generate additional fee savings on
complex-wide assets above $80 billion. The modifications have an effective date
of August 20, 2007 and are part of the Original Investment Management Agreement.
Accordingly, the terms of the complex-wide component under the New Investment
Management Agreement are the same as under the Original Investment Management
Agreement. The Board Members also noted that Nuveen has committed for a period
of two years from the date of closing of the Transaction that it will not
increase gross management fees for any Nuveen fund and will not reduce voluntary
expense reimbursement levels for any Nuveen fund from their currently scheduled
prospective levels (subject to certain potential adjustments noted below). Based
on the information provided, the Board Members did not expect that overall Fund
expenses would increase as a result of the Transaction.
In addition, the Board Members considered that additional fund launches were
anticipated after the Transaction which would result in an increase in total
assets under management in the complex and a corresponding decrease in overall
management fees under the complex-wide fee schedule. Taking into consideration
the Board's prior evaluation of fees and expenses at the initial approval, and
the modification to the complex-wide fee schedule, the Board determined that the
management fees and expenses were reasonable.
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
While it is difficult to predict with any degree of certainty the impact of the
Transaction on Nuveen's profitability for its advisory activities (which
includes its affiliated sub-advisers), at the recent annual review, the Board
Members were satisfied that Nuveen's level of profitability for its advisory
activities was reasonable. During the year, the Board Members had noted the
enhanced dialogue regarding profitability and the appointment of an Independent
Board Member as a point person to review methodology determinations and
refinements in calculating profitability. Given their considerations at the
annual or initial review and the modifications to the complex-wide fee schedule,
the Board Members were satisfied that Nuveen's level of profitability for its
advisory activities continues to be reasonable.
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
The Board Members have been cognizant of economies of scale and the potential
benefits resulting from the costs of the Fund being spread over a larger asset
base. To help ensure that shareholders share in the benefits derived from
economies of scale, the Board adopted the complex-wide fee arrangement in 2004.
At the May Meeting, the Board Members reviewed the complex-wide fee arrangements
and noted that additional negotiations may be necessary or appropriate as the
assets in the complex approached the $91 billion threshold. In light of this
assessment coupled with the upcoming Transaction, at the June 15, 2007 meeting,
the ad hoc committee met with representatives of Nuveen to further discuss
modifications to the complex-wide fee schedule that would generate additional
savings for shareholders as the assets of the complex grow. The proposed terms
for the complex-wide fee schedule are expressed in terms of targeted cumulative
savings at specified levels of complex-wide assets, rather than in terms of
targeted marginal complex-wide fee rates. Under the modified schedule, the
schedule would generate additional fee savings beginning at complex-wide assets
of $80 billion in order to achieve targeted cumulative annual savings at $91
billion of $28 million on a complex-wide level (approximately $0.6 million
higher than those generated under the then current schedule) and generate
additional fee savings for asset growth above complex-wide assets of $91 billion
in order to achieve targeted annual savings at $125 billion of assets of
approximately $50 million on a complex-wide level (approximately $2.2 million
higher annually than that generated under the then current schedule). At the
July Meeting, the Board approved the modified complex-wide fee schedule for the
Original Investment Management Agreement and these same terms will apply to the
New Investment Management Agreement. Accordingly, the Board Members believe that
the breakpoint schedules and revised complex-wide fee schedule are appropriate
and desirable in ensuring that shareholders participate in the benefits derived
from economies of scale.
E. INDIRECT BENEFITS
During their recent initial review, the Board Members considered any indirect
benefits that the Fund Adviser may receive as a result of its relationship with
the Fund, as described above. As the policies and operations of the Fund Adviser
are not anticipated to change significantly after the Transaction, such indirect
benefits should remain after the Transaction. The Board Members further
considered any additional indirect benefits to be received by the Fund Adviser
or its affiliates after the Transaction. The Board Members noted that other than
benefits from its ownership interest in Nuveen and indirect benefits from fee
revenues paid by the Fund under the management agreements and other
Board-approved relationships, it was currently not expected that MDP or its
affiliates would derive any benefit from the Fund as a result of the Transaction
or
transact any business with or on behalf of the Fund (other than perhaps
potential Fund acquisitions, in secondary market transactions, of securities
issued by MDP portfolio companies); or that Merrill Lynch or its affiliates
would derive any benefits from the Fund as a result of the Transaction (noting
that, indeed, Merrill Lynch would stand to experience the discontinuation of
principal transaction activity with the Nuveen funds and likely would experience
a noticeable reduction in the volume of agency transactions with the Nuveen
funds).
F. OTHER CONSIDERATIONS
In addition to the factors above, the Board Members also considered the
following with respect to the Fund:
- Nuveen would rely on the provisions of Section 15(f) of the 1940 Act.
Section 15(f) provides, in substance, that when a sale of a
controlling interest in an investment adviser occurs, the investment
adviser or any of its affiliated persons may receive any amount or
benefit in connection with the sale so long as (i) during the
three-year period following the consummation of a transaction, at
least 75% of the investment company's board of directors must not be
"interested persons" (as defined in the 1940 Act) of the investment
adviser or predecessor adviser and (ii) an "unfair burden" (as defined
in the 1940 Act, including any interpretations or no-action letters of
the SEC) must not be imposed on the investment company as a result of
the transaction relating to the sale of such interest, or any express
or implied terms, conditions or understanding applicable thereto. In
this regard, to help ensure that an unfair burden is not imposed on
the Nuveen funds, Nuveen has committed for a period of two years from
the date of the closing of the Transaction (i) not to increase gross
management fees for any Nuveen fund; (ii) not to reduce voluntary
expense reimbursement levels for any Nuveen fund from their currently
scheduled prospective levels during that period (such commitment,
however, may exclude or be adjusted for the impact or future
class-specific expense allocation protocol changes for a particular
mutual fund); (iii) that no Nuveen fund whose portfolio is managed by
a Nuveen affiliate shall use Merrill Lynch as a broker with respect to
portfolio transactions done on an agency basis, except as may be
approved in the future by the Compliance Committee of the Board; and
(iv) that each adviser/portfolio team affiliated with Nuveen shall not
cause the Fund (or sleeves thereof) and other Nuveen funds that the
team manages, as a whole, to enter into portfolio transactions with or
through the other minority owners of Nuveen on either a principal or
an agency basis, to a significantly greater extent than both what one
would expect an investment team to use such firm in the normal course
of business and what such team has historically done, without prior
Board or Compliance Committee approval (excluding the impact of
proportionally increasing the use of such other "minority owners" to
fill the void necessitated by not being able to use Merrill Lynch).
- The Fund would not incur any costs in seeking the necessary
shareholder approvals for the New Investment Management Agreement
(except for any costs attributed to seeking shareholder approvals of
Fund specific matters unrelated to the Transaction, such as approval
of Board Members or changes to investment policies, in which case a
portion of such costs will be borne by the Fund).
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
- The reputation, financial strength and resources of MDP.
- The long-term investment philosophy of MDP and anticipated plans to
grow Nuveen's business to the benefit of the Nuveen funds.
- The benefits to the Nuveen funds as a result of the Transaction
including: (i) as a private company, Nuveen may have more flexibility
in making additional investments in its business; (ii) as a private
company, Nuveen may be better able to structure compensation packages
to attract and retain talented personnel; (iii) as certain of Nuveen's
distribution partners are expected to be equity or debt investors in
Nuveen, Nuveen may be able to take advantage of new or enhanced
distribution arrangements with such partners; and (iv) MDP's
experience, capabilities and resources that may help Nuveen identify
and acquire investment teams or firms and finance such acquisitions.
G. CONCLUSION
The Board Members did not identify any single factor discussed previously as
all-important or controlling. The Board Members, including the Independent Board
Members, unanimously concluded that the terms of the New Investment Management
Agreement are fair and reasonable, that the fees therein are reasonable in light
of the services to be provided to the Fund and that the New Investment
Management Agreement should be approved and recommended to shareholders.
III. APPROVAL OF INTERIM CONTRACTS
As noted above, at the July Meeting, the Board Members, including the
Independent Board Members, unanimously approved the Interim Investment
Management Agreement. If necessary to assure continuity of advisory services,
the Interim Investment Management Agreement will take effect upon the closing of
the Transaction if shareholders have not yet approved the New Investment
Management Agreement. The terms of the Interim Investment Management Agreement
are substantially identical to those of the corresponding Original Investment
Management Agreement and New Investment Management Agreement, respectively,
except for certain term and escrow provisions. In light of the foregoing, the
Board Members, including the Independent Board Members, unanimously determined
that the scope and quality of services to be provided to the Fund under the
Interim Investment Management Agreement are at least equivalent to the scope and
quality of services provided under the Original Investment Management Agreement.
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.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board implemented after the registrant
last provided disclosure in response to this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of this report that
includes the disclosure required by this paragraph, based on their
evaluation of the controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")(17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form.
(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 Tax-Advantaged Dividend Growth Fund
By (Signature and Title)* /s/ Kevin J. McCarthy
---------------------------------------
Kevin J. McCarthy
Vice President and Secretary
Date: September 6, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
---------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: September 6, 2007
By (Signature and Title)* /s/ Stephen D. Foy
---------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: September 6, 2007
* Print the name and title of each signing officer under his or her signature.