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 811-21137
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Nuveen Quality Preferred Income Fund 2
------------------------------------------------------------------------------
(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: July 31
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Date of reporting period: July 31, 2004
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT July 31, 2004
Nuveen Investments
Closed-End
Exchange-Traded
Funds
NUVEEN QUALITY PREFERRED INCOME FUND
JTP
NUVEEN QUALITY PREFERRED INCOME FUND 2
JPS
NUVEEN QUALITY PREFERRED INCOME FUND 3
JHP
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HIGH CURRENT INCOME
FROM A PORTFOLIO OF
INVESTMENT-GRADE
PREFERRED SECURITIES
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Photo of: Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
Chairman's
LETTER TO SHAREHOLDERS
I am very pleased to report that over the fiscal year ended July 31, 2004, your
Fund continued to provide you with attractive monthly income through a
diversified portfolio of quality preferred securities.
In addition to regular monthly income, we believe that your Fund also may
provide an opportunity to reduce the overall risk of your entire investment
portfolio. This is because the value of your Fund's holdings may move
differently than the prices of the other investments, like common stocks, bonds
or mutual funds that you may own. Through adequate diversification, some parts
of your portfolio may be going
--------------------------------------------------------------------------------
IN ADDITION TO REGULAR MONTHLY INCOME, WE BELIEVE THAT YOUR FUND ALSO MAY
PROVIDE AN OPPORTUNITY TO REDUCE THE OVERALL RISK OF YOUR ENTIRE INVESTMENT
PORTFOLIO.
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up when others are going down. This potential counterbalancing may reduce your
overall risk over time. Your financial advisor can explain the advantages of
portfolio diversification in more detail. I urge you to contact him or her soon
for more information on this important investment strategy.
I also urge you to consider receiving future Fund reports and other Fund
information by e-mail and the Internet. Not only will you be able to receive the
information faster, but this also may help lower your Fund's expenses. Sign up
is quick and easy -- see the inside front cover of this report for step-by-step
instructions.
For more than 100 years, Nuveen has specialized in offering quality investments
such as your Fund to those seeking to accumulate and preserve wealth. Our
commitment to careful research, constant surveillance and judicious trading by
seasoned portfolio managers has never been stronger. Our mission continues to be
to assist you and your financial advisor by offering the investment solutions
and services that can help you secure your long-term financial goals. We thank
you for choosing us as a partner as you work toward that objective.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
September 15, 2004
Nuveen Closed-End Exchange-Traded Funds (JTP, JPS, JHP)
Portfolio Managers'
PERSPECTIVE
The Nuveen Quality Preferred Income Funds are managed by a team of specialists
at Spectrum Asset Management, Inc., an affiliate of Principal CapitalSM. Mark
Lieb, Bernie Sussman and Phil Jacoby, who have more than 50 years of combined
experience in the preferred securities markets, lead the team. Here Mark, Bernie
and Phil talk about general economic conditions, their management strategy and
the performance of each Fund for the fiscal year ended July 31, 2004.
WHAT WERE THE CONDITIONS IN THE FIXED-INCOME MARKETS GENERALLY, AND THE
PREFERRED SECURITIES MARKET IN PARTICULAR, DURING THE FISCAL YEAR ENDED JULY 31,
2004?
While the 10-year U. S. Treasury note yield of 4.45% at the end of the period
was virtually unchanged from 12 months earlier, this fiscal year was marked by
quite a bit of volatility in both the preferred securities market as well as in
the fixed-income market generally. Prices in the U. S. Treasury market peaked on
March 16, 2004, with the 10-year note yielding 3.68% as a sluggish economy, slow
employment growth, Federal Reserve caution and concerns over terrorism combined
to keep interest rates near record lows. In early April, an unexpectedly strong
employment report brought the bond market rally to an abrupt end. As concerns
focused on the possibility that the Federal Reserve might start to raise
short-term interest rates, market interest rates spiked upward along the entire
yield curve and the 10 year U. S. Treasury note reached a high yield of 4.87% on
June 14, 2004.
The preferred securities market's reaction to this April sell-off was even
stronger, especially in the $25 par sector, as many individual investors seemed
to take the news of possibly rising interest rates as a signal to get out of
fixed-income investments. Overall, the second quarter of 2004 was the worst
period for preferred securities since 1999. However, both the general
fixed-income market and the preferred securities market enjoyed a nice rebound
during the second half of June and through July as investors seemed to conclude
that the economy wasn't robust enough to spark inflation and to sense that the
Fed's tightening would be very gradual. The prospect for a continued steep yield
curve also was a positive for preferred securities.
In total, the preferred securities market, as measured by the Merrill Lynch
Preferred Stock Hybrid Securities Index, was up 6.34% for the 12 months ending
July 31, 2004, compared with a 4.84% over the same period for the Lehman
Aggregate Bond Index (a general measure of the overall bond market). New
issuance in the preferred securities market totaled $36.5 billion over the
12-month period, but the overall growth of the market was contained by a strong
pace of redemptions as issuers called the higher-coupon preferred securities
they had issued during the 1990's. As of July 31, 2004, the hybrid preferred
securities market had outstanding issues totaling approximately $225 billion.
4
One positive development during the period for parts of the preferred securities
market was a recommendation by the National Association of Insurance
Commissioners to reduce the risk-based capital requirements for preferred stock.
This has the potential to increase the demand by insurance companies for certain
preferred issues, especially some of the non-U.S. issues owned by the Funds, and
may help the Fund holdings perform well in the future.
DURING THIS PERIOD WHAT WERE YOUR PRIMARY MANAGEMENT STRATEGIES AND FOCUSES?
Over this fiscal year, the focus of our investing activities was on finding and
owning high quality preferred securities that offered what we judged to be good
current yields and yields-to-call. The average credit quality within each of the
Funds was maintained at a ratings level of A3/BBB+/A- from Moody's, S&P and
Fitch, respectively. Given the large number of redemptions, much of the trading
activity also was targeted toward replacing the current income on issues that
were called out of the portfolio. In addition, we believed that higher coupon
preferred securities with call dates in 2006 and 2007 were relatively more
attractive than the lower, current coupon issues available during most of the
year. These higher coupon securities also helped to keep the duration, or
interest rate sensitivity, of the portfolio lower than if we had been more
focused on new issues.
Diversification among issuers and sectors within the preferred securities market
also was an important part of our strategy. Each of the Funds now contains over
100 distinct issuers. The weightings between $25 par preferred stock and
preferred capital securities, and to a lesser extent among convertible
securities and corporate bonds, were altered slightly over the period depending
on where we felt we could find the best relative value.
HOW DID THE FUNDS PERFORM OVER THIS PERIOD?
Each of the Funds performed well during the 12 months ended July 31, 2004. Their
performance, as well as the performance of several widely followed market
indexes, is shown in the accompanying chart.
Total Return on Net Asset Value
For 12 months ended July 31, 2004
JTP 11.17%
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JPS 11.60%
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JHP 11.93%
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Lehman Brothers Aggregate Bond Index1 4.84%
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Merrill Lynch Preferred Stock Hybrid Securities Index2 6.34%
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Past performance does not guarantee future results.
For more information, please see the individual Performance Overview pages in
this report.
1 The Lehman Brothers Aggregate Bond Index is an unmanaged index that
includes all investment-grade, publicly issued, fixed-rate,
dollar-denominated, nonconvertible debt issues and commercial mortgage
backed securities with maturities of at least one year and outstanding par
values of $150 million or more.
2 The Merrill Lynch Preferred Stock Hybrid Securities Index, is an unmanaged
index of investment-grade, exchange-traded preferred stocks with
outstanding market values of at least $30 million and at least one year to
maturity.
5
For the 12 months ended July 31, 2004, all of these Funds outperformed the
Lehman Brothers and Merrill Lynch indexes. While the parts of each portfolio
performed well, the $1000 par capital preferred securities held by each Fund
were their best performing sector during the 12-month reporting period. These
issues are not part of the Merrill Lynch index.
The Funds' $1000 par capital securities benefited from the general tightening of
spreads in the corporate market over the reporting period and from the strong
demand for yield from insurance companies and other institutional investors. The
better call protection afforded by these securities also helped their
performance during the months when rates were falling. Two $1000 par capital
securities that were among the best performers for all three Funds were Zurich
Americas and Centaur Funding. Zurich benefited from a more positive feeling in
the market about European insurers as an improved equity market allowed them to
do a rights offering and improve their capital position. Centaur, a part of
Vodafone, was a subordinated issue that we considered to be very undervalued
relative to the issuer's senior debt, and these securities performed well over
the period. Another top performer for all three Funds was a GMAC debt instrument
that we bought because it was trading cheaper than their more subordinated
preferred. Purchased at yield spreads ranging from 300 to 320 basis points above
comparable U. S. Treasuries, the prices of these GMAC securities improved so
that they were trading at yields about 245 basis points higher than the
comparable U. S. Treasuries by the end of the reporting period. Of course it is
important to note that Treasuries are backed by the full faith and credit of the
U.S. Government while these par capital securities are not.
Within the $25 par market of listed preferred securities, one strategy that
worked well during this period was trading to take advantage of what we thought
were mispricings of the securities' embedded call options. In many cases we were
able to sell issues trading at a premium where the yield-to-call was very low,
and then were able to replace these securities with other, higher coupon issuers
with higher current yields and more attractive yields-to-call at the time of
investment.
At the same time, two $25 par issues, Verizon (in JTP) and Converium (in all
three Funds), did not perform as well as we had hoped they would. The Verizon
issue was originally a series of $1000 par capital securities that were
repackaged into exchange-listed $25 par preferreds that were bought during the
first quarter of 2004, just before rates rose significantly. Converium, a Swiss
reinsurance company, was put on downgrade review by the rating agencies
following a surprise announcement that they were taking a $400
6
million reserve charge in the second quarter of 2004. Several other issues in
all three Funds that happened to be bought in February and early March when
interest rates were at their lows for the period turned out to be relatively
weak performers over this reporting period.
WHAT ABOUT THE FUNDS' DIVIDENDS AND SHARE PRICES?
With short-term interest rates remaining near historically low levels during
this reporting period, the leveraged structures of these Funds continued to
support their dividend-paying capabilities. The extent of this benefit is tied
in part to the short-term rates the Funds pay their FundPreferred(R)
shareholders. During periods of low short-term rates, the Funds generally pay
relatively lower dividends to their FundPreferred shareholders, which can leave
more earnings to support common share dividends.
As a result, despite losing some of their higher-coupon securities to calls, JPS
and JHP made no changes in their monthly dividends over the course of this
12-month fiscal year. JTP made one reduction in its monthly dividend, reflecting
a lower earnings rate resulting from calls.
All of these Funds seek to pay stable dividends at rates that reflect each
Fund's past results and projected future performance. During certain periods,
each Fund may pay dividends at a rate that may be more or less than the amount
of net investment income actually earned by the Fund during the period. If a
Fund has cumulatively earned more than it has paid in dividends, it holds the
excess in reserve as undistributed net investment income (UNII) as part of the
Fund's NAV. Conversely, if a Fund has cumulatively paid dividends in excess of
its earnings, the excess constitutes negative UNII that is likewise reflected in
the Fund's NAV. Each Fund will, over time, pay all of its net investment income
as dividends to shareholders. As of July 31, 2004, all three Funds in this
report had positive UNII balances.
As of July 31, 2004, all of these Funds were trading at discounts to their net
asset values. In each case, these discounts were greater than the average
discount or premium exhibited by the Fund over the course of the entire 12-month
reporting period.
7
Nuveen Quality Preferred Income Fund
JTP
Performance
OVERVIEW As of July 31, 2004
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
$25 Par (or similar) Securities 44.4%
Capital Preferred Securities 38.4%
Capital Preferred-Euro-market
listed securities 5.6%
Convertible Preferred Securities 5.3%
Other 6.3%
Bar Chart:
2003-2004 MONTHLY DIVIDENDS PER SHARE
Aug 0.105
Sep 0.105
Oct 0.105
Nov 0.105
Dec 0.105
Jan 0.105
Feb 0.105
Mar 0.105
Apr 0.105
May 0.105
Jun 0.101
Jul 0.101
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/03 14.13
14.7
14.06
14.28
14.61
14.86
14.9
14.86
14.9
15.09
15
15.18
15.49
15.47
15.52
15.42
15.51
15.6
15.55
15.8
15.96
15.97
15.8
15.87
15.87
15.88
15.75
16
16.04
16.1
16.01
15.97
15.58
15.29
14.62
13.91
14.23
12.91
13.39
13.57
14.04
13.82
13.41
13.34
13.33
13.69
13.9
13.83
13.74
7/31/04 13.96
PORTFOLIO STATISTICS
------------------------------------
Share Price $13.96
------------------------------------
Common Share
Net Asset Value $14.40
------------------------------------
Premium/Discount to NAV -3.06%
------------------------------------
Latest Dividend $.1010
------------------------------------
Market Yield 8.68%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $927,892
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Commercial Banks 40.7%
------------------------------------
Insurance 19.1%
------------------------------------
Real Estate 14.3%
------------------------------------
Diversified Financial Services 4.6%
------------------------------------
Electric Utilities 4.4%
------------------------------------
Automobiles 3.2%
------------------------------------
Other 13.7%
------------------------------------
TOP FIVE ISSUERS
(EXCLUDING REPURCHASE AGREEMENTS)
(as a % of total investments)
------------------------------------
Wachovia Corporation 3.4%
------------------------------------
ING Groep NV 3.1%
------------------------------------
Abbey National Public Limited 3.0%
------------------------------------
Zurich Financial Services 2.9%
------------------------------------
HSBC Holding Public Limited 2.7%
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 6/25/02)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 4.20% 11.17%
------------------------------------
Since Inception 4.86% 8.88%
------------------------------------
8
Nuveen Quality Preferred Income Fund 2
JPS
Performance
OVERVIEW As of July 31, 2004
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
$25 Par (or similar) Securities 45.5%
Capital Preferred Securities 37.9%
Capital Preferred-Euro-market
listed securities 4.2%
Convertible Preferred Securities 5.0%
Other 7.4%
Bar Chart:
2003-2004 MONTHLY DIVIDENDS PER SHARE
Aug 0.105
Sep 0.105
Oct 0.105
Nov 0.105
Dec 0.105
Jan 0.105
Feb 0.105
Mar 0.105
Apr 0.105
May 0.105
Jun 0.105
Jul 0.105
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/03 14.39
14.83
14.21
14.66
14.7
14.87
14.96
14.95
14.96
15.17
15.13
15.2
15.43
15.49
15.53
15.54
15.6
15.72
15.68
15.94
16
16
15.84
15.89
15.97
15.9
15.83
16.07
16.11
16.3
16.39
16.31
15.8
15.4
14.89
14.22
14.38
13.3
13.55
13.67
14.14
14.14
13.91
13.84
13.8
14.32
14.48
14.6
14.43
7/31/04 14.61
PORTFOLIO STATISTICS
------------------------------------
Share Price $14.61
------------------------------------
Common Share
Net Asset Value $15.32
------------------------------------
Premium/Discount to NAV -4.63%
------------------------------------
Latest Dividend $.1050
------------------------------------
Market Yield 8.62%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $1,830,878
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INDUSTRIES
(as a % of total investments)
------------------------------------
Commercial Banks 40.4%
------------------------------------
Insurance 22.0%
------------------------------------
Real Estate 10.3%
------------------------------------
Electric Utilities 5.6%
------------------------------------
Diversified Financial Services 5.5%
------------------------------------
Diversified Telecommunication
Services 3.4%
------------------------------------
Automobiles 3.3%
------------------------------------
Other 9.5%
------------------------------------
TOP FIVE ISSUERS
(EXCLUDING REPURCHASE AGREEMENTS)
(as a % of total investments)
------------------------------------
Wachovia Corporation 3.5%
------------------------------------
Abbey National Public Limited 3.1%
------------------------------------
ING Groep NV 2.9%
------------------------------------
Everest Reinsurance Holdings 2.9%
------------------------------------
FleetBoston Financial
Corporation 2.3%
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 9/24/02)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 8.98% 11.60%
------------------------------------
Since Inception 7.00% 12.37%
------------------------------------
9
Nuveen Quality Preferred Income Fund 3
JHP
Performance
OVERVIEW As of July 31, 2004
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
$25 Par (or similar) Securities 50.0%
Capital Preferred Securities 34.1%
Convertible Preferred Securities 5.2%
Capital Preferred-Euro-market
listed securities 3.5%
Other 7.2%
Bar Chart:
2003-2004 MONTHLY DIVIDENDS PER SHARE
Aug 0.103
Sep 0.103
Oct 0.103
Nov 0.103
Dec 0.103
Jan 0.103
Feb 0.103
Mar 0.103
Apr 0.103
May 0.103
Jun 0.103
Jul 0.103
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/03 14.07
14.6
14.18
14.25
14.56
14.68
14.71
14.75
14.61
14.9
14.99
15.15
15.14
15.32
15.12
15.31
15.21
15.42
15.21
15.85
15.89
15.73
15.74
15.48
15.7
15.58
15.6
15.87
15.86
15.92
15.89
15.93
15.57
15.05
14.59
14.02
13.85
12.76
13.21
13.27
13.89
13.92
13.73
13.4
13.45
13.89
14.28
14.37
14.22
7/31/04 14.34
PORTFOLIO STATISTICS
------------------------------------
Share Price $14.34
------------------------------------
Common Share
Net Asset Value $14.71
------------------------------------
Premium/Discount to NAV -2.52%
------------------------------------
Latest Dividend $.1030
------------------------------------
Market Yield 8.62%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $347,900
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Commercial Banks 35.2%
------------------------------------
Insurance 27.2%
------------------------------------
Real Estate 9.2%
------------------------------------
Diversified Financial Services 7.3%
------------------------------------
Electric Utilities 3.8%
------------------------------------
Diversified Telecommunication
Services 3.2%
------------------------------------
Automobiles 3.2%
------------------------------------
Other 10.9%
------------------------------------
TOP FIVE ISSUERS
(EXCLUDING REPURCHASE AGREEMENTS)
(as a % of total investments)
------------------------------------
Wachovia Corporation 3.5%
------------------------------------
ING Groep NV 3.3%
------------------------------------
Zurich Financial Services 3.0%
------------------------------------
Union Planters Corporation 2.5%
------------------------------------
SAFECO Corporation 2.5%
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 12/18/02)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 9.36% 11.93%
------------------------------------
Since Inception 5.57% 10.23%
------------------------------------
10
Report of
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN QUALITY PREFERRED INCOME FUND
NUVEEN QUALITY PREFERRED INCOME FUND 2
NUVEEN QUALITY PREFERRED INCOME FUND 3
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Nuveen Quality Preferred Income Fund, Nuveen
Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 as of
July 31, 2004, and the related statements of operations, changes in net assets
and the financial highlights for the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of investments owned as of July 31, 2004, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and
Nuveen Quality Preferred Income Fund 3 at July 31, 2004, and the results of
their operations, the changes in their net assets and the financial highlights
for the periods indicated therein in conformity with U.S. generally accepted
accounting principles.
/s/Ernst & Young LLP
Chicago, Illinois
September 15, 2004
11
Nuveen Quality Preferred Income Fund (JTP)
Portfolio of
INVESTMENTS July 31, 2004
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) SECURITIES - 65.3% (44.4% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.2%
32,900 Ford Motor Company, Series F, 8.000% (CORTS) $ 835,660
51,600 General Motors Acceptance Corporation, 7.350% 1,301,868
------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 2.5%
510,000 Delphi Trust I, 8.250% 13,132,500
382,050 Magna International Inc., Series B, 8.875% 9,662,044
------------------------------------------------------------------------------------------------------------------------------------
BEVERAGES - 1.5%
535,800 Grand Metropolitan Delaware LP, 9.420% 13,620,036
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 12.0%
22,900 Abbey National plc, 7.250% 592,423
67,800 Abbey National plc, Series B, 7.375% 1,779,750
100,000 ABN AMRO Capital Fund Trust V, 5.900% 2,319,000
102,800 ASBC Capital I, 7.625% 2,734,480
7,200 BAC Capital Trust I, 7.000% 186,336
64,300 BAC Capital Trust II, 7.000% 1,662,155
145,000 BAC Capital Trust III, 7.000% 3,796,100
52,300 Banco Totta & Acores Finance, Series A, 8.875% 1,349,993
68,300 Bank One Capital II, 8.500% 1,842,734
59,400 Bank One Capital Trust VI, 7.200% 1,544,400
17,000 BBVA Preferred Capital Ltd., Series B, 7.750% 447,100
122,000 BCH Capital Ltd., Series B, 9.430% 3,258,010
31,100 BNY Capital Trust V, Series F, 5.950% 742,357
270,650 BSCH Finance Ltd., Series Q, 8.625% 7,172,225
25,200 Chase Capital Trust VIII, Series H, 8.300% 666,540
198,200 Chittenden Capital Trust I, 8.000% 5,240,408
30,176 CIT Group Incorporated, 7.750% (CORTS) 829,840
15,000 Citigroup Capital Trust VI, 6.875% 378,150
131,700 Citigroup Capital Trust VII, 7.125% 3,447,906
61,700 Citigroup Capital Trust VIII, 6.950% 1,590,009
66,300 Citigroup Inc., Series H, 6.231% (a) 3,404,505
116,800 Cobank ABC, 144A, 7.000% (a) 6,213,760
123,800 Comerica Capital Trust I, 7.600% 3,268,320
224,795 Compass Capital Trust III, 7.350% 5,869,397
37,000 Espirito Santo Overseas, 8.500% 951,595
28,500 First Union Capital II, Series II, 7.500% (CORTS) 743,850
11,300 First Union Institutional Capital II, 8.200% (CORTS) 317,247
87,000 Fleet Capital Trust VI, 8.800% 2,316,810
33,900 Fleet Capital Trust VII, 7.200% 883,773
12
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
57,900 Harris Preferred Capital Corporation, Series A, 7.375% $ 1,460,238
32,600 JPM Capital Trust I, Series 2001-1, Class A-1, 7.850% (CORTS) 870,094
81,500 JPMorgan Chase Capital Trust IX, Series I, 7.500% 2,166,270
70,500 JPMorgan Chase Capital Trust X, 7.000% 1,840,050
20,000 JPMorgan Chase Trust, Series 2002-6, Class A, 7.125% (SATURNS) 512,200
62,900 KeyCorp, 7.500% (PCARS) 1,626,279
18,000 KeyCorp, Series 2001-7, 7.750% (CORTS) 466,740
29,800 KeyCorp, Series B, 8.250% (CORTS) 777,780
62,800 National Commerce Capital Trust II, 7.700% 1,661,060
55,300 National Westminster Bank plc, Series A, 7.875% 1,411,256
29,200 Regions Finance Trust I, 8.000% 764,456
13,800 SunTrust Capital Trust IV, 7.125% 358,110
60,700 SunTrust Capital Trust V, 7.050% 1,574,558
174,400 USB Capital Trust III, 7.750% 4,621,600
418,405 USB Capital Trust IV, 7.350% 11,004,051
40,100 USB Capital Trust V, 7.250% 1,052,625
26,200 VNB Capital Trust I., 7.750% 693,776
23,200 Washington Mutual Capital Trust I, Series 2001-22, Class A-1, 7.650% (CORTS) 598,560
9,500 Wells Fargo Capital Trust IV, 7.000% 248,045
115,100 Wells Fargo Capital Trust V, 7.000% 2,982,241
5,600 Wells Fargo Capital Trust VI, 6.950% 144,592
340,000 Zions Capital Trust B, 8.000% 9,139,200
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.6%
127,000 Household Capital Trust V, Series X, 10.000% 3,403,600
60,200 Household Capital Trust VI, 8.250% 1,603,126
20,200 Household Capital Trust VII, 7.500% 534,088
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 4.9%
60,000 Bear Stearns Capital Trust III, 7.800% 1,581,000
40,800 Citigroup Inc., Series M, 5.864% (a) 2,055,300
586,800 Countrywide Capital Trust IV, 6.750% 14,640,660
108,149 Lehman Brothers Holdings Capital Trust, 6.375% 2,687,502
40,500 Lehman Brothers Holdings Capital Trust, 6.375% 995,085
46,000 Merrill Lynch Capital Trust II, 8.000% 1,260,400
60,000 Merrill Lynch Capital Trust, 7.000% 1,555,800
35,300 Merrill Lynch Preferred Capital Trust, 7.120% 923,448
64,300 Merrill Lynch Preferred Capital Trust V, 7.280% 1,695,591
192,500 Merrill Lynch Preferred Capital Trust, 7.750% 5,159,000
125,000 Morgan Stanley Capital Trust II, 7.250% 3,225,000
146,000 Morgan Stanley Capital Trust III, 6.250% 3,591,600
249,095 Morgan Stanley Capital Trust IV, 6.250% 6,115,282
10,800 Morgan Stanley Capital Trust V, 5.750% 250,560
13
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of INVESTMENTS July 31, 2004
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.1%
18,100 SBC Communications Inc, 7.000% $ 472,591
12,000 Verizon New England Inc., Series B, 7.000% 309,840
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 2.8%
93,400 Dominion CNG Capital Trust I, 7.800% 2,440,542
57,600 Dominion Resources Capital Trust II, 8.400% 1,527,552
77,740 DTE Energy Trust I, 7.800% 2,039,120
95,205 Entergy Louisiana Inc, 7.600% 2,506,747
117,951 Georgia Power Company, 5.900% 2,839,080
251,220 Interstate Power & Light Company, 8.375% (a) 8,089,284
64,700 OGE Energy Capital Trust I, 8.375% 1,649,850
6,800 Tennessee Valley Authority, Series D, 6.750% 166,532
187,000 Virginia Power Capital Trust, 7.375% 4,890,050
------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.7%
65,000 Dairy Farmers of America Inc., 144A, 7.875% (a) 6,650,312
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.4%
32,300 AGL Capital Trust II, 8.000% 839,477
108,500 TransCanada Pipeline, 8.250% 2,762,410
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.1%
19,400 General Electric Company, 6.800% 514,100
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 15.2%
14,900 ACE Capital Trust I, Series 1999, 8.875% 385,910
758,700 Ace Ltd., Series C, 7.800% 20,189,007
21,500 AMBAC Financial Group Inc, 5.950% 503,530
18,700 American General Capital III, 8.050% 504,900
20,700 American General Capital Trust I, 7.875% 524,538
760,000 Converium Finance, 8.250% 17,966,400
185,300 Delphi Financial Group Inc, 8.000% 4,771,475
35,400 Everest RE Capital Trust II, 6.200% 801,810
69,700 EverestRe Group Limited, 7.850% 1,856,808
136,600 Great-West L&A Capital Trust I, Series A, 7.250% 3,438,222
119,100 Hartford Capital Trust III, Series C, 7.450% 3,126,375
43,800 Hartford Life Capital Trust II, Series B, 7.625% 1,147,122
30,300 ING Capital Funding Trust II, 9.200% 811,434
563,900 ING Group NV, 7.050% 14,509,147
1,015,458 ING Group NV, 7.200% 26,533,917
77,100 Lincoln National Capital Trust V, Series E, 7.650% 2,037,753
26,900 Lincoln National Capital Trust VI, 6.750% 673,845
26,100 MBIA Inc, 8.000% 716,445
250,000 PartnerRe Limited, Series C, 6.750% 6,200,000
113,700 PartnerRe Limited, 7.900% 3,007,365
70,900 PLC Capital Trust III, 7.500% 1,847,654
410,000 PLC Capital Trust IV, 7.250% 10,680,500
107,750 RenaissanceRe Holdings Ltd., Series A, 8.100% 2,867,227
14
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
53,800 RenaissanceRe Holdings Ltd., Series B, 7.300% $ 1,417,630
34,600 SafeCo Capital Trust I, 8.700% (CORTS) 915,170
31,000 SafeCo Capital Trust I, Series 2001-4, 8.750% (CORTS) 812,510
58,600 Torchmark Capital Trust I, 7.750% 1,533,562
391,854 XL Capital Ltd., Series A, 8.000% 10,615,324
39,400 XL Capital Ltd., Series B, 7.625% 1,046,858
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.3%
119,000 Viacom Inc, 7.300% 3,113,040
------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 0.3%
94,800 Energy East Capital Trust I, 8.250% 2,476,176
------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS - 1.3%
46,100 EnCana Corporation, 9.500% 1,177,394
411,032 Nexen Inc, 7.350% 10,542,970
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.2%
20,000 Bristol Myers Squibb Company, 6.250% (CORTS) 513,000
54,300 Rhone-Poulenc Overseas, Series A, 8.125% 1,387,365
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 20.8%
49,658 AMB Property Corporation, Series M, 6.750% 1,214,634
8,500 Archstone-Smith Trust, Series D, 8.750% 214,200
13,400 AvalonBay Communities, Inc., Series H, 8.700% 371,314
608,700 BRE Properties, Series B, 8.080% 15,963,157
533,545 CarrAmerica Realty Corporation, Series E, 7.500% 13,669,422
119,000 Developers Diversified Realty Corporation, Series H, 7.375% 2,936,920
29,000 Developers Diversified Realty Corporation, Series G, 8.000% 755,450
55,600 Developers Diversified Realty Corporation, Series F, 8.600% 1,484,520
114,179 Duke-Weeks Realty Corporation, Series B, 7.990% 6,226,329
10,800 Duke-Weeks Realty Corporation, Series I, 8.450% 285,984
1,097,400 Equity Office Properties Trust, Series G, 7.750% 28,576,296
23,100 Equity Residential Properties Trust, Series D, 8.600% 637,560
30,400 Equity Residential Properties Trust, Series B, 9.125% 808,640
10,600 First Industrial Realty Trust, Inc., Series C, 8.625% 284,080
19,000 Firstar Realty LLC, 144A, 8.875% 22,990,000
218,300 HRPT Properties Trust, Series A, 9.875% 5,811,146
1,096,700 HRPT Properties Trust, Series B, 8.750% 29,139,319
22,000 New Plan Excel Realty Trust, Series D, 7.800% 1,159,125
416,000 New Plan Excel Realty Trust, Series E, 7.625% 10,728,640
101,000 Prologis Trust, Series G, 6.750% 2,444,200
50,000 PS Business Park Inc., Series I, 6.875% 1,164,500
204,400 PS Business Parks Inc, 7.000% 4,782,960
7,000 Public Storage Inc., Series D, 9.500% 181,650
16,200 Public Storage Inc., Series E, 10.000% 434,160
22,800 Public Storage Inc., Series F, 9.750% 598,500
25,100 Public Storage Inc., Series Q, 8.600% 664,397
15
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of INVESTMENTS July 31, 2004
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
99,000 Public Storage Inc., Series R, 8.000% $ 2,594,790
200,000 Public Storage Inc., Series S, 7.875% 5,238,000
32,680 Public Storage Inc., Series U, 7.625% 849,026
345,600 Public Storage Inc., Series V, 7.500% 9,054,720
47,500 Regency Centers Corporation, 7.450% 1,223,125
20,500 Simon Property Group, Inc., Series F, 8.750% 553,500
176,200 Simon Property Group, Inc., Series G, 7.890% 9,324,504
47,700 Vornado Realty Trust, Series C, 8.500% 1,225,890
315,000 Wachovia Preferred Funding Corporation, 7.250% 8,413,650
------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.4%
262,846 Telephone and Data Systems Inc, 7.600% 6,865,537
156,300 United States Cellular Corporation, 8.750% 4,321,695
77,000 United States Cellular Corporation, 7.500% 1,966,580
------------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $588,995,225) 604,860,094
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 7.8% (5.3% OF TOTAL INVESTMENTS)
DIVERSIFIED FINANCIAL SERVICES - 0.6%
154,000 Citigroup Global Markets, 2.000% 5,906,824
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.4%
263,200 Alltel Corporation, 7.750% 13,186,320
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 3.6%
266,200 Ameren Corporation, 9.750% 7,272,584
10,000 American Electric Power, 9.250% 429,500
260,200 Dominion Resources Inc, 8.750% 13,933,710
60,000 DTE Energy Company, 8.750% 1,529,400
30,000 FPL Group Inc, 8.000% 1,681,500
153,600 Public Service Enterprise Group, 10.250% 8,540,160
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 1.7%
299,400 Keyspan Corporation, 8.750% 15,383,172
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES - 0.3%
54,500 Baxter International Inc, 7.000% 2,804,025
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.2%
8,900 PartnerRe Limited, 8.000% 451,230
50,000 XL Capital Limited, 6.500% 1,196,000
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $69,031,457) 72,314,425
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - HYBRID SECURITIES - 2.9% (2.0% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 1.1%
10 BBVA Privanza International Gibraltar, 144A, 7.764% 10,350,000
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.8%
13,250 Centaur Funding Corporation, 144A, Series B, 9.080% 16,728,125
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Hybrid Securities (cost $21,548,162) 27,078,125
--------------------------------------------------------------------------------------------------------------------
16
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 56.3% (38.4% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 39.3%
$ 30,000 Abbey National Capital Trust I, 8.963%, 12/30/49 $38,470,020
9,000 AB Svensk Exportkredit, 6.375%, 10/27/49 8,811,783
3,100 AgFirst Farm Credit Bank, 7.300%, 12/15/53 3,118,869
2,500 Bank of New York Capital I, Series B, 7.970%, 12/31/26 2,747,887
2,500 Bank One Capital III, 8.750%, 9/01/30 3,247,885
2,500 BankAmerica Capital II, Series 2, 8.000%, 12/15/26 2,777,100
2,000 BankAmerica Institutional Capital Trust, Series B, 7.700%, 12/31/26 2,168,926
1,000 BankAmerica Institutional Trust, 8.070%, 12/31/26 1,116,371
5,700 BankBoston Capital Trust II, Series B, 7.750%, 12/15/26 6,124,843
1,000 BanPonce Trust I, Series A, 8.327%, 2/01/27 1,088,053
7,200 Barclays Bank plc, 144A, 8.550%, 6/15/49 8,622,950
6,000 Barnett Capital I, 8.060%, 12/01/26 6,653,856
1,500 BNP Paribas Capital Trust, 144A, 9.003%, 12/29/49 1,825,603
2,000 BT Capital Trust, Series B1, 7.900%, 1/15/27 2,182,920
1,000 BT Institutional Capital Trust, 144A , Series B, 7.750%, 12/01/26 1,072,112
7,900 BT Preferred Capital Trust II, 7.875%, 2/25/27 8,554,933
3,000 Centura Capital Trust I, 144A, 8.845%, 6/01/27 3,383,604
5,000 Chase Capital Trust I, Series A, 7.670%, 12/01/26 5,368,900
3,000 Corestates Capital Trust I, 144A, 8.000%, 12/15/26 3,325,248
8,500 Dime Capital Trust I, Series A, 9.330%, 5/06/27 9,956,194
2,500 Dresdner Funding Trust I, 8.151%, 6/30/31 2,846,440
1,800 Farm Credit Bank of Texas, 7.561%, 11/05/49 1,824,541
1,000 First Chicago NBD Institutional Capital, 7.950%, 12/01/26 1,090,780
1,000 First Empire Capital Trust II, 8.277%, 6/01/27 1,116,020
1,500 First Midwest Bancorp Inc, 6.950%, 12/01/33 1,522,479
26,463 First Union Institutional Capital Securities, 8.040%, 12/01/26 29,415,662
5,000 Great Western Financial Trust II, Series A, 8.206%, 2/01/27 5,479,130
19,750 HSBC Capital Funding LP, Debt, 10.176%, 6/30/50 28,039,746
5,750 HSBC Capital Funding LP, 144A, 9.547%, 12/31/49 7,080,199
19,500 JPM Capital Trust II, 7.950%, 2/01/27 21,512,224
5,000 KBC Bank Fund Trust III, 144A, 9.860%, 11/02/49 6,138,045
2,000 KeyCorp Institutional Capital Trust A, 7.826%, 12/01/26 2,154,060
11,150 NB Capital Trust II, 7.830%, 12/15/26 12,267,475
7,655 Nordbanken AB, 144A, 8.950%, 11/29/49 9,112,435
1,000 North Fork Capital Trust I, Capital Securities, 8.700%, 12/15/26 1,102,310
8,000 Peoples Heritage Capital Trust I, Series B, 9.060%, 2/01/27 9,079,608
19,000 PNC Institutional Capital Securities, 7.950%, 12/15/26 20,392,624
17,500 Reliance Capital Trust I, Series B, 8.170%, 5/01/28 19,350,660
1,400 Republic New York Capital II, Capital Securities, 7.530%, 12/04/26 1,491,229
1,500 SocGen Real Estate Company LLC, 144A, 7.640%, 12/29/49 1,662,699
5,000 Sparebanken Rogaland, 144A, Notes, 6.443%, 5/01/49 4,925,000
23,000 Summit Capital Trust I, Capital Securities, 8.400%, 3/15/27 25,695,186
7,000 UBS Preferred Funding Trust I, 8.622%, 10/29/49 8,338,750
17
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of INVESTMENTS July 31, 2004
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
$ 6,676 Union Planters Capital Trust A, 8.200%, 12/15/26 $ 7,427,624
4,000 Wachovia Capital Trust I, Capital Securities, 144A, 7.640%, 1/15/27 4,273,236
5,000 Washington Mutual Capital Trust I, 8.375%, 6/01/27 5,574,130
1,050 Wells Fargo Capital Securities, 7.950%, 12/01/26 1,164,211
3,000 Zions Institutional Capital Trust, Series A, 8.536%, 12/15/26 3,372,963
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.2%
2,000 Keycorp Capital III, 7.750%, 7/15/29 2,271,356
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 1.5%
4,000 KN Capital Trust I, Preferred Securities, 8.560%, 4/15/27 4,515,368
8,860 KN Capital Trust III, 7.630%, 4/15/28 9,414,520
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 12.5%
7,570 Ace Capital Trust II, 9.700%, 4/01/30 10,124,466
7,500 Berkeley Capital Trust, 8.197%, 12/15/45 8,081,227
4,000 MIC Financing Trust I, 8.375%, 2/01/27 4,363,688
2,000 RenaissanceRe Capital Trust, 8.540%, 3/01/27 2,229,214
20,525 SAFECO Capital Trust I, Capital Securities, 8.072%, 7/15/37 22,739,626
26,211 Sun Life Canada Capital Trust, Capital Securities, 8.526%, 5/06/47 29,275,773
35,095 Zurich Capital Trust I, 8.376%, 6/01/37 39,149,735
------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS - 2.5%
20,900 Phillips 66 Capital Trust II, 8.000%, 1/15/37 22,902,324
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.3%
3,000 Mangrove Bay, 144A, Class 3, 6.102%, 7/15/33 2,992,008
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $500,148,511) 522,126,828
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 8.2% (5.6% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 7.3%
3,000 BNP Paribas Capital Trust, 7.200%, 12/31/49 3,102,873
10,750 C.A. Preferred Funding Trust, 7.000%, 1/30/49 10,844,299
2,750 C.A. Preferred Fund Trust II, 7.000%, 10/30/49 2,781,850
25,500 HBOS Capital Funding LP, Notes, 6.850%, 3/01/49 25,607,151
8,850 Lloyds TSB Bank plc, Subordinate Note, 6.900%, 11/22/49 9,024,601
17,000 RBS Capital Trust B, 6.800%, 12/31/49 17,106,199
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.9%
8,100 Old Mutual Capital Funding, Notes, 8.000%, 6/22/53 8,079,231
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Euro-Market Listed Securities (cost $78,983,079) 76,546,204
--------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 4.5% (3.1% OF TOTAL INVESTMENTS)
AUTOMOBILES - 4.5%
5,000 Ford Motor Company, 8.900%, 1/15/32 5,428,780
3,400 Ford Motor Company, 7.400%, 11/1/46 3,073,308
5,700 Ford Motor Company, 7.700%, 5/15/97 5,221,012
18
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES (continued)
$ 2,760 General Motors Corporation, Senior Debentures, 8.375%, 7/15/33 $ 2,893,510
24,500 General Motors Acceptance Corporation, Notes, 8.000%, 11/01/31 24,947,665
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.0%
500 Zurich Reinsurance Centre Holdings Inc, Senior Notes, 7.125%, 10/15/23 438,375
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $38,496,312) 42,002,650
--------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 1.7% (1.2% OF TOTAL INVESTMENTS)
$ 15,837 State Street Bank, 1.250%, dated 7/30/04, due 8/02/04, repurchase price $15,838,344, 15,836,694
collateralized by $14,520,000 U.S. Treasury Bonds, 6.000%, due 2/15/26, value $16,153,500
============= --------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (cost $15,836,694) 15,836,694
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,313,039,440) - 146.7% 1,360,765,020
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.7% 7,126,952
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (47.4)% (440,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $927,891,972
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(a) Security is eligible for the Dividends Received
Deduction.
144A 144A securities are those which are exempt from
registration under Rule 144A of the Securities Act of
1933, as amended. These securities may only be resold
in transactions exempt from registration which are
normally those transactions with qualified
institutional buyers.
(CORTS) Corporate Backed Trust Securities.
(PCARS) Public Credit and Repackaged Securities.
(SATURNS) Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
19
Nuveen Quality Preferred Income Fund 2 (JPS)
Portfolio of
INVESTMENTS July 31, 2004
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) SECURITIES - 65.0% (45.5% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.1%
38,000 Ford Motor Company, Series F, 8.000% (CORTS) $ 965,200
14,500 Ford Motor Company, 0.000% 369,895
------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 1.4%
916,800 Delphi Trust I, 8.250% 23,607,600
45,100 Magna International Inc., Series B, 8.875% 1,140,579
------------------------------------------------------------------------------------------------------------------------------------
BEVERAGES - 0.1%
106,100 Grand Metropolitan Delaware LP, 9.420% 2,697,062
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 13.0%
152,060 ASBC Capital I, 7.625% 4,044,796
135,900 BAC Capital Trust I, 7.000% 3,517,092
168,500 BAC Capital Trust II, 7.000% 4,355,725
218,300 BAC Capital Trust III, 7.000% 5,715,094
680,000 Banco Santander SA, 144A, 6.410% 16,549,840
38,600 Banco Totta & Acores Finance, Series A, 8.875% 996,362
81,600 BancWest Capital I, 9.500% 2,231,760
621,000 Banesto Holdings, Series A, 144A, 10.500% 19,115,187
9,400 Bank One Capital I, 8.000% 240,828
85,800 Bank One Capital II, 8.500% 2,314,884
198,500 Bank One Capital Trust VI, 7.200% 5,161,000
47,400 Bank One Capital V, 8.000% 1,265,580
55,400 BankNorth Capital Trust II, 8.000% 1,471,424
42,900 BBVA Preferred Capital Ltd., Series B, 7.750% 1,128,270
340,500 BCH Capital Ltd., Series B, 9.430% 9,093,052
19,300 BNY Capital Trust IV, Series E, 6.875% 485,974
29,200 BNY Capital Trust V, Series F, 5.950% 697,004
446,100 BSCH Finance Ltd., Series Q, 8.625% 11,821,650
73,800 Chase Capital Trust VIII, Series H, 8.300% 1,952,010
104,200 Chittenden Capital Trust I, 8.000% 2,755,048
33,200 CIT Group Incorporated, 7.750% (CORTS) 913,000
1,800 Citigroup Capital Trust IX, 6.000% 43,650
32,300 Citigroup Capital Trust VI, 6.875% 814,283
217,800 Citigroup Capital Trust VII, 7.125% 5,702,004
396,700 Citigroup Capital Trust VIII, 6.950% 10,222,959
36,900 Citigroup Inc., Series H, 6.231% (a) 1,894,815
225,500 Cobank ABC, 144A, 7.000% (a) 11,996,600
239,700 Comerica Capital Trust I, 7.600% 6,328,080
380,125 Compass Capital Trust III, 7.350% 9,925,063
20
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
24,300 CSFB USA, Series 2002-10, 7.000% (SATURNS) $ 619,650
50,335 Espirito Santo Overseas, 8.500% 1,294,555
85,800 Fannie Mae, 5.125% (a) 3,837,405
63,300 First Union Capital II, Series II, 7.500% (CORTS) 1,652,130
31,300 First Union Institutional Capital II, 8.200% (CORTS) 878,747
128,300 Fleet Capital Trust VI, 8.800% 3,416,629
16,800 Harris Preferred Capital Corporation, Series A, 7.375% 423,696
43,900 HSBC USA Inc., Series F, 2.860% (a) 2,227,925
10,600 JPM Capital Trust I, Series 2001-1, Class A-1, 7.850% (CORTS) 282,914
88,300 JPM Capital Trust, 7.200% (CORTS) 2,261,363
221,100 JPMorgan Chase Capital Trust IX, Series I, 7.500% 5,876,838
113,100 JPMorgan Chase Capital Trust X, 7.000% 2,951,910
49,600 JPMorgan Chase Trust, Series 2002-6, Class A, 7.125% (SATURNS) 1,270,256
34,400 KeyCorp, 7.500% (PCARS) 889,412
30,400 KeyCorp, Series 2001-7, 7.750% (CORTS) 788,272
91,300 KeyCorp, Series B, 8.250% (CORTS) 2,382,930
239,800 National Commerce Capital Trust II, 7.700% 6,342,710
112,200 National Westminster Bank plc, Series A, 7.875% 2,863,344
38,100 Regions Finance Trust I, 8.000% 997,458
135,800 SunTrust Capital Trust IV, 7.125% 3,524,010
107,600 SunTrust Capital Trust V, 7.050% 2,791,144
658,100 USB Capital Trust III, 7.750% 17,439,650
219,700 USB Capital Trust IV, 7.350% 5,778,110
85,000 USB Capital Trust V, 7.250% 2,231,250
90,800 VNB Capital Trust I, 7.750% 2,404,384
41,400 Washington Mutual Capital Trust I, Series 2001-22, Class A-1, 7.650% (CORTS) 1,068,120
5,100 Well Fargo Capital Trust IX, 5.625% 115,158
16,700 Wells Fargo Capital Trust IV, 7.000% 436,037
120,500 Wells Fargo Capital Trust V, 7.000% 3,122,155
25,700 Wells Fargo Capital Trust VI, 6.950% 663,574
539,200 Zions Capital Trust B, 8.000% 14,493,696
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 1.8%
528,700 Household Capital Trust V, Series X, 10.000% 14,169,160
620,196 Household Capital Trust VI, 8.250% 16,515,819
61,200 Household Capital Trust VII, 7.500% 1,618,128
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 6.1%
101,400 Bear Stearns Capital Trust III, 7.800% 2,671,890
40,490 Citigroup Inc., Series M, 5.864% (a) 2,039,683
1,043,000 Countrywide Capital Trust IV, 6.750% 26,022,850
80,000 Federal Home Loan Mortgage Corporation, 5.000% (a) 3,400,000
464,746 General Electric Capital Corporation, 6.100% 11,781,311
199,700 General Electric Capital Corporation, 6.625% 5,240,128
360,600 Household Finance Corporation, 6.875% 9,317,904
21
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS July 31, 2004
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
278,100 Lehman Brothers Holdings Capital Trust III, Series K, 6.375% $ 6,910,785
102,900 Lehman Brothers Holdings Capital Trust IV, Series L, 6.375% 2,528,253
42,000 Lehman Brothers Holdings Inc., Series C, 5.940% (a) 2,032,800
117,500 Merrill Lynch Capital Trust II, 8.000% 3,219,500
156,200 Merrill Lynch Capital Trust, 7.000% 4,050,266
77,800 Merrill Lynch Preferred Capital Trust IV, 7.120% 2,035,248
131,200 Merrill Lynch Preferred Capital Trust V, 7.280% 3,459,744
103,500 Merrill Lynch Preferred Capital Trust, 7.750% 2,773,800
122,608 Morgan Stanley Capital Trust II, 7.250% 3,163,286
455,000 Morgan Stanley Capital Trust III, 6.250% 11,193,000
380,000 Morgan Stanley Capital Trust IV, 6.250% 9,329,000
10,000 Morgan Stanley Capital Trust V, 5.750% 232,000
43,000 Morgan Stanley, 7.050% (PPLUS) 1,112,410
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.2%
4,000 BellSouth Capital Funding Corporation, 7.375% 100,000
9,800 BellSouth Corporation, 7.125% 250,341
10,100 BellSouth Inc., 7.000% (CORTS) 254,116
3,000 BellSouth Telecommunications, 7.300% (PPLUS) 77,610
31,800 SBC Communications Inc., 7.000% 830,298
17,500 Verizon Communications, 7.625% (CORTS) 461,125
55,200 Verizon Global Funding Corporation, 7.500% (SATURNS) 1,472,184
4,000 Verizon South Inc., Series F, 7.000% 103,720
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 4.7%
189,500 Alabama Power Company, 5.830% (a) 4,680,650
17,200 Consolidated Edison Company of New York Inc., 7.500% 460,100
1,000 Detroit Edison Company, 7.540% 25,240
9,500 Detroit Edison Company, 7.625% 240,350
92,500 Dominion CNG Capital Trust I, 7.800% 2,417,025
46,200 Dominion Resources Capital Trust II, 8.400% 1,225,224
27,400 DTE Energy Trust I, 7.800% 718,702
5,500 Entergy Arkansas Inc., 6.700% 143,220
49,000 Entergy Louisiana Inc., 7.600% 1,290,170
1,298,000 Entergy Mississippi Inc., 7.250% 33,488,400
3,000 Georgia Power Capital Trust V, 7.125% 78,180
942,120 Interstate Power & Light Company, Series B, 8.375% (a) 30,336,264
41,000 OGE Energy Capital Trust I, 8.375% 1,045,500
51,000 Public Service Company of Oklahoma, Series B, 6.000% 1,278,570
56,700 Tennessee Valley Authority, Series D, 6.750% 1,388,583
254,000 Virginia Power Capital Trust, 7.375% 6,642,100
------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.7%
125,000 Dairy Farmers of America Inc., 144A, 7.875% (a) 12,789,062
22
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.3%
51,700 AGL Capital Trust II, 8.000% $ 1,343,683
151,900 TransCanada Pipeline, 8.250% 3,867,374
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES - 0.1%
53,700 Aetna Incorporated, 8.500% 1,443,993
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.0%
16,000 Philadelphia Authority for Industrial Development, Pennsylvania, Pension, 6.550% 400,000
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 18.5%
972,600 Ace Ltd., Series C, 7.800% 25,880,886
24,800 AMBAC Financial Group Inc., 5.950% 580,816
33,900 American General Capital III, 8.050% 915,300
28,200 American General Capital Trust I, 7.875% 714,588
1,506,600 Converium Finance, 8.250% 35,616,024
472,557 Delphi Financial Group Inc., 8.000% 12,168,342
2,827,000 EverestRe Group Limited, 7.850% 75,311,280
43,400 Financial Security Assurance Holdings, 6.875% 1,111,040
693,000 Financial Security Assurance Holdings, 6.250% 17,047,800
25,900 Great-West L&A Capital Trust I, Series A, 7.250% 651,903
247,600 Hartford Capital Trust III, Series C, 7.450% 6,499,500
55,900 Hartford Life Capital Trust II, Series B, 7.625% 1,464,021
63,600 ING Capital Funding Trust II, 9.200% 1,703,208
5,000 ING Groep NV, 6.200% 122,000
1,406,955 ING Group NV, 7.050% 36,200,952
1,476,400 ING Group NV, 7.200% 38,578,332
77,000 Lincoln National Capital Trust V, Series E, 7.650% 2,035,110
34,000 Lincoln National Capital Trust VI, 6.750% 851,700
22,200 MBIA Inc., 8.000% 609,390
200 Metlife Inc., 5.875% 4,830
449,720 PartnerRe Limited, Series C, 6.750% 11,153,056
232,381 PartnerRe Limited, 7.900% 6,146,477
96,200 PLC Capital Trust III, 7.500% 2,506,972
440,940 PLC Capital Trust IV, 7.250% 11,486,487
3,700 PLC Capital Trust V, 6.125% 84,730
304,360 RenaissanceRe Holdings Ltd., Series A, 8.100% 8,099,019
138,400 RenaissanceRe Holdings Ltd., Series B, 7.300% 3,646,840
10,400 SafeCo Capital Trust I, 8.750% (CORTS) 302,640
78,900 SafeCo Capital Trust I, 8.700% (CORTS) 2,086,905
59,700 SafeCo Capital Trust I, Series 2001-4, 8.750% (CORTS) 1,564,737
63,200 Torchmark Capital Trust I, 7.750% 1,653,944
16,300 W.R. Berkley, 8.250% (CORTS) 423,637
558,900 XL Capital Ltd., Series A, 8.000% 15,140,601
537,617 XL Capital Ltd., Series B, 7.625% 14,284,483
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.1%
76,900 Viacom Inc., 7.300% 2,011,704
23
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS July 31, 2004
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 0.2%
108,000 Energy East Capital Trust I, 8.250% $ 2,820,960
------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS - 1.0%
51,500 EnCana Corporation, 9.500% 1,315,310
694,511 Nexen Inc., 7.350% 17,814,207
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
14,500 Bristol Myers Squibb Company, 6.250% (CORTS) 371,925
87,800 Rhone-Poulenc Overseas, Series A, 8.125% 2,243,290
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 14.4%
15,700 Archstone-Smith Trust, Series D, 8.750% 395,640
93,900 AvalonBay Communities, Inc., Series H, 8.700% 2,601,969
13,300 BRE Properties, Series B, 8.080% 348,792
38,500 BRE Properties, Series C, 6.750% 916,300
1,002,995 CarrAmerica Realty Corporation, Series E, 7.500% 25,696,731
115,000 Developers Diversified Realty Corporation, Series H, 7.375% 2,838,200
279,800 Developers Diversified Realty Corporation, Series G, 8.000% 7,288,790
101,000 Developers Diversified Realty Corporation, Series F, 8.600% 2,696,700
200,650 Duke-Weeks Realty Corporation, Series B, 7.990% 10,941,705
38,600 Duke-Weeks Realty Corporation, Series I, 8.450% 1,022,128
299,900 Equity Office Properties Trust, Series G, 7.750% 7,809,396
40,000 Equity Residential Properties Trust, Series C, 9.125% 1,094,000
63,250 Equity Residential Properties Trust, Series D, 8.600% 1,745,700
1,000 Equity Residential Properties Trust, Series N, 6.480% 23,800
88,800 Equity Residential Properties Trust, 9.125% 2,362,080
18,600 First Industrial Realty Trust, Inc., Series C, 8.625% 498,480
31,900 Gables Residential Trust, Series D, 7.500% 838,970
219,600 HRPT Properties Trust, Series A, 9.875% 5,845,752
1,539,125 HRPT Properties Trust, Series B, 8.750% 40,894,551
153,000 Kimco Realty Corporation, Series F, 6.650% 3,878,550
147,350 New Plan Excel Realty Trust, Series D, 7.800% 7,763,503
768,000 New Plan Excel Realty Trust, Series E, 7.625% 19,806,720
91,728 Prologis Trust, Series G, 6.750% 2,219,817
103,000 PS Business Parks Inc., Series I, 6.875% 2,398,870
104,470 PS Business Parks Inc., Series H, 7.000% 2,444,598
5,000 Public Storage Inc., Series A, 6.125% 113,100
5,000 Public Storage Inc., Series D, 9.500% 129,750
13,000 Public Storage Inc., Series F, 9.750% 341,250
14,200 Public Storage Inc., Series M, 8.750% 358,266
63,700 Public Storage Inc., Series Q, 8.600% 1,686,139
181,195 Public Storage Inc., Series R, 8.000% 4,749,120
38,300 Public Storage Inc., Series S, 7.875% 1,003,077
81,165 Public Storage Inc., Series T, 7.625% 2,097,303
88,900 Public Storage Inc., Series U, 7.625% 2,309,622
142,300 Public Storage Inc., Series V, 7.500% 3,728,260
24
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
32,900 Public Storage Inc., Series Z, 6.250% $ 769,531
300,000 Regency Centers Corporation, 7.450% 7,725,000
5,000 Renaissance Holdings Limited, Series C, 6.080% 113,950
34,500 Simon Property Group, Inc., Series F, 8.750% 931,500
326,041 Simon Property Group, Inc., Series G, 7.890% 17,254,089
40,700 Vornado Realty Trust, Series C, 8.500% 1,045,990
2,461,900 Wachovia Preferred Funding Corporation, Series A, 7.250% 65,757,349
------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.0%
16,500 Sherwin Williams Company, Series III, 7.250% (CORTS) 422,070
------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 2.2%
154,900 Telephone and Data Systems Inc., 7.600% 4,045,988
1,315,700 United States Cellular Corporation, 8.750% 36,379,105
2,000 Verizon Communications, 7.375% (CORTS) 51,680
------------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $1,150,720,481) 1,189,136,378
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 7.1% (5.0% OF TOTAL INVESTMENTS)
DIVERSIFIED FINANCIAL SERVICES - 0.4%
210,000 Citigroup Global Markets, 2.000% 8,054,760
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.5%
546,000 Alltel Corporation, 7.750% 27,354,600
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 3.3%
357,900 Ameren Corporation, 9.750% 9,777,828
22,100 American Electric Power, 9.250% 949,195
468,500 Dominion Resources Inc., 8.750% 25,088,175
126,500 FPL Group Inc., 8.000% 7,090,325
334,500 Public Service Enterprise Group, 10.250% 18,598,200
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 1.3%
452,500 Keyspan Corporation, 8.750% 23,249,450
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES - 0.4%
128,600 Baxter International Inc., 7.000% 6,616,470
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.2%
16,100 PartnerRe Limited, 8.000% 816,270
69,700 PMI Group Inc., 5.875% 1,836,595
23,000 XL Capital Limited, 6.500% 550,160
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $120,025,473) 129,982,028
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - HYBRID SECURITIES - 4.5% (3.2% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 1.4%
240 Union Planters Preferred Fund, 144A, 7.750% 25,417,512
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 3.1%
45,250 Centaur Funding Corporation, 144A, Series B, 9.080% 57,128,125
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Hybrid Securities (cost $62,797,088) 82,545,637
--------------------------------------------------------------------------------------------------------------------
25
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS July 31, 2004
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 54.0% (37.9% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 38.0%
$ 62,474 Abbey National Capital Trust I, 8.963%, 12/30/49 $80,112,534
19,000 AB Svensk Exportkredit, 6.375%, 10/27/49 18,602,653
7,400 AgFirst Farm Credit Bank, 7.300%, 12/15/53 7,445,043
15,000 Ahmanson Capital Trust I, 8.360%, 12/01/26 16,682,685
15,000 ABN AMRO North America Holding Capital, 144A, 6.523%, 12/31/49 16,037,445
6,500 Bank One Capital III, 8.750%, 9/01/30 8,444,501
4,780 BankAmerica Institutional Trust, 8.070%, 12/31/26 5,336,253
26,355 BankBoston Capital Trust I, Series B, 8.250%, 12/15/26 29,723,274
3,031 BankBoston Capital Trust II, Series B, 7.750%, 12/15/26 3,256,912
4,000 BanPonce Trust I, Series A, 8.327%, 2/01/27 4,352,212
36,000 Barclays Bank plc, 144A, 8.550%, 6/15/49 43,114,752
5,300 Barnett Capital I, 8.060%, 12/01/26 5,877,572
1,000 BNP Paribas Capital Trust, 144A, 9.003%, 12/29/49 1,217,069
4,000 BT Capital Trust, Series B1, 7.900%, 1/15/27 4,365,840
2,000 BT Institutional Capital Trust B, 144A, 7.750%, 12/01/26 2,144,224
500 BT Preferred Capital Trust II, 7.875%, 2/25/27 541,451
7,750 Chase Capital Trust I, Series A, 7.670%, 12/01/26 8,321,795
2,229 Corestates Capital Trust I, 144A, 8.000%, 12/15/26 2,470,659
11,825 Dime Capital Trust I, Series A, 9.330%, 5/06/27 13,850,823
7,500 Dresdner Funding Trust I, 8.151%, 6/30/31 8,539,320
3,500 Farm Credit Bank of Texas, 7.561%, 11/05/49 3,547,719
5,000 FBS Capital Trust I, 8.090%, 11/15/26 5,591,335
3,500 First Chicago NBD Institutional Capital, 7.950%, 12/01/26 3,817,730
1,500 First Empire Capital Trust I, 8.234%, 2/01/27 1,653,639
4,850 First Hawaiian Capital Trust I, Series B, 8.343%, 7/01/27 5,437,592
1,500 First Midwest Bancorp Inc., 6.950%, 12/01/33 1,522,479
17,095 First Union Capital Trust II, Series A, 7.950%, 11/15/29 20,586,875
22,080 Fleet Capital Trust II, 7.920%, 12/11/26 24,012,264
10,000 Goldman Sachs Group Inc., 6.345%, 2/15/34 9,612,190
13,000 Great Western Financial Trust II, Series A, 8.206%, 2/01/27 14,245,738
8,000 HSBC Capital Funding LP, Debt, 10.176%, 6/30/50 11,357,872
2,400 HSBC Capital Funding LP, 144A, 9.547%, 12/31/49 2,955,213
3,600 JPM Capital Trust I, 7.540%, 1/15/27 3,847,996
22,085 JPM Capital Trust II, 7.950%, 2/01/27 24,363,973
32,000 KBC Bank Fund Trust III, 144A, 9.860%, 11/02/49 39,283,488
2,500 KeyCorp Institutional Capital Trust A, 7.826%, 12/01/26 2,692,575
25,000 M&I Capital Trust A, 7.650%, 12/01/26 26,818,050
25,000 Mellon Capital Trust I, Series A, 7.720%, 12/01/26 27,133,475
19,500 NB Capital Trust II, 7.830%, 12/15/26 21,454,329
14,000 Nordbanken AB, 144A, 8.950%, 11/29/49 16,665,460
2,000 North Fork Capital Trust I, Capital Securities, 8.700%, 12/15/26 2,204,620
8,000 North Fork Capital Trust II, 8.000%, 12/15/27 8,982,672
2,000 Peoples Heritage Capital Trust I, Series B, 9.060%, 2/01/27 2,269,902
26
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
$ 33,085 PNC Institutional Capital Securities, 7.950%, 12/15/26 $35,509,998
8,000 Reliance Capital Trust I, Series B, 8.170%, 5/01/28 8,846,016
500 Republic New York Capital II, Capital Securities, 7.530%, 12/04/26 532,582
1,250 Royal Bank of Scotland Group plc, 7.648%, 8/31/49 1,426,525
17,500 Royal Bank of Scotland Group plc, 9.118%, 3/31/49 21,186,655
1,500 SocGen Real Estate Company LLC, 144A, 7.640%, 12/29/49 1,662,699
5,000 Sparebanken Rogaland, 144A, Notes, 6.443%, 5/01/49 4,925,000
9,000 St. George Funding Company LLC., 8.485%, 6/30/47 10,329,417
3,240 State Street Institutional Capital Trust, 144A, 7.940%, 12/30/26 3,577,698
21,000 UBS Preferred Funding Trust I, 8.622%, 10/29/49 25,016,250
7,500 Union Planters Capital Trust A, 8.200%, 12/15/26 8,344,395
1,000 Wells Fargo Capital I, 7.960%, 12/15/26 1,109,997
10,000 Zions Institutional Capital Trust, Series A, 8.536%, 12/15/26 11,243,210
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 1.6%
8,595 Countrywide Capital Trust I, 8.000%, 12/15/26 9,153,434
18,460 Countrywide Capital Trust III, Series B, 8.050%, 6/15/27 20,928,212
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.5%
8,000 Keycorp Capital III, 7.750%, 7/15/29 9,085,424
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.6%
10,750 KN Capital Trust III, 7.630%, 4/15/28 11,422,810
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 12.7%
14,280 Ace Capital Trust II, 9.700%, 4/01/30 19,098,728
28,000 American General Institutional Capital, 8.125%, 3/15/46 34,798,904
10,000 Berkeley Capital Trust, 8.197%, 12/15/45 10,774,970
6,000 MIC Financing Trust I, 8.375%, 2/01/27 6,545,532
10,000 RenaissanceRe Capital Trust, Series B, 8.540%, 3/01/27 11,146,070
38,777 SAFECO Capital Trust I, Capital Securities, 8.072%, 7/15/37 42,960,999
51,700 Sun Life Canada Capital Trust, Capital Securities, 8.526%, 5/06/47 57,745,125
44,515 Zurich Capital Trust I, 8.376%, 6/01/37 49,658,085
------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS - 0.4%
7,355 Phillips 66 Capital Trust II, 8.000%, 1/15/37 8,059,645
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.2%
3,000 Mangrove Bay, 144A, Class 3, 6.102%, 7/15/33 2,992,008
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $945,632,809) 988,574,591
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 6.0% (4.2% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 5.2%
1,500 BNP Paribas Capital Trust, 7.200%, 12/31/49 1,551,436
17,600 C.A. Preferred Funding Trust, 7.000%, 1/30/49 17,754,387
6,000 C.A. Preferred Fund Trust II, 7.000%, 10/30/49 6,069,492
44,010 HBOS Capital Funding LP, Notes, 6.850%, 3/01/49 44,194,930
13,500 Lloyds TSB Bank plc, Subordinate Note, 6.900%, 11/22/49 13,766,341
12,600 RBS Capital Trust B, 6.800%, 12/31/49 12,678,712
27
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS July 31, 2004
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.8%
$ 13,800 Old Mutual Capital Funding, Notes, 8.000%, 6/22/53 $ 13,764,616
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Euro-Market Listed Securities (cost $113,195,529) 109,779,914
--------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 4.8% (3.4% OF TOTAL INVESTMENTS)
AUTOMOBILES - 4.7%
21,500 Ford Motor Company, Debenture, 7.400%, 11/01/46 19,434,157
7,525 Ford Motor Company, 8.900%, 1/15/32 8,170,300
4,000 Ford Motor Company, 7.450%, 7/16/31 3,815,080
600 General Motors Corporation, Senior Debentures, 8.375%, 7/15/33 629,034
52,860 General Motors Acceptance Corporation, Notes, 8.000%, 11/01/31 53,825,857
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.1%
2,000 Zurich Reinsurance Centre Holdings Inc, Senior Notes, 7.125%, 10/15/23 1,753,484
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $80,260,756) 87,627,912
--------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 1.1% (0.8% OF TOTAL INVESTMENTS)
$ 20,597 State Street Bank, 1.250%, dated 7/30/04, due 8/02/04, repurchase price $24,598,701, 20,596,556
collateralized by $18,885,000 U.S. Treasury Bonds, 6.000%, due 2/15/26, value $21,009,563
============= --------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (cost $20,596,556) 20,596,556
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,493,228,692) - 142.5% 2,608,243,016
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.2% 22,634,919
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (43.7)% (800,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $1,830,877,935
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(a) Security is eligible for the Dividends Received
Deduction.
144A 144A securities are those which are exempt from
registration under Rule 144A of the Securities Act of
1933, as amended. These securities may only be resold
in transactions exempt from registration which are
normally those transactions with qualified
institutional buyers.
(CORTS) Corporate Backed Trust Securities.
(PCARS) Public Credit and Repackaged Securities.
(PPLUS) PreferredPlus Trust.
(SATURNS) Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
28
Nuveen Quality Preferred Income Fund 3 (JHP)
Portfolio of
INVESTMENTS July 31, 2004
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
$25 PAR(OR SIMILAR) SECURITIES - 73.0% (50.0% OF TOTAL INVESTMENTS)
AUTO COMPONENTS - 1.1%
132,800 Delphi Trust I, 8.250% $ 3,419,600
14,000 Magna International Inc., Series B, 8.875% 354,060
------------------------------------------------------------------------------------------------------------------------------------
BEVERAGES - 0.3%
45,000 Grand Metropolitan Delaware LP, 9.420% 1,143,900
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 16.3%
3,200 Abbey National plc, Series B, 7.375% 84,000
21,400 ASBC Capital I, 7.625% 569,240
40,894 BAC Capital Trust I, 7.000% 1,058,336
32,700 BAC Capital Trust II, 7.000% 845,295
94,500 BAC Capital Trust III, 7.000% 2,474,010
120,000 Banco Santander SA, 144A, 6.410% 2,920,560
37,300 Banco Totta & Acores Finance, Series A, 8.875% 962,806
18,600 BancWest Capital I, 9.500% 508,710
211,000 Banesto Holdings, Series A,144A, 10.500% 6,494,854
8,000 Bank One Capital I, 8.000% 204,960
32,400 Bank One Capital II, 8.500% 874,152
29,100 Bank One Capital Trust VI, 7.200% 756,600
11,000 Bank One Capital V, 8.000% 293,700
10,000 BBVA Preferred Capital Ltd., Series B, 7.750% 263,000
13,000 BCH Capital Ltd., Series B, 9.430% 347,165
47,300 BSCH Finance Ltd., Series Q, 8.625% 1,253,450
16,400 Chittenden Capital Trust I, 8.000% 433,616
42,800 CIT Group Incorporated, 7.750% (CORTS) 1,177,000
25,600 Citigroup Capital Trust VII, 7.125% 670,208
46,600 Citigroup Capital Trust VIII, 6.950% 1,200,882
68,500 Citigroup Inc., Series H, 6.231% 3,517,475
44,500 Cobank ABC, 144A, 7.000% 2,367,400
52,500 Comerica Capital Trust I, 7.600% 1,386,000
41,700 Compass Capital Trust III, 7.350% 1,088,787
37,400 CSFB USA, Series 2002-10, 7.000% (SATURNS) 953,700
26,500 Espirito Santo Overseas, 8.500% 681,548
64,700 Fannie Mae, 5.125% 2,893,707
23,100 First Union Capital II, Series II, 7.500% (CORTS) 602,910
11,300 First Union Institutional Capital II, 8.200% (CORTS) 317,247
37,400 Fleet Capital Trust VI, 8.800% 995,962
149,900 Fleet Capital Trust VII, 7.200% 3,907,893
26,416 Fleet Capital Trust VIII, 7.200% 688,929
29
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of INVESTMENTS July 31, 2004
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
8,000 HSBC USA Inc, Series F, 2.860% $ 406,000
13,000 JPMorgan Chase Capital Trust X, 7.000% 339,300
25,000 JPMorgan Chase Trust, Series 2002-6, Class A, 7.125% (SATURNS) 640,250
5,900 KeyCorp, 7.500% (PCARS) 152,544
6,300 KeyCorp, Series 2001-7, 7.750% (CORTS) 163,359
11,900 KeyCorp, Series B, 8.250% (CORTS) 310,590
21,500 National Commerce Capital Trust II, 7.700% 568,675
30,400 National Westminster Bank plc, Series A, 7.875% 775,808
16,500 National Westminster Bank plc, Series B, 0.000% 424,050
20,000 PNC Capital Trust, 6.125% 479,800
14,000 SunTrust Capital Trust IV, 7.125% 363,300
22,900 SunTrust Capital Trust V, 7.050% 594,026
110,300 USB Capital Trust III, 7.750% 2,922,950
58,100 USB Capital Trust IV, 7.350% 1,528,030
48,800 USB Capital Trust V, 7.250% 1,281,000
18,400 VNB Capital Trust I, 7.750% 487,232
28,400 Washington Mutual Capital Trust I, Series 2001-22, Class A-1, 7.650% (CORTS) 732,720
80,000 Zions Capital Trust B, 8.000% 2,150,400
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 3.2%
111,700 Household Capital Trust V, Series X, 10.000% 2,993,560
14,600 Household Capital Trust VI, 8.250% 388,798
100,500 Household Capital Trust VII, 7.500% 2,657,220
95,300 SLM Corporation, Series A, 6.970% 5,162,877
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 9.5%
32,000 Bear Stearns Capital Trust III, 7.800% 843,200
16,549 Citigroup Inc., Series F, 6.365% 861,375
52,941 Citigroup Inc., Series M, 5.864% 2,666,902
10,600 Countrywide Capital Trust II, Series II, 8.000% (CORTS) 277,932
112,800 Countrywide Capital Trust IV, 6.750% 2,814,360
23,900 Federal Home Loan Mortgage Corporation, 5.000% 1,015,750
135,000 Household Finance Corporation, 6.875% 3,488,400
355,000 Lehman Brothers Holdings Capital Trust III, Series K, 6.375% 8,821,750
24,000 Merrill Lynch Capital Trust II, 8.000% 657,600
17,900 Merrill Lynch Preferred Capital Trust IV, 7.120% 468,264
75,100 Merrill Lynch Preferred Capital Trust V, 7.280% 1,980,387
36,300 Merrill Lynch Preferred Capital Trust, 7.750% 972,840
80,000 Morgan Stanley Capital Trust II, 7.250% 2,064,000
212,600 Morgan Stanley Capital Trust III, 6.250% 5,229,960
40,900 Morgan Stanley, 7.050% (PPLUS) 1,058,083
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.4%
12,900 BellSouth Inc., Series BLS, 7.000% (CORTS) 324,564
24,300 Verizon Communications, 7.625% (CORTS) 640,305
15,300 Verizon New England Inc., Series B, 7.000% 395,046
30
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 2.2%
2,900 Detroit Edison Company, 7.625% $ 73,370
13,200 Dominion CNG Capital Trust I, 7.800% 344,916
53,400 Entergy Louisiana Inc, 7.600% 1,406,022
203,447 Entergy Mississippi Inc, 7.250% 5,248,932
18,300 Tennessee Valley Authority, Series D, 6.750% 448,167
------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.7%
25,000 Dairy Farmers of America Inc., 144A, 7.875% 2,557,812
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.5%
32,900 AGL Capital Trust II, 8.000% 855,071
34,700 TransCanada Pipeline, 8.250% 883,462
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES - 0.1%
12,500 Aetna Incorporated, 8.500% 336,125
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 22.2%
132,400 Ace Ltd,, Series C, 7.800% 3,523,164
30,700 AMBAC Financial Group Inc., 5.950% 718,994
95,000 AMBAC Financial Group Inc., 5.875% 2,213,500
7,700 American General Capital III, 8.050% 207,900
8,400 American General Capital Trust I, 7.875% 212,856
408,310 Converium Finance, 8.250% 9,652,448
131,000 Delphi Financial Group Inc, 8.000% 3,373,250
258,671 EverestRe Group Limited, 7.850% 6,890,995
151,100 Financial Security Assurance Holdings, 6.250% 3,717,060
3,900 Great-West L&A Capital Trust I, Series A, 7.250% 98,163
51,400 Hartford Capital Trust III, Series C, 7.450% 1,349,250
142,900 ING Group NV, 7.050% 3,676,817
503,600 ING Group NV, 7.200% 13,159,068
103,700 Lincoln National Capital Trust V, Series E, 7.650% 2,740,791
140,000 PartnerRe Limited, Series C, 6.750% 3,472,000
55,700 PartnerRe Limited, 7.900% 1,473,265
54,600 PLC Capital Trust III, 7.500% 1,422,876
8,600 PLC Capital Trust IV, 7.250% 224,030
41,500 RenaissanceRe Holdings Ltd., Series A, 8.100% 1,104,315
255,000 RenaissanceRe Holdings Ltd., Series B, 7.300% 6,719,250
16,400 SafeCo Capital Trust I, 8.700% (CORTS) 433,780
4,600 SafeCo Capital Trust I, Series 2001-4, 8.750% (CORTS) 120,566
32,200 SafeCo Corporation, Series 2001-7, 8.250% (SATURNS) 845,894
61,800 XL Capital Ltd., Series A, 8.000% 1,674,162
289,400 XL Capital Ltd., Series B, 7.625% 7,689,358
------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 0.1%
12,800 Energy East Capital Trust I, 8.250% 334,336
------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS - 1.2%
30,300 EnCana Corporation, 9.500% 773,862
137,000 Nexen Inc., 7.350% 3,514,050
31
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of INVESTMENTS July 31, 2004
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
10,000 Bristol Myers Squibb Company, 6.250% (CORTS) $ 256,500
8,500 Rhone-Poulenc Overseas, Series A, 8.125% 217,175
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 13.2%
5,200 AvalonBay Communities, Inc., Series H, 8.700% 144,092
201,900 CarrAmerica Realty Corporation, Series E, 7.500% 5,172,678
30,000 Developers Diversified Realty Corporation, Series H, 7.375% 740,400
80,000 Developers Diversified Realty Corporation, Series G, 8.000% 2,084,000
26,200 Developers Diversified Realty Corporation, Series F, 8.600% 699,540
60,144 Equity Office Properties Trust, Series G, 7.750% 1,566,149
18,500 Equity Residential Properties Trust, Series C, 9.125% 505,975
20,800 Equity Residential Properties Trust, Series D, 8.600% 574,080
25,900 Equity Residential Properties Trust, 9.125% 688,940
5,100 First Industrial Realty Trust, Inc., Series C, 8.625% 136,680
161,100 HRPT Properties Trust, Series A, 9.875% 4,288,482
238,607 HRPT Properties Trust, Series B, 8.750% 6,339,787
21,000 New Plan Excel Realty Trust, Series D, 7.800% 1,106,437
31,700 New Plan Excel Realty Trust, Series E, 7.625% 817,543
20,000 Prologis Trust, Series G, 6.750% 484,000
36,300 PS Business Parks Inc., Series D, 9.500% 971,025
53,000 PS Business Parks Inc., 7.000% 1,240,200
8,300 PS Business Parks Inc., Series F, 8.750% 219,120
3,100 Public Storage Inc., Series M, 8.750% 78,213
40,900 Public Storage Inc., Series Q, 8.600% 1,082,623
129,533 Public Storage Inc., Series R, 8.000% 3,395,059
17,600 Public Storage Inc., Series S, 7.875% 460,944
22,000 Public Storage Inc., Series T, 7.625% 568,480
11,000 Public Storage Inc., Series U, 7.625% 285,780
17,000 Public Storage Inc., Series V, 7.500% 445,400
7,500 Simon Property Group, Inc., Series F, 8.750% 202,500
68,600 Simon Property Group, Inc., Series G, 7.890% 3,630,312
32,100 United Dominion Realty Trust, 8.600% 862,527
13,400 Vornado Realty Trust, Series C, 8.500% 344,380
252,700 Wachovia Preferred Funding Corporation, 7.250% 6,749,617
------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.1%
20,000 Sherwin Williams Company, Series III, 7.250% (CORTS) 511,600
------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.8%
69,101 Telephone and Data Systems Inc., 7.600% 1,804,918
157,500 United States Cellular Corporation, 8.750% 4,354,875
------------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $252,443,781) 254,334,777
--------------------------------------------------------------------------------------------------------------------
32
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 7.6% (5.2% OF TOTAL INVESTMENTS)
DIVERSIFIED FINANCIAL SERVICES - 0.7%
61,000 Citigroup Global Markets, 2.000% $ 2,339,716
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.7%
118,500 Alltel Corporation, 7.750% 5,936,850
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 3.3%
81,900 Ameren Corporation, 9.750% 2,237,508
3,900 American Electric Power, 9.250% 167,505
102,400 Dominion Resources Inc., 8.750% 5,483,520
66,500 Public Service Enterprise Group, 10.250% 3,697,400
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 1.5%
100,000 Keyspan Corporation, 8.750% 5,138,000
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES - 0.4%
28,000 Baxter International Inc, 7.000% 1,440,600
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $25,132,937) 26,441,099
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - HYBRID SECURITIES - 4.8% (3.3% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 2.1%
70 Union Planters Preferred Fund, 144A, 7.750% 7,413,441
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.7%
7,260 Centaur Funding Corporation, 144A, Series B, 9.080% 9,165,750
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Hybrid Securities (cost $14,290,218) 16,579,191
--------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 49.9% (34.1% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 28.2%
$ 2,000 AB Svensk Exportkredit, 6.375%, 10/27/49 $ 1,958,174
8,000 Abbey National Capital Trust I, 8.963%, 12/30/49 10,258,672
2,000 AgFirst Farm Credit Bank, 7.300%, 10/14/49 2,012,174
5,000 Ahmanson Capital Trust I, 8.360 %, 12/01/26 5,560,895
1,000 Bank of New York Capital I, Series B, 7.970%, 12/31/26 1,099,155
1,000 BankAmerica Capital II, Series 2, 8.000%, 12/15/26 1,110,840
1,500 BankBoston Capital Trust II, Series B, 7.750%, 12/15/26 1,611,801
6,200 Barclays Bank plc, 144A, 8.550%, 9/29/49 7,425,318
1,000 BT Capital Trust, Series B1, 7.900%, 1/15/27 1,091,460
1,000 BT Institutional Capital Trust B, 144A, 7.750%, 12/01/26 1,072,112
500 BT Preferred Capital Trust II, 7.875%, 2/25/27 541,451
4,225 Dime Capital Trust I, Series A, 9.330%, 5/06/27 4,948,814
700 Farm Credit Bank of Texas, 7.561%, 11/05/49 709,543
1,000 First Chicago NBD Institutional Capital, 7.950%, 12/01/26 1,090,780
1,000 First Empire Capital Trust I, 8.234%, 2/01/27 1,102,426
1,000 First Hawaiian Capital Trust I, Series B, 8.343%, 7/01/27 1,121,153
500 First Midwest Bancorp Inc., 6.950%, 12/01/33 507,493
8,485 First Union Capital Trust II, Series A, 7.950%, 11/15/29 10,218,171
33
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of INVESTMENTS July 31, 2004
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
$ 1,430 HSBC USA Capital Trust II, 144A, 8.380%, 5/15/27 $ 1,584,625
9,000 JPM Capital Trust I, 7.540%, 1/15/27 9,619,992
1,000 KBC Bank Fund Trust III, 144A, 9.860%, 11/2/49 1,227,609
4,000 North Fork Capital Trust I, Capital Securities, 8.700%, 12/15/26 4,409,240
1,500 North Fork Capital Trust II, 8.000%, 12/15/27 1,684,251
3,150 Peoples Heritage Capital Trust I, Series B, 9.060%, 2/01/27 3,575,095
10,200 PNC Institutional Capital Trust B, 144A, 8.315%, 5/15/27 11,302,895
2,500 St. George Funding Company LLC, 8.485%, 6/30/47 2,869,282
4,600 Union Planters Capital Trust A, 8.200%, 12/15/26 5,117,895
3,000 Zions Institutional Capital Trust, Series A, 8.536%, 12/15/26 3,372,963
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.3%
1,000 Countrywide Capital Trust I, 8.000%, 12/15/26 1,064,972
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 2.0%
6,500 KN Capital Trust III, 7.630%, 4/15/28 6,906,815
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 17.7%
3,450 Ace Capital Trust II, 9.700%, 4/1/30 4,614,188
5,000 Berkeley Capital Trust, 8.197%, 12/15/45 5,387,490
10,000 MIC Financing Trust I, 8.375%, 2/01/27 10,909,220
3,000 RenaissanceRe Capital Trust, 8.540%, 3/01/27 3,343,823
10,038 SAFECO Capital Trust I, Capital Securities, 8.072%, 7/15/37 11,121,090
10,000 Sun Life Canada Capital Trust, Capital Securities, 8.526%, 5/29/49 11,169,270
13,500 Zurich Capital Trust I, 8.376%, 6/01/37 15,059,736
------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS -1.4%
4,500 Phillips 66 Capital Trust II, 8.000%, 1/15/37 4,931,123
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.3%
1,000 Mangrove Bay, 144A, Class 3, 6.102%, 7/15/33 997,336
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $169,006,419) 173,709,342
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 5.2% (3.5% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 4.7%
3,750 C.A. Preferred Funding Trust, 7.000%, 1/30/49 3,782,895
250 C.A. Preferred Fund Trust II, 7.000%, 10/30/49 252,895
6,600 HBOS Capital Funding LP, Notes, 6.850%, 3/1/49 6,627,733
2,500 Lloyds TSB Bank plc, Subordinate Note, 6.900%, 11/22/49 2,549,325
3,000 RBS Capital Trust B, 6.800%, 12/31/49 3,018,741
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.5%
1,800 Old Mutual Capital Funding, Notes, 8.000%, 6/22/53 1,795,384
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Euro-Market Listed Securities (cost $18,578,661) 18,026,973
--------------------------------------------------------------------------------------------------------------------
34
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 4.7% (3.2% OF TOTAL INVESTMENTS)
AUTOMOBILES - 4.7%
$ 5,100 Ford Motor Company, Debenture, 7.400%, 11/01/46 $ 4,609,970
1,000 Ford Motor Company, 7.450%, 7/16/31 953,769
10,500 General Motors Acceptance Corporation, Notes, 8.000%, 11/01/31 10,691,856
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $15,647,947) 16,255,595
--------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 1.0% (0.7% OF TOTAL INVESTMENTS)
$ 3,456 State Street Bank, 1.250%, dated 7/30/04, due 8/02/04, repurchase price $3,456,007, 3,455,647
collateralized by $3,170,000 U.S. Treasury Bonds, 6.000%, due 2/15/26, value $3,526,625
============= --------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (cost $3,455,647) 3,455,647
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $498,555,610) - 146.2% 508,802,624
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 5,097,451
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (47.7)% (166,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $347,900,075
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(a) Security is eligible for the Dividends Received
Deduction.
144A 144A securities are those which are exempt from
registration under Rule 144A of the Securities Act
of 1933, as amended. These securities may only be
resold in transactions exempt from registration
which are normally those transactions with qualified
institutional buyers.
(CORTS) Corporate Backed Trust Securities.
(PCARS) Public Credit and Repackaged Securities.
(SATURNS) Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
35
Statement of
ASSETS AND LIABILITIES July 31, 2004
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $1,313,039,440, $2,493,228,692 and
$498,555,610, respectively) $1,360,765,020 $2,608,243,016 $508,802,624
Interest rate swaps, at value -- 2,331,207 1,519,894
Receivables:
Dividends 2,611,345 5,742,790 1,122,756
Interest 8,819,443 16,283,196 2,877,832
Investments sold 812,995 1,054,512 549,443
Reclaims -- 40,864 7,211
Other assets 35,831 73,569 17,610
------------------------------------------------------------------------------------------------------------------------------------
Total assets 1,373,044,634 2,633,769,154 514,897,370
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Interest rate swaps, at value 3,343,690 -- --
Payable for investments purchased 762,697 1,051,840 605,488
Accrued expenses:
Management fees 644,284 1,172,588 251,449
Other 323,304 538,084 113,808
FundPreferred share dividends payable 78,687 128,707 26,550
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 5,152,662 2,891,219 997,295
------------------------------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 927,891,972 $1,830,877,935 $347,900,075
====================================================================================================================================
Common shares outstanding 64,452,463 119,541,842 23,642,721
====================================================================================================================================
Net asset value per Common share outstanding (net assets applicable to
Common shares, divided by Common shares outstanding) $ 14.40 $ 15.32 $ 14.71
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 644,525 $ 1,195,418 $ 236,427
Paid-in surplus 911,398,448 1,693,035,742 334,317,077
Undistributed net investment income 3,356,845 3,372,898 2,173,783
Accumulated net realized gain (loss) from investments (31,889,736) 15,928,346 (594,120)
Net unrealized appreciation of investments and interest rate swap transactions 44,381,890 117,345,531 11,766,908
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 927,891,972 $1,830,877,935 $347,900,075
====================================================================================================================================
Authorized shares:
Common Unlimited Unlimited Unlimited
FundPreferred shares Unlimited Unlimited Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
36
Statement of
OPERATIONS Year Ended July 31, 2004
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $13,889, $0, and $1,230, respectively) $54,016,617 $103,740,227 $21,380,872
Interest 44,023,764 83,319,938 15,041,142
------------------------------------------------------------------------------------------------------------------------------------
Total investment income 98,040,381 187,060,165 36,422,014
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 12,143,659 22,539,893 4,672,478
FundPreferred shares - auction fees 1,101,547 2,002,814 416,138
FundPreferred shares - dividend disbursing agent fees 28,448 39,290 13,538
Shareholders' servicing agent fees and expenses 12,931 14,780 2,564
Custodian's fees and expenses 294,539 541,572 125,031
Trustees' fees and expenses 42,326 88,500 13,804
Professional fees 99,769 161,068 29,518
Shareholders' reports - printing and mailing expenses 207,135 322,106 66,599
Stock exchange listing fees 25,476 63,069 17,621
Investor relations expense 231,418 420,755 81,895
Other expenses 113,706 28,299 27,822
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 14,300,954 26,222,146 5,467,008
Custodian fee credit (2,743) (2,434) (1,419)
Expense reimbursement (4,430,554) (8,515,957) (1,663,082)
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 9,867,657 17,703,755 3,802,507
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 88,172,724 169,356,410 32,619,507
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain from investments 6,457,519 24,882,646 1,610,865
Net realized gain (loss) from interest rate swap transactions (8,829,243) (12,395,021) (2,431,397)
Change in net unrealized appreciation (depreciation) of investments 15,444,743 28,917,818 10,205,143
Change in net unrealized appreciation (depreciation) of
interest rate swap transactions 3,409,919 2,018,167 (63,791)
------------------------------------------------------------------------------------------------------------------------------------
Net gain from investments 16,482,938 43,423,610 9,320,820
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (5,266,011) (9,136,215) (1,783,707)
From accumulated net realized gains from investments -- (408,401) (225,856)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from distributions
to FundPreferred shareholders (5,266,011) (9,544,616) (2,009,563)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations $99,389,651 $203,235,404 $39,930,764
====================================================================================================================================
See accompanying notes to financial statements.
37
Statement of
CHANGES IN NET ASSETS
QUALITY PREFERRED QUALITY PREFERRED QUALITY PREFERRED
INCOME (JTP) INCOME 2 (JPS) INCOME 3 (JHP)
----------------------------- -------------------------------- ----------------------------
FOR THE FOR THE
PERIOD 9/24/02 PERIOD 12/18/02
(COMMENCEMENT (COMMENCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS) YEAR ENDED OF OPERATIONS)
7/31/04 7/31/03 7/31/04 THROUGH 7/31/03 7/31/04 THROUGH 7/31/03
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 88,172,724 $ 83,719,154 $ 169,356,410 $ 120,895,551 $ 32,619,507 $ 15,853,471
Net realized gain (loss)
from investments 6,457,519 (30,328,278) 24,882,646 9,651,211 1,610,865 3,540,303
Net realized gain (loss)
from interest
rate swap transactions (8,829,243) -- (12,395,021) -- (2,431,397) --
Change in net unrealized
appreciation
(depreciation) of investments 15,444,743 47,552,557 28,917,818 85,994,925 10,205,143 41,871
Change in net unrealized
appreciation (depreciation)
of interest rate
swap transactions 3,409,919 (6,753,609) 2,018,167 313,040 (63,791) 1,583,685
Distributions to FundPreferred
shareholders:
From net investment income (5,266,011) (6,004,164) (9,136,215) (8,370,051) (1,783,707) (948,183)
From accumulated net
realized gains
from investments -- -- (408,401) -- (225,856) --
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to
Common shares from operations 99,389,651 88,185,660 203,235,404 208,484,676 39,930,764 20,071,147
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (80,656,204) (80,491,725) (157,519,666) (112,911,526) (29,147,305) (14,584,390)
From accumulated net
realized gains
from investments -- -- (4,944,168) -- (2,968,711) --
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (80,656,204) (80,491,725) (162,463,834) (112,911,526) (32,116,016) (14,584,390)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares (2,071) (119,042) (3,114) 1,708,927,042 101,605 337,150,050
Net proceeds from shares issued to
shareholders due to
reinvestment of distributions 1,421,340 29,383,959 302,695 1,703,414 489,296 351,072
FundPreferred shares offering costs (7,166) (9,218,088) (2,071) (16,495,026) (4,237) (3,589,491)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common shares from
capital share transactions 1,412,103 20,046,829 297,510 1,694,135,430 586,664 333,911,631
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common shares 20,145,550 27,740,764 41,069,080 1,789,708,580 8,401,412 339,398,388
Net assets applicable to
Common shares
at the beginning of period 907,746,422 880,005,658 1,789,808,855 100,275 339,498,663 100,275
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to
Common shares
at the end of period $927,891,972 $907,746,422 $1,830,877,935 $1,789,808,855 $347,900,075 $339,498,663
====================================================================================================================================
Undistributed net investment income
at the end of period $ 3,356,845 $ 2,145,641 $ 3,372,898 $ 787,896 $ 2,173,783 $ 586,540
====================================================================================================================================
See accompanying notes to financial statements.
38
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Funds covered in this report and their corresponding Common share New York
Stock Exchange symbols are Nuveen Quality Preferred Income Fund (JTP), Nuveen
Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred Income Fund 3
(JHP). The Funds are registered under the Investment Company Act of 1940, as
amended, as non-diversified, closed-end management investment companies.
Prior to the commencement of operations of Quality Preferred Income 2 (JPS) and
Quality Preferred Income 3 (JHP), each Fund had no operations other than those
related to organizational matters, the initial capital contribution of $100,275
per Fund by Nuveen Institutional Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Nuveen Investments, Inc., and the recording of the organization
expenses ($15,000 and $11,500, respectively) and their reimbursement by Nuveen
Investments, LLC, also a wholly owned subsidiary of Nuveen Investments, Inc.
Each Fund seeks to provide high current income consistent with capital
preservation by investing primarily in a portfolio of preferred securities, debt
securities including convertible debt securities and convertible preferred
securities.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Securities 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 Funds'
Board of Trustees and based on the mean between the bid and asked prices. When
price quotes are not readily available for fixed income securities, the pricing
service establishes fair market value using a wide range of market data
including yields or prices of securities of comparable quality, type of issue,
coupon, maturity and rating, indications of value from security dealers,
evaluations of anticipated cash flows or collateral, general market conditions
and other information and analysis, including the obligor's credit
characteristics considered relevant by the pricing service. If it is determined
that market prices for a security are unavailable or inappropriate, the Board of
Trustees of the Funds, or its designee, may establish a fair value for the
security. Short-term securities are valued at amortized cost, which approximates
market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased on a when-issued or delayed delivery basis may have
extended settlement periods. Any securities so purchased are subject to market
fluctuation during this period. The Funds have instructed the custodian to
segregate assets with a current value at least equal to the amount of the
when-issued and delayed delivery purchase commitments. At July 31, 2004, there
were no such outstanding purchase commitments in any of the Funds.
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 (see Dividends and
Distributions to Common Shareholders for REIT income recognition policy).
39
Notes to
FINANCIAL STATEMENTS (continued)
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to distribute all income and 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.
Dividends and Distributions to Common Shareholders
Dividends to Common shareholders are declared monthly. With respect to the REIT
securities held in the Funds' Portfolio of Investments, each Fund passes through
to its shareholders, each month, substantially all REIT distributions it
receives, together with other operating income less operating expenses. REIT
distributions received by the Funds are generally comprised of investment
income, long-term and short-term capital gains, and a return of REIT capital.
The actual character of amounts received during the period is not known until
after the fiscal year-end. For the twelve months ended December 31, 2003, the
character of distributions to the Funds from the REITs was as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------
Ordinary income 84.48% 88.22% 78.93%
Long-term and short-term capital gains .25 .80 1.19
Return of REIT capital 15.27 10.98 19.88
=========================================================================================================
Each Fund applies a percentage estimate for the breakdown of income type, to its
receipts from the REITs and treats as income in the Statement of Operations only
the amount of ordinary income so calculated. Each Fund adjusts that estimated
breakdown of income type (and consequently its net investment income) as
necessary in the following calendar year when the REITs inform their
shareholders of the actual breakdown of income type.
Each Fund treats each distribution to its shareholders from the portfolio REITs
as being entirely from net investment income. The Funds will recharacterize
those distributions as being from ordinary income, long-term and short-term
capital gains, and return of capital, if necessary, in the subsequent calendar
year, based upon the income type breakdown information conveyed at that time by
the REITs whose securities are held in each Fund's portfolio. Consequently, the
financial statements may reflect an over-distribution of net investment income
that is at least partly attributable to the fact that, as of the date of the
financial statements, some of the amounts received by the Funds from the
portfolio REITs, but none of the dividends paid by the Fund to shareholders from
the portfolio REITs were treated as something other than ordinary income.
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.
40
FundPreferred Shares
The Funds have issued and outstanding $25,000 stated value FundPreferred shares
as a means of effecting financial leverage. Each Fund's FundPreferred shares are
issued in more than one Series. The dividend rate on each Series may change
every seven days, as set pursuant to a dutch auction process by the auction
agent, and is payable at or near the end of each rate period. The number of
shares outstanding, by Series and in total, for each Fund is as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------
Number of shares:
Series M 3,520 4,800 3,320
Series T 3,520 4,800 --
Series T2 -- 4,000 --
Series W 3,520 4,800 --
Series TH 3,520 4,800 3,320
Series TH2 -- 4,000 --
Series F 3,520 4,800 --
---------------------------------------------------------------------------------------------------------
Total 17,600 32,000 6,640
=========================================================================================================
Interest Rate Swap Transactions
The Funds may invest in certain derivative financial investments. The Funds' use
of interest rate swap transactions is intended to mitigate the negative impact
that an increase in short-term interest rates could have on Common share net
earnings as a result of leverage. Interest rate swap transactions involve each
Fund's agreement with the counterparty to pay a fixed rate payment in exchange
for the counterparty paying the Fund a variable rate payment that is intended to
approximate each Fund's variable rate payment obligation on FundPreferred shares
or any variable rate borrowing. The payment obligation is based on the notional
amount of the interest rate swap contract. Interest rate swaps do not involve
the delivery of securities or other underlying assets or principal. Accordingly,
the risk of loss with respect to the swap counterparty on such transactions is
limited to the net amount of interest payments that each Fund is to receive.
Interest rate swap positions are valued daily. Although there are economic
advantages of entering into interest rate swap transactions, there are also
additional risks. The Funds help manage the credit risks associated with
interest rate swap transactions by entering into agreements only with
counterparties the Adviser believes have the financial resources to honor their
obligations and by having the Adviser continually monitor the financial
stability of the swap counterparties.
Due to recent clarification provided by the SEC to regulated investment
companies, effective with the current reporting period, the Funds changed the
way they present net interest expense on interest rate swap transactions in the
financial statements. In the July 31, 2004, financial statements net interest
expense amounts paid are included in "Net realized gain (loss) from interest
rate swap transactions". Net interest expense amounts accrued, but not yet paid,
at July 31, 2004, are included in "Change in net unrealized appreciation
(depreciation) of interest rate swap transactions". Previously, net interest
expense was presented in "Expenses" and reported as "Net interest expense on
interest rate swap transactions". This reclassification does not alter the tax
treatment of interest rate payments on swap transactions which is to include
such payments as an operating expense for tax purposes.
41
Notes to
FINANCIAL STATEMENTS (continued)
For the fiscal year ended July 31, 2004, this reclassification, for financial
reporting purposes only, resulted in increases to net investment income,
decreases to net realized gain (loss) from interest rate swap transactions and
decreases to change in net unrealized appreciation (depreciation) of interest
rate swap transactions as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
-------------------------------------------------------------------------------------------------------------
Net investment income $ 8,892,767 $ 13,237,853 $ 2,595,268
Net realized gain (loss) from interest rate swap transactions (8,829,243) (12,395,021) (2,431,397)
Change in net unrealized appreciation (depreciation) of
interest rate swap transactions (63,524) (842,832) (163,871)
=============================================================================================================
At July 31, 2004, Quality Preferred Income (JTP) had open interest rate swap
agreements with Citibank NA as follows:
UNREALIZED
NOTIONAL TERMINATION APPRECIATION
AMOUNT FIXED RATE FLOATING RATE* DATE (DEPRECIATION)
---------------------------------------------------------------------------------------------------------
$110,000,000 3.1300% 1.4700% 8/29/05 $ (848,564)
110,000,000 3.8600 1.4700 8/29/07 (1,196,645)
110,000,000 4.3500 1.4700 8/29/09 (1,298,481)
---------------------------------------------------------------------------------------------------------
$(3,343,690)
=========================================================================================================
*Based on LIBOR (London Interbank Offered Rate)
At July 31, 2004, Quality Preferred Income 2 (JPS) had open interest rate swap
agreements with Citibank NA as follows:
UNREALIZED
NOTIONAL TERMINATION APPRECIATION
AMOUNT FIXED RATE FLOATING RATE* DATE (DEPRECIATION)
---------------------------------------------------------------------------------------------------------
$200,000,000 2.6300% 1.3600% 11/06/05 $ (391,223)
200,000,000 3.3750 1.3600 11/06/07 880,014
200,000,000 3.9100 1.3600 11/06/09 1,842,416
---------------------------------------------------------------------------------------------------------
$2,331,207
=========================================================================================================
*Based on LIBOR (London Interbank Offered Rate)
At July 31, 2004, Quality Preferred Income 3 (JHP) had open interest rate swap
agreements with Citibank NA as follows:
UNREALIZED
NOTIONAL TERMINATION APPRECIATION
AMOUNT FIXED RATE FLOATING RATE* DATE (DEPRECIATION)
---------------------------------------------------------------------------------------------------------
$42,000,000 2.4125% 1.3600% 3/06/06 $ 209,634
42,000,000 3.2550 1.3600 3/06/08 545,403
42,000,000 3.8150 1.3600 3/06/10 764,857
---------------------------------------------------------------------------------------------------------
$1,519,894
=========================================================================================================
*Based on LIBOR (London Interbank Offered Rate)
Repurchase Agreements
In connection with transactions in repurchase agreements, it is each 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.
42
Organization and Offering Costs
Nuveen Investments, LLC has agreed to reimburse all organization expenses
(approximately $15,000, $15,000 and $11,500, respectively) and pay all Common
shares offering costs (other than the sales load) that exceed $.03 per Common
share for Quality Preferred Income (JTP), Quality Preferred Income 2 (JPS) and
Quality Preferred Income 3 (JHP). Quality Preferred Income's (JTP), Quality
Preferred Income 2's (JPS) and Quality Preferred Income 3's (JHP) total share of
Common shares offering costs ($1,391,687, $1,481,072 and $531,845, respectively)
were recorded as reductions of the proceeds from the sale of the Common shares.
Costs incurred by Quality Preferred Income (JTP), Quality Preferred Income 2
(JPS) and Quality Preferred Income 3 (JHP) in connection with their offering of
FundPreferred shares ($9,225,254, $16,497,097, and $3,593,728, respectively)
were recorded as reductions to paid-in surplus.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on each Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Funds' organizational documents, their Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Funds. In addition, in the normal course of business, the Funds
enter into contracts that provide general indemnifications to other parties. The
Funds' maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Funds that have not yet
occurred. However, the Funds have not had prior claims or losses pursuant to
these contracts and expect the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
Transactions in Common and FundPreferred shares were as follows:
QUALITY PREFERRED QUALITY PREFERRED QUALITY PREFERRED
INCOME (JTP) INCOME 2 (JPS) INCOME 3 (JHP)
--------------------- ------------------------- --------------------------
FOR THE FOR THE
PERIOD 9/24/02 PERIOD 12/18/02
YEAR YEAR (COMMENCEMENT YEAR (COMMENCEMENT
ENDED YEAR ENDED ENDED OF OPERATIONS) ENDED OF OPERATIONS)
7/31/04 7/31/03 7/31/04 THROUGH 7/31/03 7/31/04 THROUGH 7/31/03
------------------------------------------------------------------------------------------------------------------
Common shares:
Shares sold -- -- -- 119,400,000 -- 23,580,000
Shares issued to
shareholders due to
reinvestment of
distributions 95,759 2,049,704 18,570 116,272 32,020 23,701
------------------------------------------------------------------------------------------------------------------
95,759 2,049,704 18,570 119,516,272 32,020 23,603,701
==================================================================================================================
FundPreferred shares sold -- 17,600 -- 32,000 -- 6,640
==================================================================================================================
43
Notes to
FINANCIAL STATEMENTS (continued)
3. SECURITIES TRANSACTIONS
Purchases and sales (including maturities but excluding short-term investments)
of investment securities and U.S. Government and agency obligations during the
fiscal year ended July 31, 2004, were as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
-----------------------------------------------------------------------------------------------------------
Purchases:
Investment securities $249,406,823 $478,312,107 $84,153,612
U.S. Government and agency obligations 1,207,688 9,560,859 1,107,047
Sales and maturities:
Investment securities 264,549,282 485,889,589 85,494,898
U.S. Government and agency obligations 1,226,250 28,355,083 1,110,828
===========================================================================================================
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis based on the
information currently available to the Funds. Differences between amounts for
financial statement and federal income tax purposes are primarily due to the
recognition of income on certain securities, which are treated as debt
securities for income tax purposes and equity securities for financial statement
purposes, and timing differences in recognizing certain gains and losses on
security transactions.
At July 31, 2004, the cost of investments was as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
-------------------------------------------------------------------------------------------------------------
Cost of investments $1,314,329,443 $2,494,638,389 $498,782,472
=============================================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments
at July 31, 2004, were as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
-------------------------------------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 57,444,148 $130,700,199 $14,237,616
Depreciation (11,008,571) (17,095,572) (4,217,464)
-------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments $ 46,435,577 $113,604,627 $10,020,152
=============================================================================================================
44
The tax components of undistributed net ordinary income and net realized gains
at July 31, 2004, were as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------
Undistributed net ordinary income * $7,699,609 $14,357,609 $2,824,035
Undistributed net long-term capital gains -- 20,000,209 1,470,615
=========================================================================================================
* 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 fiscal years ended July 31,
2004 and July 31, 2003, was designated for purposes of the dividends paid
deduction as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
2004 (JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $86,134,890 $171,962,461 $34,119,989
Distributions from net long-term capital gains -- -- --
=========================================================================================================
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
2003 (JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $79,694,828 $108,646,966 $13,076,411
Distributions from 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.
At July 31, 2004, Quality Preferred Income (JTP) had unused capital loss
carryforwards of $25,060,612 available for federal income tax purposes to be
applied against future capital gains, if any. If not applied, $693,161 of the
carryforward will expire in the year 2011 and $24,367,451 will expire in 2012.
Calculation of certain of the amounts presented above (namely, undistributed net
ordinary income for tax purposes) involves the application of complex aspects of
the Internal Revenue Code to certain securities held by the Funds. In
calculating the amount of taxable income derived from these securities,
management made assumptions as to the correct tax treatment of certain of those
securities and made estimates about the tax characteristics of income received
from those securities, based on information currently available to the Funds.
The use of these assumptions and estimates will not affect the qualification of
the Funds as regulated investment companies under Subchapter M of the Internal
Revenue Code, nor is it expected that these assumptions and estimates will be
used in computing taxable income for purposes of preparing the federal and state
income and excise tax returns.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Funds' investment management agreements with the Adviser, each Fund
paid through July 31, 2004, an annual management fee, payable monthly, at the
rates set forth below, which were based upon each Fund's average daily managed
assets. "Managed Assets" means the average daily net assets of each Fund
including assets attributable to leverage as follows:
AVERAGE DAILY MANAGED ASSETS MANAGEMENT FEE RATE
--------------------------------------------------------------------------------
For the first $500 million .9000%
For the next $500 million .8750
For the next $500 million .8500
For the next $500 million .8250
For Managed Assets over $2 billion .8000
================================================================================
45
Notes to
FINANCIAL STATEMENTS (continued)
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 Spectrum Asset Management, Inc. ("Spectrum"),
under which Spectrum manages the investment portfolios of the Funds. Spectrum is
compensated for its services to the Funds from the management fees paid to the
Adviser. Spectrum also receives compensation on certain portfolio transactions
for providing brokerage services to the Funds.
The Funds pay 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 Funds from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
As approved by the Board of Trustees, a complex-wide management fee structure
has been adopted by all funds sponsored by the Adviser and its affiliates
effective August 1, 2004. This structure separates each fund's management fee
into two components - a complex-level component, based on the aggregate amount
of all fund assets managed by the Adviser and its affiliates, and a specific
fund-level component, based only on the amount of assets managed within each
individual 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 and its
affiliates. Under no circumstances will this pricing structure result in a fund
paying management fees at a rate higher than would otherwise have been
applicable had the complex-wide management fee structure not been implemented.
As a consequence of this new management fee structure, the funds' effective
management fees were reduced by approximately .004% starting August 1, 2004.
The complex-level fee schedule for all funds in the Nuveen fund complex is as
follows:
COMPLEX-LEVEL
COMPLEX-LEVEL ASSETS (1) 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 (which includes assets
attributable to leverage used in the Nuveen fund complex) of all funds
sponsored by the Adviser or by its affiliates.
(2) With respect to the complex-wide Managed Assets over $91 billion, the funds
(via their Board of Directors/Trustees) and the Adviser intend that the
parties will meet, prior to the time when complex-wide Managed Assets reach
that level, to consider and negotiate the fee rate or rates that will apply
to such assets. The parties agree that, in the unlikely event that
complex-wide Managed Assets reach $91 billion prior to the parties reaching
an agreement as to 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 the
parties agree to a different rate or rates.
46
For each of the Funds, the fund-level fee, which is additive to the
complex-level fee, is based upon the average daily Managed Assets of each Fund
as follows:
FUND-LEVEL
AVERAGE DAILY MANAGED ASSETS 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
================================================================================
For the first eight years of Quality Preferred Income's (JTP) 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
JUNE 30, JUNE 30,
--------------------------------------------------------------------------------
2002* .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income (JTP) for any
portion of its fees and expenses beyond June 30, 2010.
For the first eight years of Quality Preferred Income 2's (JPS) 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,
--------------------------------------------------------------------------------
2002* .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income 2 (JPS) for any
portion of its fees and expenses beyond September 30, 2010.
For the first eight years of Quality Preferred Income 3's (JHP) 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
DECEMBER 31, DECEMBER 31,
--------------------------------------------------------------------------------
2002* .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income 3 (JHP) for any
portion of its fees and expenses beyond December 31, 2010.
6. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Funds declared Common share dividend distributions from their net investment
income which were paid on September 1, 2004, to shareholders of record on August
15, 2004:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------
Dividend per share $.1010 $.1050 $.1030
================================================================================
Change in Fiscal Year End
The Board of Trustees of the Funds approved a change in the Funds' fiscal year
end from July 31 to December 31 upon completion of the Funds' July 31, 2004
fiscal year.
47
Financial
HIGHLIGHTS
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
Share Net Unrealized FundPreferred FundPreferred Common Common
Net Asset Investment Investment Share- Share- Share- Share-
Value Income(a) Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
QUALITY PREFERRED
INCOME (JTP)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004(b) $14.10 $1.37 $. 26 $(.08) $ -- $1.55 $(1.25) $-- $(1.25)
2003 14.12 1.31 .16 (.09) -- 1.38 (1.25) -- (1.25)
2002(c) 14.33 .06 (.25) -- -- (.19) -- -- --
QUALITY PREFERRED
INCOME 2 (JPS)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004(b) 14.97 1.42 .37 (.08) -- 1.71 (1.32) (.04) (1.36)
2003(d) 14.33 1.02 .79 (.07) -- 1.74 (.95) -- (.95)
QUALITY PREFERRED
INCOME 3 (JHP)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004(b) 14.38 1.38 .40 (.08) (.01) 1.69 (1.24) (.12) (1.36)
2003(e) 14.33 .67 .22 (.04) -- .85 (.62) -- (.62)
====================================================================================================================================
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**
===================================================================================
QUALITY PREFERRED
INCOME (JTP)
-----------------------------------------------------------------------------------
Year Ended 7/31:
2004(b) $ -- $14.40 $13.96 4.20% 11.17%
2003 (.15) 14.10 14.59 4.95 9.15
2002(c) (.02) 14.12 15.15 1.00 (1.47)
QUALITY PREFERRED
INCOME 2 (JPS)
-----------------------------------------------------------------------------------
Year Ended 7/31:
2004(b) -- 15.32 14.61 8.98 11.60
2003(d) (.15) 14.97 14.65 4.02 11.22
QUALITY PREFERRED
INCOME 3 (JHP)
-----------------------------------------------------------------------------------
Year Ended 7/31:
2004(b) -- 14.71 14.34 9.36 11.93
2003(e) (.18) 14.38 14.36 (.19) 4.62
===================================================================================
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
========================================================================================================================
QUALITY PREFERRED
INCOME (JTP)
------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004(b) $ 927,892 1.51% 8.87% 1.04% 9.33% 18%
2003 907,746 2.38 8.84 1.91 9.31 45
2002(c) 880,006 .96* 4.51* .64* 4.83* 1
QUALITY PREFERRED
INCOME 2 (JPS)
------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004(b) 1,830,878 1.41 8.64 .95 9.10 19
2003(d) 1,789,809 1.99* 7.59* 1.54* 8.04* 35
QUALITY PREFERRED
INCOME 3 (JHP)
------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004(b) 347,900 1.55 8.75 1.08 9.22 17
2003(e) 339,499 1.97* 7.14* 1.53* 7.58* 57
========================================================================================================================
FundPreferred Shares at End of Period
-----------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
======================================================================
QUALITY PREFERRED
INCOME (JTP)
----------------------------------------------------------------------
Year Ended 7/31:
2004(b) $440,000 $25,000 $77,721
2003 440,000 25,000 76,577
2002(c) -- -- --
QUALITY PREFERRED
INCOME 2 (JPS)
----------------------------------------------------------------------
Year Ended 7/31:
2004(b) 800,000 25,000 82,215
2003(d) 800,000 25,000 80,932
QUALITY PREFERRED
INCOME 3 (JHP)
----------------------------------------------------------------------
Year Ended 7/31:
2004(b) 166,000 25,000 77,395
2003(e) 166,000 25,000 76,129
======================================================================
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and
changes in stock price per share. Total Return on Common Share Net Asset
Value is the combination of reinvested dividend income at net asset value,
reinvested capital gains distributions at net asset value, if any, and
changes in Common share net asset value per share. Total returns are not
annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ o Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders.
o Income ratios reflect income earned on assets attributable to
FundPreferred shares.
o For the periods presented below each ratio includes the effect of the
interest expense paid on interest rate swap transactions as follows:
Ratio of Net Interest
Expense to Average
Net Assets Applicable
to Common Shares
---------------------
Quality Preferred Income (JTP)
2003 .80%
2002(c) --
Quality Preferred Income 2 (JPS)
2003(d) .58*
Quality Preferred Income 3 (JHP)
2003(e) .51*
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) As discussed in the accompanying notes to financial statements the Funds
changed their method of presentation for net interest expense on interest
rate swap transactions. The effect of this reclassification for the fiscal
year ended July 31, 2004, was as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
-------------------------------------------
Increase of Net Investment Income per share with a corresponding
decrease in Net Realized/Unrealized Investment Gain (Loss) $.14 $.11 $.11
Decrease in each of the Ratios of Expenses to Average Net Assets
Applicable to Common Shares with a corresponding increase in each of
the Ratios of Net Investment Income to Average Net Assets Applicable
to Common Shares .94% .71% .73%
(c) For the period June 25, 2002 (commencement of operations) through July 31,
2002.
(d) For the period September 24, 2002 (commencement of operations) through July
31, 2003.
(e) For the period December 18, 2002 (commencement of operations) through July
31, 2003.
See accompanying notes to financial statements.
48-49 SPREAD
Board Members
AND OFFICERS
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board
Members of the Funds. The number of board members of the Funds is currently set
at seven. None of the board members who are not "interested" persons of the
Funds has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger (1) Chairman of 1994 Chairman and Director (since 1996) of Nuveen Investments, 145
3/28/49 the Board Inc. and Nuveen Investments, LLC; Director (since 1992) and
333 W. Wacker Drive and Trustee Chairman (since 1996) of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.; Chairman and Director (since
1997) of Nuveen Asset Management, Inc.; Director (since
1996) of Institutional Capital Corporation; Chairman and
Director (since 1999) of Rittenhouse Asset Management, Inc.;
Chairman of Nuveen Investments Advisers Inc. (since 2002).
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Board member 1997 Private Investor and Management Consultant. 145
8/22/40
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Board member 1993 Retired (1989) as Senior Vice President of The Northern 145
7/29/34 Trust Company; Director, Community Advisory Board for
333 W. Wacker Drive Highland Park and Highwood, United Way of the North
Chicago, IL 60606 Shore (since 2002).
------------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Board member 1999 President, The Hall-Perrine Foundation, a private philanthropic 145
10/22/48 corporation (since 1996); Director and Vice Chairman, United
333 W. Wacker Drive Fire & Casualty Company; formerly Director, Federal Reserve
Chicago, IL 60606 Bank of Chicago; formerly, President and Chief Operating
Officer, SCI Financial Group, Inc., a regional financial
services firm.
------------------------------------------------------------------------------------------------------------------------------------
William C. Hunter Board member 2004 Dean and Distinguished Professor of Finance, School of 145
3/16/48 Business at the University of Connecticut (since 2003);
333 W. Wacker Drive previously Senior Vice President and Director of Research
Chicago, IL 60606 at the Federal Reserve Bank of Chicago (1995-2003);
Director, Credit Research Center at Georgetown University;
Director of Xerox Corporation (since 2004).
50
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Senior Partner and Chief Operating Officer, Miller-Valentine 145
9/24/44 Group, Vice President, Miller-Valentine Realty, a construction
333 W. Wacker Drive company; Chair, Miami Valley Hospital; Chair, Dayton
Chicago, IL 60606 Development Coalition; formerly, Member, Community
Advisory Board, National City Bank, Dayton, Ohio and
Business Advisory Council, Cleveland Federal Reserve Bank.
------------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale Board member 1997 Executive Director, Gaylord and Dorothy Donnelley 145
12/29/47 Foundation (since 1994); prior thereto, Executive Director,
333 W. Wacker Drive Great Lakes Protection Fund (from 1990 to 1994)
Chicago, IL 60606
NUMBER OF
PORTFOLIOS
IN FUND
POSITION(S) YEAR FIRST COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary and 145
9/9/56 Administrative Associate General Counsel, formerly, Vice President and
333 W. Wacker Drive Officer Assistant General Counsel of Nuveen Investments, LLC;
Chicago, IL 60606 Managing Director (since 2002), General Counsel and
Assistant Secretary, formerly, Vice President of Nuveen
Advisory Corp. and Nuveen Institutional Advisory Corp.;
Managing Director (since 2002), Assistant Secretary and
Associate General Counsel, formerly, Vice President (since
2000), of Nuveen Asset Management, Inc. Assistant
Secretary of Nuveen Investments, Inc. (since 1994); Assistant
Secretary of NWQ Investment Management Company, LLC
(since 2002); Vice President and Assistant Secretary of
Nuveen Investments Advisers Inc. (since 2002); Managing
Director, Associate General Counsel and Assistant Secretary
of Rittenhouse Asset Management, Inc. (since 2003);
Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant Vice 145
2/3/66 and Assistant President (since 2000), previously, Associate of Nuveen
333 W. Wacker Drive Secretary Investments, LLC.
Chicago, IL 60606
51
Board Members
AND OFFICERS (CONTINUED)
NUMBER OF
PORTFOLIOS
IN FUND
POSITION(S) YEAR FIRST COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999), 145
11/28/67 and Treasurer prior thereto, Assistant Vice President (since 1997); Vice
333 W. Wacker Drive President and Treasurer of Nuveen Investments, Inc. (since
Chicago, IL 60606 1999); Vice President and Treasurer of Nuveen Advisory Corp.
and Nuveen Institutional Advisory Corp (since 1999); Vice
President and Treasurer of Nuveen Asset Management, Inc.
(since 2002) and of Nuveen Investments Advisers Inc. (since
2002); Assistant Treasurer of NWQ Investment Management
Company, LLC (since 2002); Vice President and Treasurer of
Nuveen Rittenhouse Asset Management, Inc. (since 2003);
Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 2000 Vice President (since 2002) and Assistant General Counsel 145
9/24/64 and Secretary (since 1998); formerly, Assistant Vice President (since 1998)
333 W. Wacker Drive of Nuveen Investments, LLC; Vice President (since 2002)
Chicago, IL 60606 and Assistant Secretary (since 1998), formerly Assistant
Vice President of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.
------------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Managing Director (since 2004) formerly, Vice President of 145
10/24/45 Nuveen Investments, LLC; Managing Director (since 2004)
333 W. Wacker Drive formerly, Vice President (since 1998) of Nuveen Advisory
Chicago, IL 60606 Corp. and Nuveen Institutional Advisory Corp.
------------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen Investments, 145
3/2/64 LLC; Managing Director (since 2001), formerly Vice President
333 W. Wacker Drive of Nuveen Advisory Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp. (since 1995); Managing Director of Nuveen Asset
Management, Inc. (since 2001); Vice President of Nuveen
Investment Advisers Inc. (since 2002); Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller (since 1998) 145
5/31/54 and Controller of Nuveen Investments, LLC and Vice President and Funds
333 W. Wacker Drive Controller (since 1998) of Nuveen Investments, Inc.;
Chicago, IL 60606 Certified Public Accountant.
52
NUMBER OF
PORTFOLIOS
IN FUND
POSITION(S) YEAR FIRST COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, 145
3/22/63 LLC, previously Assistant Vice President (since 1999);
333 W. Wacker Drive prior thereto, Associate of Nuveen Investments, LLC;
Chicago, IL 60606 Certified Public Accountant.
------------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President (since 1999), previously, Assistant Vice 145
8/27/61 President (since 1993) of Nuveen Investments, LLC.
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and Assistant General 145
7/27/51 and Assistant Counsel of Nuveen Investments, LLC; Vice President and
333 W. Wacker Drive Secretary Assistant Secretary of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.; Assistant Secretary of Nuveen
Investments, Inc. and (since 1997) Nuveen Asset Management,
Inc.; Vice President (since 2000), Assistant Secretary and
Assistant General Counsel (since 1998) of Rittenhouse Asset
Management, Inc.; Vice President and Assistant Secretary of
Nuveen Investments Advisers Inc. (since 2002); Assistant
Secretary of NWQ Investment Management Company, LLC
(since 2002).
------------------------------------------------------------------------------------------------------------------------------------
Edward F. Neild, IV Vice President 1996 Managing Director (since 2002) of Nuveen Investments, LLC; 145
7/7/65 Managing Director (since 1997), formerly Vice President
333 W. Wacker Drive (since 1996) of Nuveen Advisory Corp. and Nuveen Institutional
Chicago, IL 60606 Advisory Corp.; Managing Director of Nuveen Asset Management,
Inc. (since 1999). Chartered Financial Analyst.
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and board member
of the Adviser.
(2) Board members serve an indefinite term until his/her successor is elected.
The year first elected or appointed represents the year in which the board
member was first elected or appointed to any fund in the Nuveen Complex.
(3) Officers serve one year terms through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
53
Reinvest Automatically
EASILY AND CONVENIENTLY
SIDEBAR TEXT: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET
UP YOUR REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares.
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of tax-free
compounding. Just like dividends or distributions in cash, there may be times
when income or capital gains taxes may be payable on dividends or distributions
that are reinvested.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
then-current market price. If the shares are trading at less than net asset
value, shares for your account will be purchased on the open market. Dividends
and distributions received to purchase shares in the open market will normally
be invested shortly after the dividend payment date. No interest will be paid on
dividends and distributions awaiting reinvestment. Because the market price of
the shares may increase before purchases are completed, the average purchase
price per share may exceed the market price at the time of valuation, resulting
in the acquisition of fewer shares than if the dividend or distribution had been
paid in shares issued by the Fund. A pro rata portion of any applicable
brokerage commissions on open market purchases will be paid by Plan
participants. These commissions usually will be lower than those charged on
individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
54
Other Useful
INFORMATION
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING
Each Fund's quarterly portfolio of investments and information regarding how the
Funds voted proxies relating to portfolio securities held during the most recent
12-month period ended June 30, 2004, are available without charge, upon request,
by calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website
at www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return (including change in NAV and reinvested dividends) that
would have been necessary on an annual basis to equal the investment's actual
performance over the time period being considered.
NET ASSET VALUE (NAV): A fund's NAV is calculated by subtracting the liabilities
of the fund from its total assets and then dividing the remainder by the number
of shares outstanding. Fund NAVs are calculated at the end of each business day.
UNAUDITED INFORMATION: The Nuveen Quality Preferred Income Fund, Nuveen Quality
Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 designate
11%, 11% and 12% respectively, of dividends declared from net investment income
as dividends qualifying for the 70% dividends received deduction for
corporations and 11%, 11% and 12% respectively, as qualified dividend income for
individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
BOARD OF TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
FUND MANAGER
Nuveen Institutional
Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
Each Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the fiscal year ended July 31, 2004. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
55
Nuveen Investments:
SERVING Investors
For GENERATIONS
Photo of: 2 women looking at a photo album.
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past century,
Nuveen Investments has adhered to the belief that the best approach to investing
is to apply conservative risk-management principles to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity and
fixed-income solutions that are integral to a well-diversified core portfolio.
Our clients have come to appreciate this diversity, as well as our continued
adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT NEEDS.
Managing $100 billion in assets, Nuveen Investments offers access to a number of
different asset classes and investing solutions through a variety of products.
Nuveen Investments markets its capabilities under four distinct brands: Nuveen,
a leader in tax-free investments; NWQ, a leader in value-style equities;
Rittenhouse, a leader in growth-style equities; and Symphony, a leading
institutional manager of market-neutral alternative investment portfolios.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers, talk to
your financial advisor, or call us at (800) 257-8787. Please read the
information carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should consider the
investment objective and policies, risk considerations, charges and expenses of
the Fund carefully before investing. The prospectus contains this and other
information relevant to an investment in the Fund. For a prospectus, please
contact your securities representative or Nuveen Investments, 333 W. Wacker Dr.,
Chicago, IL 60606. Please read the prospectus carefully before you invest or
send money.
Learn more
about Nuveen Funds at
WWW.NUVEEN.COM/ETF
o Share prices
o Fund details
o Daily financial news
o Investor education
o Interactive planning tools
Logo: NUVEEN Investments
EAN-D-0704D
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted
a code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. The registrant has posted such code of
ethics on its website at www.nuveen.com/etf.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of directors determined that the registrant had at least
one "audit committee financial expert" (as defined in Item 3 of Form N-CSR)
serving on its Audit Committee. The registrant's audit committee financial
expert was William E. Bennett, who was "independent" for purposes of Item 3 of
Form N-CSR.
Although Mr. Bennett served as the audit committee financial expert during the
reporting period, he unexpectedly resigned from the Board effective April 30,
2004. Since that time, the Audit Committee determined that Jack B. Evans, the
Chairman of the Audit Committee, qualifies as an audit committee financial
expert and recommended to the full Board that he be designated as such. On July
26, 2004, the full Board voted to so designate Mr. Evans. Accordingly for this
reporting period, the registrant did not have a designated "audit committee
financial expert" from April 30, 2004 to July 26, 2004. Mr. Evans, who is
independent for purposes of Item 3 of Form N-CSR, served as the registrant's
audit committee financial expert from July 26, 2004 to the end of the reporting
period on July 31, 2004.
Mr. Bennett was formerly Executive Vice President and Chief Credit Officer of
First Chicago Corporation and its principal subsidiary, The First National Bank
of Chicago. As part of his role as Chief Credit Officer, Mr. Bennett set policy
as to accrual of assets/loans; designated performing/non-performing assets; set
the level of reserves against the credit portfolo; and determined the carrying
value of credit related assets and exposure. Among other things, Mr. Bennett was
also responsible for the oversight of the internal analysis function including
setting ground rules for the review and preparation of financial analysis and
financial statements for use in making credit and risk decisions for clients.
Mr. Bennett has significant experience reviewing, analyzing and evaluating
financial statements of domestic and international companies in a variety of
industries with complex accounting issues.
Mr. Evans was formerly President and Chief Operating Office of SCI Financial
Group, Inc., a full service registered broker-dealer and registered investment
adviser ("SCI"). As part of his role as President and Chief Operating Officer,
Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and
actively supervised the CFO's preparation of financial statements and other
filings with various regulatory authorities. In such capacity, Mr. Evans was
actively involved in the preparation of SCI's financial statements and the
resolution of issues raised in connection therewith. Mr. Evans has also served
on the audit committee of various reporting companies. At such companies, Mr.
Evans was involved in the oversight of audits, audit plans, and the preparation
of financial statements. Mr. Evans also formerly chaired the audit committee of
the Federal Reserve Bank of Chicago.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NUVEEN QUALITY PREFERRED INCOME FUND 2
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP entered into on or after May 6, 2003, the
Audit Committee approved in advance all audit services and non-audit services
that Ernst & Young LLP provided to the Fund, except for those non-audit services
that were subject to the pre-approval exception under Rule 2-01 of Regulation
S-X (the "pre-approval exception"). The pre-approval exception for services
provided directly to the Fund waives the pre-approval requirement for services
other than audit, review or attest services if: (A) the aggregate amount of all
such services provided constitutes no more than 5% of the total amount of
revenues paid by the Fund during the fiscal year in which the services are
provided; (B) the Fund did not recognize the services as non-audit services at
the time of the engagement; and (C) the services are promptly brought to the
Audit Committee's attention, and the Committee (or its delegate) approves the
services before the audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND BILLED TO FUND BILLED TO FUND BILLED TO FUND
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2004 $ 26,088 $ 0 $ 9,098 $ 3,450
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2003 $ 11,550 $ 0 $ 4,475 $ 2,013
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
The above "Tax Fees" were billed for professional services for tax advice, tax
compliance and tax planning.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Institutional Advisory Corp. ("NIAC" or the "Adviser"), and any entity
controlling, controlled by or under common control with NIAC ("Control
Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service
Provider"), for engagements directly related to the Fund's operations and
financial reporting, during the Fund's last two full fiscal years.
The table also shows the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES
BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER
AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND
SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2004 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2003 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A N/A N/A
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
NON-AUDIT SERVICES
The following table shows the amount of fees that Ernst & Young LLP billed
during the Fund's last two full fiscal years for non-audit services. For
engagements entered into on or after May 6, 2003, the Audit Committee is
required to pre-approve non-audit services that Ernst & Young LLP provides to
the Adviser and any Affiliated Fund Services Provider, if the engagement related
directly to the Fund's operations and financial reporting (except for those
subject to the de minimis exception described above). The Audit Committee
requested and received information from Ernst & Young LLP about any non-audit
services that Ernst & Young LLP rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating Ernst & Young LLP independence.
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES
BILLED TO ADVISER AND
AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES
PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND
RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE
TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER
BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2004 $ 12,548 $ 0 $ 0 $ 12,548
July 31, 2003 $ 6,488 $ 0 $ 0 $ 6,488
Audit Committee Pre-Approval Policies and Procedures. Generally, the audit
committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the audit committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the audit committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the audit committee at
the next audit committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
In the rare event that a municipal issuer held by the Fund were to issue a proxy
or that the Fund were to receive a proxy issued by a cash management security,
the Adviser would either engage an independent third party to determine how the
proxy should be voted or vote the proxy with the consent, or based on the
instructions, of the Fund's Board of Directors or Trustees or its
representative. In the case of a conflict of interest, the proxy would be
submitted to the applicable Fund's Board to determine how the proxy should be
voted. A member of the Adviser's legal department would oversee the
administration of the voting, and ensure that records were maintained in
accordance with Rule 204-2(c)(2) under the Investment Advisers Act of 1940 (17
CFR 275.204-2(c)(2)), reports were filed with the SEC on Form N-PX, and the
results were provided to the Board of Directors or Trustees and made available
to shareholders as required by applicable rules.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In the event of a vacancy on the Board, the nominating and governance committee
receives suggestions from various sources, including shareholders, as to
suitable candidates. Suggestions should be sent in writing to Lorna Ferguson,
Vice President for Board Relations, Nuveen Investments, 333 West Wacker Drive,
Chicago, IL 60606. The nominating and governance committee sets appropriate
standards and requirements for nominations for new directors and reserves the
right to interview all candidates and to make the final selection of any new
directors.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")(17 CFR
240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's last
fiscal half-year (the registrant's second fiscal half-year in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because posted on registrant's website at www.nuveen.com/etf.
(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 Quality Preferred Income Fund 2
-----------------------------------------------------------
By (Signature and Title)* /s/ Jessica R. Droeger
----------------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: October 12, 2004
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
----------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(Principal Executive Officer)
Date: October 12, 2004
-------------------------------------------------------------------
By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(Principal Financial Officer)
Date: October 12, 2004
-------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.