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
---------
NUVEEN QUALITY PREFERRED INCOME FUND 2
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
--------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
---------------------
Date of fiscal year end: December 31
-------------------
Date of reporting period: June 30, 2006
---------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. SS. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMIANNUAL REPORT JUNE 30, 2006
NUVEEN INVESTMENTS
EXCHANGE-TRADED
CLOSED-END
FUNDS
NUVEEN QUALITY
PREFERRED INCOME
FUND
JTP
NUVEEN QUALITY
PREFERRED INCOME
FUND 2
JPS
NUVEEN QUALITY
PREFERRED INCOME
FUND 3
JHP
HIGH CURRENT INCOME
FROM A PORTFOLIO OF
INVESTMENT-GRADE
PREFERRED SECURITIES
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NUVEEN LOGO
(TIMOTHY SCHWERTFEGER PHOTO)
Timothy R. Schwertfeger
Chairman of the Board
CHAIRMAN'S
LETTER TO SHAREHOLDERS
Dear Shareholder:
I am very pleased to report that over the six-month period covered by this
report, your Fund continued to provide you with attractive monthly income
from a diversified portfolio of quality preferred securities. For more
information on your Fund's performance, please read the Portfolio
Managers' Comments, the Distribution and Share Price Information, and the
Performance Overview sections of this report.
Portfolio diversification is a recognized way to try to reduce some of the
risk that comes with investing. Since one part of your portfolio may be
going up when another is going down, portfolio diversification may help
smooth your investment returns over time. In addition to providing regular
monthly income, an investment like your Fund may help you achieve and
benefit from greater portfolio diversification. Your financial advisor can
explain these potential advantages in more detail. I urge you to contact
him or her soon for more information on this important investment
strategy.
"IN ADDITION TO PROVIDING REGULAR MONTHLY INCOME, AN INVESTMENT LIKE YOUR FUND
MAY HELP YOU ACHIEVE AND BENEFIT FROM GREATER PORTFOLIO DIVERSIFICATION."
At Nuveen Investments, our mission continues to be to assist you and your
financial advisor by offering investment services and products that can
help you to secure your financial objectives. We are grateful that you
have chosen us as a partner as you pursue your financial goals, and we
look forward to continuing to earn your trust in the months and years
ahead.
Sincerely,
(TIMOTHY SCHWERFEGER SIG)
Timothy R. Schwertfeger
Chairman of the Board
August 11, 2006
Nuveen Investments Exchange-Traded Closed-End Funds (JTP, JPS, JHP)
PORTFOLIO MANAGERS'
COMMENTS
The Nuveen Quality Preferred Income Funds are sub-advised by a team of
specialists at Spectrum Asset Management Inc. (Spectrum), an affiliate of
Principal Capital(SM). 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 their management strategy and
the performance of each Fund for the six-month period ended June 30, 2006.
WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE SIX-MONTH PERIOD ENDED JUNE
30, 2006?
During the six-month period we generally maintained the 60/40 portfolio mix
between the $25 Par Preferred Securities (retail driven) asset type and the
Capital Preferred Securities (institutionally driven) asset type in all three
funds. Dividends Received Deduction (DRD) tax advantaged securities were sold
and the proceeds were reinvested roughly equally in fully taxable $25 Par
Preferred Securities and in competitor closed-end funds (CEFs) (also retail
driven). The CEFs were purchased over the first half of 2006 at prices that were
a discount to the Net Asset Value of the fund. Concentrations in CEFs were
between 1.6% and 1.9% for each of the funds at June 30, 2006.
In the Capital Preferred Securities asset type, we decreased concentrations in
"Euro-listed" securities and purchased Yankee Tier 1 and Enhanced Capital
Advantaged Preferred Securities, "ECAPS," that offered more return potential
with less duration risk. We also sold some high coupon, callable Capital
Preferred Securities that had little potential upside to purchase some new
issues that were priced attractively. The above actions were part of an ongoing
effort to increase book yield while maintaining credit quality and diversity.
HOW DID THE FUNDS PERFORM OVER THE SIX-MONTHS ENDED JUNE 30, 2006?
The performance of each Fund, as well as the performance of several widely
followed market indexes, is shown in the nearby chart.
TOTAL RETURN ON NET ASSET VALUE*
For periods ended June 30, 2006
-------------------------------------------------------------------------------------------
JTP -0.73%
-------------------------------------------------------------------------------------------
JPS -0.85%
-------------------------------------------------------------------------------------------
JHP -0.56%
-------------------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index(1) -0.72%
-------------------------------------------------------------------------------------------
Comparative Benchmark(2) -1.53%
-------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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. Index returns do not include the effects of any sales charges or
management fees. It is not possible to invest directly in an index.
2 Comparative benchmark performance is a blended return consisting of: 1) 55% of
the Merrill Lynch Preferred Stock Hybrid Securities Index, 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; and 2) 45%
of the Lehman Tier 1 Capital Securities Index, an unmanaged index that
includes securities that can generally be viewed as hybrid fixed income
securities that either receive regulatory capital treatment or a degree of
"equity credit" from a rating agency.
--------------------------------------------------------------------------------
Past performance does not guarantee future results. Current performance may be
higher or lower than the data shown. Returns do not reflect the deduction of
taxes that a shareholder may have to pay on Fund distributions or upon the sale
of Fund shares.
For more information, please see the individual Performance Overview pages in
this report.
4
For the six months ended June 30, 2006, JTP and JPS underperformed the
unleveraged, unmanaged Lehman Brothers Aggregate Bond Index and all three funds
outperformed their comparative benchmark.
Early in the year, we continued to opportunistically increase the Fund's
concentration in DRDs due to the relative attractiveness of the sector. We had
purchased Agency DRD securities at spreads ranging between +140-160 in 2005 and
sold out the positions in the first half of 2006 at spreads of between +90-100.
Other DRDs, largely Financial and Banking names, were also sold at spreads
approximately 85 basis points tighter than our purchase spreads in 2005. We have
also benefited from the capital performance of the IPO market for floating rate
DRD paper.
Spreads on Capital Preferred Securities widened along with the overall corporate
bond market but also suffered from the confusion and uncertainty over actions
taken by the National Association of Insurance Commissioners (NAIC) to classify
several Preferred structures as common equity for the insurance industry. We
were able to take advantage of the widening in ECAPS and certain Yankee issues
to pick up yield. For example, we sold a Barclays Bank $25 par issue and bought
a similar Barclays Capital Security for a yield pick up of 48 bps. We were also
able to trade some of the higher beta issues for short term capital gains amidst
the market uncertainty.
The NAIC's classification of the Lehman Brothers ECAPS and then of a Royal Bank
of Scotland Yankee Tier 1 issue as common equity surprised the market and caused
the Lehman Brothers Tier 1 Capital Security index to widen by 24 bps over the
half. The Lehman Brothers Tier 1 Capital Security index returned -2.25% for the
1st half underperforming the Lehman Aggregate by 1.53%. The added volatility in
the ECAPS and Tier 1 spaces provided some trading opportunities for the Funds,
however, it caused the whole Capital Preferred Securities sector to weaken.
Weakness in global corporate debt was also a factor contributing to the
relatively weaker performance of Capital Preferred Securities within the funds.
5
DISTRIBUTION AND SHARE PRICE
INFORMATION
Each of these Funds uses financial leverage in an effort to enhance its
dividend-paying capabilities. While this strategy adds volatility to a Fund's
net asset value and share price, it generally enhances the amount of income the
Fund has to distribute to its common shareholders. The extent of this benefit is
tied in part to the short-term rates these Funds pay their FundPreferred(TM)
shareholders. As short-term rates rose through this reporting period, the Funds
paid higher dividends to their FundPreferred shareholders.
Each of these Funds seeks to pay stable distributions at rates that reflect each
Fund's past results and projected future performance. During certain periods,
each Fund may pay distributions 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 distributions, 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
distributions 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 in distributions to shareholders. As of June 30,
2006, JTP had a positive UNII balance for financial statement purposes and a
positive UNII balance, based upon our best estimate, for tax purposes. JPS and
JHP had negative UNII balances for financial statement purposes and positive
UNII balances, based upon our best estimate, for tax purposes.
JTP and JPS each paid steady monthly distributions over the course of the
period. JHP declared a monthly distribution decrease in March. The distribution
decreased from $0.0945 to $0.0910 per share.
As of June 30, 2006, the Funds' shares were trading at discounts to their NAVs
as shown in the accompanying table:
6/30/06 6-MONTH AVERAGE
DISCOUNT DISCOUNT
------------------------------------------------------------------------------
JTP -4.57% -6.10%
------------------------------------------------------------------------------
JPS -3.19% -5.84%
------------------------------------------------------------------------------
JHP -4.90% -4.65%
------------------------------------------------------------------------------
6
Nuveen Quality Preferred Income Fund
JTP
PERFORMANCE
OVERVIEW As of June 30, 2006
PORTFOLIO ALLOCATION
(as a % of total investments)
-------------------------------------------------------------------------------------
$25 Par (or similar) Preferred Securities 56.3%
-------------------------------------------------------------------------------------
Capital Preferred Securities 38.9%
-------------------------------------------------------------------------------------
Short-Term Investments 1.9%
-------------------------------------------------------------------------------------
Investment Companies 1.9%
-------------------------------------------------------------------------------------
Corporate Bonds 0.8%
-------------------------------------------------------------------------------------
Convertible Preferred Securities 0.2%
-------------------------------------------------------------------------------------
BAR CHART:
2005-2006 MONTHLY DISTRIBUTIONS PER SHARE
Jul 0.0935
Aug 0.0935
Sep 0.0900
Oct 0.0900
Nov 0.0900
Dec 0.0900
Jan 0.0900
Feb 0.0900
Mar 0.0900
Apr 0.0900
May 0.0900
Jun 0.0900
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
7/01/05 14.08
13.95
13.77
13.65
13.73
13.67
13.55
13.44
13.52
13.70
13.59
13.24
13.16
13.06
12.79
12.37
12.46
12.40
12.48
12.27
12.01
12.28
12.25
12.17
12.09
12.21
12.40
12.71
12.95
13.07
12.92
13.15
13.33
13.35
13.53
13.55
13.30
13.45
13.66
13.29
13.15
12.68
12.75
12.89
13.04
12.93
12.81
12.95
13.28
12.95
12.87
12.87
6/30/06 12.94
FUND SNAPSHOT
----------------------------------------------------------------------
Common Share Price $12.94
----------------------------------------------------------------------
Common Share
Net Asset Value $13.56
----------------------------------------------------------------------
Premium/(Discount) to NAV -4.57%
----------------------------------------------------------------------
Current Distribution Rate(1) 8.35%
----------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $874,005
----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 6/25/02)
-------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
-------------------------------------------------------------------------------------
6-Month
(Cumulative) 8.72% -0.73%
-------------------------------------------------------------------------------------
1-Year 0.44% -0.18%
-------------------------------------------------------------------------------------
Since
Inception 4.65% 6.91%
-------------------------------------------------------------------------------------
INDUSTRIES
(as a % of total investments)
-------------------------------------------------------------------
Commercial Banks 28.6%
-------------------------------------------------------------------
Insurance 18.4%
-------------------------------------------------------------------
Real Estate 16.9%
-------------------------------------------------------------------
Capital Markets 10.0%
-------------------------------------------------------------------
Diversified Financial Services 8.8%
-------------------------------------------------------------------
Oil, Gas & Consumable Fuels 3.6%
-------------------------------------------------------------------
Short-Term Investments 1.9%
-------------------------------------------------------------------
Other 11.8%
-------------------------------------------------------------------
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
------------------------------------------------------------------
ING Group NV 3.1%
------------------------------------------------------------------
JPMorgan Chase & Company 2.8%
------------------------------------------------------------------
Morgan Stanley 2.7%
------------------------------------------------------------------
Wachovia Corporation 2.6%
------------------------------------------------------------------
HSBC Holdings Public
Limited Company 2.4%
------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
7
Nuveen Quality Preferred Income Fund 2
JPS
PERFORMANCE
OVERVIEW As of June 30, 2006
PORTFOLIO ALLOCATION
(as a % of total investments)
-------------------------------------------------------------------------------------
$25 Par (or similar) Preferred Securities 55.9%
-------------------------------------------------------------------------------------
Capital Preferred Securities 40.0%
-------------------------------------------------------------------------------------
Short-Term Investments 1.7%
-------------------------------------------------------------------------------------
Investment Companies 1.6%
-------------------------------------------------------------------------------------
Corporate Bonds 0.6%
-------------------------------------------------------------------------------------
Convertible Preferred Securities 0.2%
-------------------------------------------------------------------------------------
Bar Chart:
2005-2006 MONTHLY DISTRIBUTIONS PER SHARE
Jul 0.0960
Aug 0.0960
Sep 0.0930
Oct 0.0930
Nov 0.0930
Dec 0.0930
Jan 0.0930
Feb 0.0930
Mar 0.0930
Apr 0.0930
May 0.0930
Jun 0.0930
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing price
Past performance is not predictive of future results.
7/01/05 14.50
14.59
14.50
14.33
14.60
14.35
14.15
14.10
14.12
14.28
14.20
13.81
13.71
13.62
13.59
13.03
12.99
13.12
13.15
12.91
12.63
12.81
13.18
13.21
12.84
12.70
12.80
13.39
13.68
13.89
13.87
14.09
14.12
13.90
13.98
13.93
13.55
13.74
13.96
13.65
13.70
13.24
13.40
13.64
13.47
13.48
13.25
13.34
13.64
13.40
13.44
13.59
6/30/06 13.64
FUND SNAPSHOT
------------------------------------------------------------------------
Common Share Price $13.64
------------------------------------------------------------------------
Common Share
Net Asset Value $14.09
------------------------------------------------------------------------
Premium/(Discount) to NAV -3.19%
------------------------------------------------------------------------
Current Distribution Rate(1) 8.18%
------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $1,684,500
------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 9/24/02)
-------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
-------------------------------------------------------------------------------------
6-Month
(Cumulative) 10.96% -0.85%
-------------------------------------------------------------------------------------
1-Year 3.89% -0.26%
-------------------------------------------------------------------------------------
Since
Inception 6.61% 8.41%
-------------------------------------------------------------------------------------
INDUSTRIES
(as a % of total investments)
-------------------------------------------------------------------
Commercial Banks 30.1%
-------------------------------------------------------------------
Insurance 20.4%
-------------------------------------------------------------------
Real Estate 16.1%
-------------------------------------------------------------------
Capital Markets 8.8%
-------------------------------------------------------------------
Diversified Financial Services 7.8%
-------------------------------------------------------------------
Electric Utilities 3.2%
-------------------------------------------------------------------
Short-Term Investments 1.7%
-------------------------------------------------------------------
Other 11.9%
-------------------------------------------------------------------
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
------------------------------------------------------------------
Wachovia Corporation 3.6%
------------------------------------------------------------------
ING Group NV 3.1%
------------------------------------------------------------------
Washington Mutual Incorporated 2.5%
------------------------------------------------------------------
JPMorgan Chase & Company 2.4%
------------------------------------------------------------------
Sun Life Financial Services of Canada 2.2%
------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
8
Nuveen Quality Preferred Income Fund 3
JHP
PERFORMANCE
OVERVIEW As of June 30, 2006
PORTFOLIO ALLOCATION
(as a % of total investments)
-------------------------------------------------------------------------------------
$25 Par (or similar) Preferred Securities 62.5%
-------------------------------------------------------------------------------------
Capital Preferred Securities 33.9%
-------------------------------------------------------------------------------------
Investment Companies 1.7%
-------------------------------------------------------------------------------------
Short-Term Investments 1.4%
-------------------------------------------------------------------------------------
Corporate Bonds 0.4%
-------------------------------------------------------------------------------------
Convertible Preferred Securities 0.1%
-------------------------------------------------------------------------------------
Bar Chart:
2005-2006 MONTHLY DISTRIBUTIONS PER SHARE
Jul 0.0965
Aug 0.0965
Sep 0.0945
Oct 0.0945
Nov 0.0945
Dec 0.0945
Jan 0.0945
Feb 0.0945
Mar 0.0910
Apr 0.0910
May 0.0910
Jun 0.0910
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performanc is not predictive of future results.
7/01/05 14.56
14.58
14.54
14.39
14.84
14.78
14.69
14.62
14.65
14.55
14.59
14.24
13.99
13.82
13.73
13.05
13.06
13.12
13.23
13.09
12.73
12.84
12.90
12.69
12.57
12.61
12.92
13.41
13.71
13.73
13.65
13.77
14.14
14.02
14.08
13.98
13.51
13.39
13.49
13.16
13.29
12.88
13.11
13.24
13.19
13.10
12.98
12.82
13.15
13.08
13.01
13.02
6/30/06 12.99
FUND SNAPSHOT
----------------------------------------------------------------------
Common Share Price $12.99
----------------------------------------------------------------------
Common Share
Net Asset Value $13.66
----------------------------------------------------------------------
Premium/(Discount) to NAV -4.90%
----------------------------------------------------------------------
Current Distribution Rate(1) 8.41%
----------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $322,886
----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 12/18/02)
-------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
-------------------------------------------------------------------------------------
6-Month (Cumulative) 4.76% -0.56%
-------------------------------------------------------------------------------------
1-Year -2.22% 0.22%
-------------------------------------------------------------------------------------
Since
Inception 4.56% 7.22%
-------------------------------------------------------------------------------------
INDUSTRIES
(as a % of total investments)
-------------------------------------------------------------------
Commercial Banks 28.2%
-------------------------------------------------------------------
Insurance 23.2%
-------------------------------------------------------------------
Real Estate 15.5%
-------------------------------------------------------------------
Capital Markets 10.2%
-------------------------------------------------------------------
Diversified Financial Services 6.4%
-------------------------------------------------------------------
Oil, Gas & Consumable Fuels 2.7%
-------------------------------------------------------------------
Short-Term Investments 1.4%
-------------------------------------------------------------------
Other 12.4%
-------------------------------------------------------------------
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
-------------------------------------------------------------------
Wachovia Corporation 3.5%
-------------------------------------------------------------------
ING Group NV 3.5%
-------------------------------------------------------------------
Union Planters Corporation 2.6%
-------------------------------------------------------------------
Sun Life Financial Services of Canada 2.2%
-------------------------------------------------------------------
Aegon NV 2.1%
-------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
9
Shareholder
MEETING REPORT
The shareholder meeting was held in the offices of Nuveen Investments on March
29, 2006
JTP JPS
-----------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
Common and Common and
Preferred Preferred Preferred Preferred
shares voting shares voting shares voting shares voting
together together together together
as a class as a class as a class as a class
-----------------------------------------------------------------------------------------------------------------------
Robert P. Bremner
For 59,594,752 -- 109,321,330 --
Withhold 1,395,424 -- 1,388,192 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,990,176 -- 110,709,522 --
-----------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown
For 59,704,301 -- 109,318,055 --
Withhold 1,285,875 -- 1,391,467 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,990,176 -- 110,709,522 --
-----------------------------------------------------------------------------------------------------------------------
Jack B. Evans
For 59,708,576 -- 109,378,556 --
Withhold 1,281,600 -- 1,330,966 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,990,176 -- 110,709,522 --
-----------------------------------------------------------------------------------------------------------------------
William C. Hunter
For 59,654,400 -- 109,352,542 --
Withhold 1,335,776 -- 1,356,980 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,990,176 -- 110,709,522 --
-----------------------------------------------------------------------------------------------------------------------
David J. Kundert
For 59,633,909 -- 109,323,752 --
Withhold 1,356,267 -- 1,385,770 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,990,176 -- 110,709,522 --
-----------------------------------------------------------------------------------------------------------------------
William J. Schneider
For -- 16,013 -- 28,034
Withhold -- 179 -- 137
-----------------------------------------------------------------------------------------------------------------------
Total -- 16,192 -- 28,171
-----------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger
For -- 16,013 -- 28,034
Withhold -- 179 -- 137
-----------------------------------------------------------------------------------------------------------------------
Total -- 16,192 -- 28,171
-----------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale
For 59,696,880 -- 109,328,815 --
Withhold 1,293,296 -- 1,380,707 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,990,176 -- 110,709,522 --
-----------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine
For 59,671,537 -- 109,351,146 --
Withhold 1,318,639 -- 1,358,376 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,990,176 -- 110,709,522 --
-----------------------------------------------------------------------------------------------------------------------
JHP
----------------------------------------------------- -----------------------------
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
Common and
Preferred Preferred
shares voting shares voting
together together
as a class as a class
Robert P. Bremner
For 21,991,167 --
Withhold 312,246 --
--------------------------------------------------------------------------------------------------
Total 22,303,413 --
-----------------------------------------------------------------------------------------------------------------
Lawrence H. Brown
For 22,051,813 --
Withhold 251,600 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,303,413 --
-----------------------------------------------------------------------------------------------------------------------
Jack B. Evans
For 22,061,897 --
Withhold 241,516 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,303,413 --
-----------------------------------------------------------------------------------------------------------------------
William C. Hunter
For 22,011,275 --
Withhold 292,138 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,303,413 --
-----------------------------------------------------------------------------------------------------------------------
David J. Kundert
For 22,013,718 --
Withhold 289,695 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,303,413 --
-----------------------------------------------------------------------------------------------------------------------
William J. Schneider
For -- 5,466
Withhold -- 20
-----------------------------------------------------------------------------------------------------------------------
Total -- 5,486
-----------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger
For -- 5,465
Withhold -- 21
-----------------------------------------------------------------------------------------------------------------------
Total -- 5,486
-----------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale
For 22,067,611 --
Withhold 235,802 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,303,413 --
-----------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine
For 22,067,160 --
Withhold 236,253 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,303,413 --
-----------------------------------------------------------------------------------------------------------------------
10
Nuveen Quality Preferred Income Fund (JTP)
Portfolio of
INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 0.2% (0.2% OF TOTAL INVESTMENTS)
INSURANCE - 0.1%
50,000 XL Capital Ltd 6.500% A2 $ 1,043,500
-----------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.1%
36,000 PMI Group Inc. 5.875% A1 915,480
-----------------------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED SECURITIES (COST
$2,109,641) 1,958,980
----------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 84.0% (56.3% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.0%
5,300 Daimler Chrysler, Series DCX (CORTS) 7.250% A3 $ 126,140
-----------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 8.6%
40,358 Bear Stearns Capital Trust III 7.800% A2 1,025,093
296,187 BNY Capital Trust V, Series F 5.950% A- 6,687,902
243,395 Compass Capital Trust III 7.350% A3 6,036,196
2,700 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 66,690
14,600 First Union Institutional Capital II (CORTS) 8.200% A1 390,477
14,000 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 306,180
1,700 Goldman Sachs Group Inc., Series 2003-06 (SATURNS) 6.000% Aa3 37,774
12,300 Goldman Sachs Group Inc., Series 2004-04 (SATURNS) 6.000% A1 269,370
17,300 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 378,351
24,600 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 538,740
5,200 Goldman Sachs Group Incorporated (SATURNS) 5.750% Aa3 110,812
Lehman Brothers Holdings Capital Trust III, Series
108,549 K 6.375% A2 2,507,482
Lehman Brothers Holdings Capital Trust IV, Series
75,000 L 6.375% A2 1,743,750
25,700 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 565,400
Lehman Brothers Holdings Capital Trust VI, Series
106,420 N 6.240% N/R 2,447,660
47,700 Merrill Lynch Capital Trust II 8.000% A1 1,209,672
135,800 Merrill Lynch Preferred Capital Trust III 7.000% A1 3,377,346
94,200 Merrill Lynch Preferred Capital Trust IV 7.120% A1 2,365,362
173,400 Merrill Lynch Preferred Capital Trust V 7.280% A- 4,404,360
198,700 Merrill Lynch Preferred Capital Trust 7.750% A1 5,056,915
5,700 Morgan Stanley (PPLUS) 7.050% Aa3 141,702
194,600 Morgan Stanley Capital Trust II 7.250% A1 4,911,704
213,256 Morgan Stanley Capital Trust III 6.250% A1 4,819,586
249,095 Morgan Stanley Capital Trust IV 6.250% A1 5,622,074
31,900 Morgan Stanley Capital Trust V 5.750% A+ 669,581
515,305 Morgan Stanley Capital Trust VI 6.600% A- 12,284,871
273,400 Morgan Stanley, Series 2006A (WI/DD) 5.777% A2 6,911,907
-----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 74,886,957
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 11.1%
119,400 Abbey National PLC, Series B 7.375% A 3,123,504
48,000 Abbey National PLC, Series B 7.250% A1 1,205,760
1,200 Abbey National PLC, Series C 7.375% A2 30,720
134,500 ABN AMRO Capital Fund Trust V 5.900% A 2,926,720
39,500 ABN AMRO Capital Trust Fund VII 6.080% A 894,280
104,900 ASBC Capital I 7.625% Baa1 2,662,362
13,500 BAC Capital Trust I 7.000% Aa3 333,450
64,500 BAC Capital Trust II 7.000% Aa3 1,611,855
82,500 BAC Capital Trust III 7.000% A 2,071,575
7,200 BAC Capital Trust V 6.000% Aa3 160,056
11,700 BAC Capital Trust X 6.250% Aa3 265,005
172,927 Banco Santander 6.410% A2 4,150,248
52,300 Banco Totta & Acores Finance, Series A 8.875% A3 1,335,287
7,100 BancorpSouth Capital Trust I 8.150% Baa2 178,423
11
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
84,500 Banesto Holdings, Series A, 144A 10.500% A2 $ 2,556,125
64,300 Bank One Capital Trust VI 7.200% A1 1,620,360
16,500 BankNorth Capital Trust II 8.000% A3 416,955
17,717 Barclays Bank PLC 6.625% Aa3 443,457
9,850,000 BOI Capital Funding 3, 144A 6.107% A2 9,189,154
202,200 Chittenden Capital Trust I 8.000% Baa1 5,182,386
116,800 Cobank ABC, 144A, (3) 7.000% N/R 5,945,237
142,700 Comerica Capital Trust I 7.600% A3 3,568,927
9,800 Fleet Capital Trust IX 6.000% Aa3 217,854
37,700 Fleet Capital Trust VII 1.800% A 940,615
11,500 Fleet Capital Trust VIII 7.200% Aa3 290,490
4,400 HSBC Finance Corporation 6.875% Aa3 109,736
68,000 KeyCorp (PCARS) 7.500% A3 1,715,300
54,633 KeyCorp Capital Trust V 5.875% A3 1,183,897
68,600 National Commerce Capital Trust II 7.700% A1 1,728,720
6,350 PNC Capital Trust 6.125% BBB+ 140,335
10,218 Royal Bank of Scotland Group PLC, Series L 5.750% A1 219,891
27,000 Royal Bank of Scotland Group PLC, Series M 6.400% A1 649,080
224,762 Royal Bank of Scotland Group PLC, Series N 6.350% A1 5,315,621
33,800 SunTrust Capital Trust IV 7.125% A1 835,874
94,900 SunTrust Capital Trust V 7.050% A1 2,343,081
423,005 USB Capital Trust IV 7.350% Aa3 10,685,106
46,900 USB Capital Trust V 7.250% Aa3 1,176,252
10,000 USB Capital Trust VII 5.875% Aa3 215,500
37,200 VNB Capital Trust I 7.750% Baa1 936,696
25,500 Wells Fargo Capital Trust IV 7.000% Aa2 634,950
238,800 Wells Fargo Capital Trust V 7.000% Aa2 5,929,404
56,700 Wells Fargo Capital Trust VI 6.950% A- 1,397,088
21,900 Wells Fargo Capital Trust VII 5.850% Aa2 481,800
7,236 Wells Fargo Capital Trust IX 5.625% Aa2 153,114
382,250 Zions Capital Trust B 8.000% BBB- 9,892,630
-----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 97,064,880
----------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
2,100 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 52,070
4,200 IBM Trust II (CORTS) 7.125% A+ 104,034
4,900 IBM Trust III (CORTS) 7.200% A+ 122,402
3,500 IBM Trust IV (CORTS) 7.000% A+ 86,800
-----------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 365,306
----------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.1%
25,400 Household Capital Trust VII 7.500% A1 640,842
13,600 SLM Corporation 6.000% A 294,848
-----------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 935,690
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 9.0%
17,000 BBVA Preferred Capital Ltd., Series B 7.750% A1 425,510
142,100 CIT Group Inc., Series A, (3) 6.350% BBB+ 3,482,871
42,876 CIT Group Incorporated (CORTS) 7.750% A3 1,136,643
6,700 Citigroup Capital Trust IX 6.000% Aa2 149,678
260,400 Citigroup Capital Trust VII 7.125% Aa2 6,525,624
440,700 Citigroup Capital Trust VIII 6.950% Aa2 10,867,662
55,900 Citigroup Capital Trust XI 6.000% Aa2 1,243,775
39,400 Citigroup Inc., Series M, (3) 5.864% Aa3 1,942,814
8,300 General Electric Capital Corporation (CORTS) 6.000% AAA 191,315
10,800 General Electric Capital Corporation 6.625% AAA 266,328
1,800 General Electric Capital Corporation 4.500% AAA 41,058
1,015,458 ING Group N.V. 7.200% A 25,904,333
569,000 ING Group N.V. 7.050% A 14,355,870
20,200 JPM Capital Trust (CORTS) 7.200% A1 511,868
6,900 JPMorgan Chase & Company (PCARS) 7.125% A2 170,085
81,500 JPMorgan Chase Capital Trust IX, Series I 7.500% A1 2,061,950
82,400 JPMorgan Chase Capital Trust X 7.000% A1 2,047,640
142,256 JPMorgan Chase Capital Trust XI 5.875% A1 3,074,152
9,800 JPMorgan Chase Capital Trust XIV 6.200% A1 222,656
71,100 JPMorgan Chase Capital Trust XVI 6.350% A- 1,648,809
12
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
JPMorgan Chase Trust, Series 2002-6, Class A
20,300 (SATURNS) 7.125% A1 $ 519,274
Royal Bank of Scotland Public Limited Company,
59,200 Series 2006Q 6.750% A1 1,496,576
-----------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 78,286,491
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8%
95,900 AT&T Inc. 7.000% A 2,353,386
13,300 BellSouth Capital Funding (CORTS) 7.100% A 332,500
73,735 BellSouth Corporation (CORTS) 7.000% Aa3 1,796,922
29,300 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 703,200
4,300 BellSouth Corporation 7.125% A 103,028
7,300 BellSouth Inc. (CORTS) 7.000% A 181,040
2,000 BellSouth Telecommunications (PPLUS) 7.300% A 49,020
2,200 Verizon Communications (CORTS) 7.625% A 55,902
9,700 Verizon Communications, Series 2004-1 (SATURNS) 6.125% A+ 211,557
Verizon Global Funding Corporation Trust III,
2,300 Series III (CORTS) 6.250% A 50,370
23,900 Verizon New England Inc., Series B 7.000% A3 591,764
19,900 Verizon South Inc., Series F 7.000% A 484,963
-----------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 6,913,652
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 2.7%
1,800 Consolidated Edison, Inc. 7.250% A- 45,162
77,740 DTE Energy Trust I 7.800% BB+ 1,969,932
109,205 Entergy Louisiana LLC 7.600% A- 2,730,125
2,000 Entergy Mississippi Inc. 7.250% A- 50,300
59,000 Georgia Power Capital Trust V 7.125% BBB+ 1,477,950
5,200 Georgia Power Company 6.000% A 118,248
118,651 Georgia Power Company 5.900% A 2,686,259
2,000 Georgia Power Company 5.750% A 42,680
2,100 Gulf Power Capital Trust III 7.375% A3 52,500
251,073 Interstate Power and Light Company, Series B, (3) 8.375% Baa2 7,720,495
National Rural Utilities Cooperative Finance
24,000 Corporation 7.400% A3 606,240
National Rural Utilities Cooperative Finance
38,100 Corporation 6.100% A3 853,440
National Rural Utilities Cooperative Finance
15,025 Corporation 5.950% A3 327,846
11,000 Southern Company Capital Trust VI 7.125% BBB+ 276,100
191,400 Virginia Power Capital Trust 7.375% BB+ 4,804,140
-----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 23,761,417
----------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.7%
64,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 6,188,000
-----------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 1.0%
365,700 Pulte Homes Inc. 7.375% BBB 9,153,946
-----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.1%
21,700 General Electric Company, Series GE (CORTS) 6.800% AAA 549,010
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 17.6%
641,900 Ace Ltd., Series C 7.800% Baa2 16,593,115
29,520 Aegon N.V. 6.500% A- 703,166
1,161,650 Aegon N.V. 6.375% A- 27,229,075
2,800 Allstate Corporation (PCARS) 7.150% A2 70,672
10,500 AMBAC Financial Group Inc. 7.000% AA 261,765
21,500 AMBAC Financial Group Inc. 5.950% AA 467,840
2,800 AMBAC Financial Group Inc. 5.875% AA 60,816
4,700 Arch Capital Group Limited, Series B 7.875% Baa3 116,090
519,312 Arch Capital Group Limited 8.000% Baa3 13,211,297
215,900 Delphi Financial Group, Inc. 8.000% BBB 5,544,312
466,600 EverestRe Capital Trust II 6.200% Baa1 9,952,578
89,800 EverestRe Group Limited 7.850% Baa1 2,276,430
6,600 Financial Security Assurance Holdings 6.875% AA 161,436
4,600 Financial Security Assurance Holdings 6.250% AA 104,374
230,577 Hartford Capital Trust III, Series C 7.450% BBB+ 5,748,285
59,000 Hartford Life Capital Trust II, Series B 7.625% BBB+ 1,499,190
79,600 Lincoln National Capital Trust V, Series E 7.650% A- 1,993,980
34,500 Lincoln National Capital Trust VI 6.750% A- 841,110
66,600 MetLife Inc., Series B, (3) 6.500% BBB 1,640,358
296,700 PartnerRe Limited, Series C 6.750% BBB+ 7,097,064
13
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
77,700 PartnerRe Limited, Series D 6.500% BBB+ $ 1,775,445
133,200 PartnerRe Limited 7.900% A3 3,349,980
80,600 PLC Capital Trust III 7.500% BBB+ 2,021,448
413,100 PLC Capital Trust IV 7.250% BBB+ 10,170,522
6,500 PLC Capital Trust V 6.125% BBB+ 146,250
7,100 Prudential Financial Inc. (CORTS) 6.000% A 158,117
264,165 Prudential PLC 6.750% A 6,464,118
125,650 RenaissanceRe Holdings Limited, Series A 8.100% BBB+ 3,156,328
61,100 RenaissanceRe Holdings Limited, Series B 7.300% BBB 1,496,950
13,900 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 303,854
8,400 Safeco Capital Trust III (CORTS) 8.072% Baa2 219,450
11,200 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 284,144
3,300 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 83,606
81,200 Saint Paul Capital Trust I 7.600% Baa1 2,057,608
62,800 Torchmark Capital Trust I 7.750% A- 1,594,492
5,200 Torchmark Capital Trust II 7.750% A- 132,080
8,300 W.R. Berkley (CORTS) 8.250% BBB- 209,243
27,900 W.R. Berkley Capital Trust, Series 2002-1 (CBTCS) 8.125% BBB- 281,511
382,300 W.R. Berkley Corporation 6.750% BBB- 8,972,581
445,854 XL Capital Ltd, Series A 8.000% Baa1 11,302,399
156,900 XL Capital Ltd, Series B 7.625% Baa1 3,969,570
-----------------------------------------------------------------------------------------------------------------------------
Total Insurance 153,722,649
----------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.1%
31,200 Vertex Industries Inc. (PPLUS) 7.625% A 788,112
-----------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.7%
127,800 CBS Corporation 7.250% BBB+ 3,143,880
123,200 Comcast Corporation 7.000% BBB+ 3,087,700
11,400 Walt Disney Company 7.000% A- 285,228
-----------------------------------------------------------------------------------------------------------------------------
Total Media 6,516,808
----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.7%
98,100 Dominion CNG Capital Trust I 7.800% Baa2 2,487,816
56,700 Dominion Resources Capital Trust II 8.400% Baa3 1,441,881
100,400 Energy East Capital Trust I 8.250% BBB- 2,547,148
-----------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 6,476,845
----------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.8%
532,332 Nexen Inc. 7.350% Baa3 13,324,270
108,500 TransCanada Pipeline 8.250% A3 2,766,750
-----------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 16,091,020
----------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.2%
23,000 Bristol Myers Squibb Company (CORTS) 6.250% A+ 534,520
13,800 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 343,758
-----------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 878,278
----------------------------------------------------------------------------------------------------------------
REAL ESTATE - 25.2%
50,458 AMB Property Corporation, Series M 6.750% Baa2 1,209,731
13,400 AvalonBay Communities, Inc., Series H 8.700% BBB 358,986
128,788 BRE Properties, Series B 8.080% BBB- 3,248,033
42,544 BRE Properties, Series D 6.750% BBB- 997,870
380,190 CarrAmerica Realty Corporation, Series E 7.500% BBB- 9,599,798
Developers Diversified Realty Corporation, Series
56,900 F 8.600% BBB- 1,445,260
Developers Diversified Realty Corporation, Series
47,300 G 8.000% BBB- 1,215,610
Developers Diversified Realty Corporation, Series
406,400 H 7.375% BBB- 9,916,160
29,600 Developers Diversified Realty Corporation 7.500% BBB- 740,592
156,800 Duke Realty Corporation, Series L 6.600% BBB 3,667,552
157,779 Duke-Weeks Realty Corporation, Series B 7.990% BBB 8,002,362
1,112,000 Equity Office Properties Trust, Series G 7.750% BBB- 28,411,599
25,800 Equity Residential Properties Trust, Series D 8.600% BBB 657,384
12,000 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 326,400
279,400 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 6,887,210
19,000 Firstar Realty LLC, 144A 8.875% Aa3 23,465,000
989,210 HRPT Properties Trust, Series B 8.750% BBB- 25,719,459
82,000 New Plan Excel Realty Trust, Series D 7.800% BBB- 4,064,125
14
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
419,000 New Plan Excel Realty Trust, Series E 7.625% BBB- $ 10,684,500
10,000 Prologis Trust, Series F 6.750% BBB 235,300
107,000 Prologis Trust, Series G 6.750% BBB 2,524,130
56,100 PS Business Parks, Inc., Series I 6.875% BBB- 1,301,520
240,000 PS Business Parks, Inc., Series L 7.600% BBB- 6,000,000
328,400 PS Business Parks, Inc. 7.000% BBB- 7,947,280
64,800 Public Storage, Inc., Series C 6.600% BBB+ 1,493,640
91,300 Public Storage, Inc., Series D 6.180% BBB+ 1,979,384
2,900 Public Storage, Inc., Series E 6.750% BBB+ 67,831
59,400 Public Storage, Inc., Series F 6.450% BBB+ 1,333,530
116,600 Public Storage, Inc., Series R 8.000% BBB+ 2,926,660
209,600 Public Storage, Inc., Series S 7.875% BBB+ 5,269,344
17,100 Public Storage, Inc., Series T 7.625% BBB+ 428,013
40,680 Public Storage, Inc., Series U 7.625% BBB+ 1,021,068
347,600 Public Storage, Inc., Series V 7.500% BBB+ 8,898,560
7,871 Public Storage, Inc., Series X 6.450% BBB+ 178,357
4,100 Public Storage, Inc. 7.125% BBB+ 104,140
94,000 Realty Income Corporation 7.375% BBB- 2,382,900
47,500 Regency Centers Corporation 7.450% BBB- 1,223,125
22,600 Regency Centers Corporation 7.250% BBB- 568,503
22,500 Simon Property Group, Inc., Series F 8.750% Baa2 567,675
176,600 Simon Property Group, Inc., Series G 7.890% BBB+ 9,006,600
13,900 United Dominion Realty Trust 8.600% BBB- 354,450
323,633 Vornado Realty Trust, Series G 6.625% BBB- 7,443,559
40,200 Vornado Realty Trust, Series H 6.750% BBB- 940,680
90,600 Vornado Realty Trust, Series I 6.625% BBB- 2,086,518
489,900 Wachovia Preferred Funding Corporation 7.250% A2 12,899,067
2,500 Weingarten Realty Trust, Series E 6.950% A- 62,000
-----------------------------------------------------------------------------------------------------------------------------
Total Real Estate 219,861,465
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.4%
16,100 Countrywide Capital Trust II, Series II (CORTS) 8.000% BBB+ 405,720
12,800 Countrywide Capital Trust III (PPLUS) 8.050% BBB+ 329,600
799,020 Countrywide Capital Trust IV 6.750% BBB+ 18,832,901
Countrywide Financial Corporation Capital Trust I
2,200 (CORTS) 8.000% BBB+ 55,242
58,500 Harris Preferred Capital Corporation, Series A 7.375% A1 1,453,140
-----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 21,076,603
----------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.2%
159,700 United States Cellular Corporation 8.750% A- 4,160,185
268,100 United States Cellular Corporation 7.500% A- 6,750,758
-----------------------------------------------------------------------------------------------------------------------------
Total Wireless Telecommunication Services 10,910,943
----------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES
(COST $744,743,830) 734,554,212
----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2)
--------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 1.2% (0.8% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 0.3%
$ 1,800 HBOS PLC, Series 144A 6.413% 9/29/49 A1
--------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.5%
4,900 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A-
--------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.4%
Caisse Nationale Des Caisses d'Epargne et de
4,000 Prevoyance 6.750% 1/27/49 A+
--------------------------------------------------------------------------------------------------------------------------
$ 10,700 TOTAL CORPORATE BONDS (COST $10,521,149)
--------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) VALUE
------------ --------------
CORPORATE
BONDS - 1.2%
(0.8% OF
TOTAL
INVESTMENTS)
COMMERCIAL
BANKS - 0.3%
$ 1,800 $ 1,617,347
------------
INSURANCE - 0.5%
4,900 4,794,307
------------
THRIFTS &
MORTGAGE
FINANCE - 0.4%
4,000 3,799,820
------------
$ 10,700 10,211,474
------------
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 58.1% (38.9% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 6.3%
2,500 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 $ 2,619,820
2,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 2,085,634
1,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 1,044,784
15
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS (continued)
7,900 BT Preferred Capital Trust II 7.875% 2/25/27 A2 $ 8,275,858
2,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 2,202,541
11,250 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 11,013,255
13,463 First Union Institutional Capital Securities I 8.040% 12/01/26 A1 14,084,641
5,500 UBS Preferred Funding Trust I 8.622% 10/29/49 AA- 6,021,917
7,250 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 7,663,069
--------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 55,011,519
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 31.3%
9,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 8,858,241
18,250 Abbey National Capital Trust I 8.963% 6/30/50 A 22,202,950
3,000 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 3,041,337
2,500 Bank One Capital III 8.750% 9/01/30 A1 3,093,402
1,500 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 1,573,854
7,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 7,947,511
100 Barclays Bank PLC 6.278% 12/15/55 Aa3 88,250
3,000 Centura Capital Trust I, 144A 8.845% 6/01/27 A2 3,196,623
2,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 2,090,570
1,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 1,812,683
1,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 1,043,981
1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 1,481,052
24,700 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 23,776,862
5,750 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 6,449,039
17,150 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 23,502,429
12,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A2 13,335,744
2,000 KeyCorp Capital III 7.750% 7/15/29 A3 2,213,442
2,000 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 2,089,522
8,850 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 8,674,743
7,655 Nordbanken AB, 144A 8.950% 11/29/49 A 8,322,294
1,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 A3 1,050,969
8,000 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 8,481,448
260,400 PFCI Capital Corporation 7.750% 8/17/52 A- 5,256,260
19,000 PNC Institutional Capital Securities, 144A 7.950% 12/15/26 A- 19,872,252
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 1,826,118
16,000 RBS Capital Trust B 6.800% 12/31/49 A1 15,423,200
17,500 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 18,666,515
1,400 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 1,458,862
5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 4,824,395
23,000 Summit Capital Trust I, Capital Securities 8.400% 3/15/27 Aa3 24,298,212
1,800 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 2,009,333
2,000 Union Planters Capital Trust A 8.200% 12/15/26 A2 2,092,290
4,000 Wachovia Capital Trust I, Capital Securities, 144A 7.640% 1/15/27 A1 4,176,900
Washington Mutual Preferred Funding Cayman, Series
14,100 A-1, 144A 7.250% 3/15/49 BBB 13,432,675
Washington Mutual Preferred Funding Delaware,
3,300 Series A-1, 144A 6.534% 3/15/49 BBB 3,172,643
3,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 3,151,905
--------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 273,988,506
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 4.2%
1,500 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A+ 1,671,032
4,250 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 4,251,653
3,000 Citigroup Capital X 6.100% 9/30/33 A 67,980
1,900 Fulton Capital Trust I 6.290% 2/01/36 A3 1,727,111
19,500 JPM Capital Trust II 7.950% 2/01/27 A1 20,447,486
8,100 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 8,326,460
--------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 36,491,722
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.5%
11,250 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 13,215,234
--------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.6%
4,500 Stanley Works Capital Trust I, 144A 5.902% 12/01/45 Baa1 4,201,466
--------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 9.1%
7,570 Ace Capital Trust II 9.700% 4/01/30 Baa1 9,348,859
1,000 Allstate Financing II 7.830% 12/01/45 A2 1,044,205
2,000 American General Capital II 8.500% 7/01/30 Aa3 2,490,088
16
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
--------------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
2,500 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ $ 2,391,343
4,000 MIC Financing Trust I 8.375% 2/01/27 A+ 4,034,012
6,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 5,991,900
3,000 Prudential PLC 6.500% 6/29/49 A 2,766,228
Sun Life Canada Capital Trust, Capital Securities,
26,216 144A 8.526% 5/06/47 A+ 27,755,245
22,750 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 24,054,758
--------------------------------------------------------------------------------------------------------------------------------
Total Insurance 79,876,638
----------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 3.5%
4,000 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 3,755,328
5,860 KN Capital Trust III 7.630% 4/15/28 Baa3 4,916,815
20,900 Phillips 66 Capital Trust II 8.000% 1/15/37 A3 21,902,448
--------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 30,574,591
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.6%
8,500 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 9,098,715
5,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 5,255,425
--------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 14,354,140
----------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST
$517,132,184) 507,713,816
----------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) VALUE
--------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 2.8% (1.9% OF TOTAL INVESTMENTS)
Flaherty and Crumrine/Claymore Preferred
296,759 Securities Income Fund Inc. $ 5,786,801
Flaherty and Crumrine/Claymore Total Return Fund
153,048 Inc. 2,926,278
3,764 John Hancock Preferred Income Fund 84,652
21,726 John Hancock Preferred Income Fund II 481,231
347,499 John Hancock Preferred Income Fund III 6,859,630
88,193 Preferred and Corporate Strategies Fund Inc. 1,758,568
340,599 Preferred Income Strategies Fund Inc. 6,457,757
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $24,612,052) 24,354,917
----------------------------------------------------------------------------------------------------------------
17
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.9% (1.9% OF TOTAL INVESTMENTS)
Repurchase Agreement with State Street Bank, dated
$ 25,247 6/30/06, repurchase price $25,255,786, 4.130% 7/03/06 $ 25,247,097
collateralized by $19,030,000 U.S. Treasury
Bonds, 9.875%, due 11/15/15, value $25,752,937
-----------
-----------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $25,247,097) 25,247,097
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $1,324,365,953) - 149.2% 1,304,040,496
--------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.1% 9,964,916
--------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, AT LIQUIDATION VALUE - (50.3)% (440,000,000)
--------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 874,005,412
--------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS OUTSTANDING AT JUNE 30, 2006:
FIXED RATE
PAID FIXED RATE FLOATING RATE FLOATING RATE UNREALIZED
NOTIONAL BY THE FUND PAYMENT RECEIVED PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT (ANNUALIZED) FREQUENCY BY THE FUND (4) FREQUENCY DATE (DEPRECIATION)
--------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $ 55,000,000 4.713% Monthly 5.138% Monthly 12/06/06 $ 221,086
Citigroup Inc. 110,000,000 3.860 Monthly 5.350 Monthly 8/29/07 2,071,631
Citigroup Inc. 110,000,000 4.350 Monthly 5.350 Monthly 8/29/09 3,616,503
--------------------------------------------------------------------------------------------------------------------
$ 5,909,220
--------------------------------------------------------------------------------------------------------------------
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by
Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be
below investment grade.
(3) Investment is eligible for the Dividends Received Deduction.
(4) Based on USD-LIBOR (United States Dollar - London Inter-Bank Offered Rate).
N/R Not rated.
WI/DD Purchased on a when-issued or delayed delivery basis.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CBTCS Corporate Backed Trust Certificates.
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.
18
Nuveen Quality Preferred Income Fund 2 (JPS)
Portfolio of
INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 0.4% (0.2% OF TOTAL INVESTMENTS)
INSURANCE - 0.2%
118,000 XL Capital Ltd 6.500% A2 $ 2,462,660
-----------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.2%
114,867 PMI Group Inc. 5.875% A1 2,921,068
-----------------------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED SECURITIES (COST
$5,631,713) 5,383,728
----------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 81.6% (55.9% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.1%
2,400 Daimler Chrysler, Series DCX (CORTS) 8.250% A3 $ 60,888
4,300 Daimler Chrysler, Series DCX (CORTS) 7.500% A3 105,350
3,000 Daimler Chrysler, Series DCX (CORTS) 6.875% A3 69,180
3,400 DaimlerChrysler AG (CORTS) 7.875% A3 83,946
23,300 DaimlerChrysler Corp. (PPLUS) 7.250% A3 573,413
-----------------------------------------------------------------------------------------------------------------------------
Total Automobiles 892,777
----------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 5.8%
68,324 Bear Stearns Capital Trust III 7.800% A2 1,735,430
20,500 BNY Capital Trust IV, Series E 6.875% A1 503,275
45,288 BNY Capital Trust V, Series F 5.950% A- 1,022,603
399,525 Compass Capital Trust III 7.350% A3 9,908,220
28,600 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 706,420
31,300 First Union Institutional Capital II (CORTS) 8.200% A1 837,119
8,300 Goldman Sachs Capital I (CORTS) 6.000% A1 181,355
3,700 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 80,919
3,500 Goldman Sachs Group Inc., Series 2003-11 (SATURNS) 5.625% Aa3 74,725
15,700 Goldman Sachs Group Inc., Series 2004-04 (SATURNS) 6.000% A1 343,830
4,600 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 100,602
10,300 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 225,570
6,100 Goldman Sachs Group Inc., Series GSG-2 (PPLUS) 5.750% Aa3 129,137
4,300 Goldman Sachs Group Incorporated (SATURNS) 5.750% Aa3 91,633
Lehman Brothers Holdings Capital Trust III, Series
324,900 K 6.375% A2 7,505,190
Lehman Brothers Holdings Capital Trust IV, Series
102,900 L 6.375% A2 2,392,425
60,300 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 1,326,600
122,400 Merrill Lynch Capital Trust II 8.000% A1 3,104,064
214,500 Merrill Lynch Preferred Capital Trust III 7.000% A1 5,334,615
140,700 Merrill Lynch Preferred Capital Trust IV 7.120% A1 3,532,977
235,500 Merrill Lynch Preferred Capital Trust V 7.280% A- 5,981,700
107,900 Merrill Lynch Preferred Capital Trust 7.750% A1 2,746,055
53,200 Morgan Stanley (PPLUS) 7.050% Aa3 1,322,552
168,008 Morgan Stanley Capital Trust II 7.250% A1 4,240,522
430,350 Morgan Stanley Capital Trust III 6.250% A1 9,725,910
380,900 Morgan Stanley Capital Trust IV 6.250% A1 8,596,913
51,100 Morgan Stanley Capital Trust V 5.750% A+ 1,072,589
495,300 Morgan Stanley Capital Trust VI 6.600% A- 11,807,952
518,300 Morgan Stanley, Series 2006A (WI/DD) 5.777% A2 13,103,298
-----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 97,734,200
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 11.6%
119,000 ABN AMRO Capital Fund Trust V 5.900% A 2,589,440
7,000 ABN AMRO Capital Trust Fund VII 6.080% A 158,480
158,960 ASBC Capital I 7.625% Baa1 4,034,405
136,100 BAC Capital Trust I 7.000% Aa3 3,361,670
168,500 BAC Capital Trust II 7.000% Aa3 4,210,815
168,300 BAC Capital Trust III 7.000% A 4,226,013
267,551 Banco Santander 6.410% A2 6,421,224
19
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
54,100 Banco Totta & Acores Finance, Series A 8.875% A3 $ 1,381,243
14,900 BancorpSouth Capital Trust I 8.150% Baa2 374,437
731,000 Banesto Holdings, Series A, 144A 10.500% A2 22,112,750
204,700 Bank One Capital Trust VI 7.200% A1 5,158,440
67,200 BankNorth Capital Trust II 8.000% A3 1,698,144
27,412 Barclays Bank PLC 6.625% Aa3 686,122
18,200,000 BOI Capital Funding 3, 144A 6.107% A2 16,978,944
605,000 Capital One Capital II Corporation 7.500% Baa2 15,540,938
122,800 Chittenden Capital Trust I 8.000% Baa1 3,147,364
225,500 Cobank ABC, 144A, (3) 7.000% N/R 11,478,176
268,700 Comerica Capital Trust I 7.600% A3 6,720,187
379,700 HSBC Finance Corporation 6.875% Aa3 9,469,718
46,300 KeyCorp (PCARS) 7.500% A3 1,167,918
7,867 KeyCorp Capital Trust V 5.875% A3 170,478
23,298 Keycorp Capital VIII 7.000% A3 570,801
277,700 National Commerce Capital Trust II 7.700% A1 6,998,040
5,000 National Westminster Bank PLC 7.760% Aa3 127,100
3,800 PNC Capital Trust 6.125% BBB+ 83,980
596,876 Royal Bank of Scotland Group PLC, Series N 6.350% A1 14,116,117
173,800 SunTrust Capital Trust IV 7.125% A1 4,298,074
162,700 SunTrust Capital Trust V 7.050% A1 4,017,063
330,600 USB Capital Trust IV 7.350% Aa3 8,350,956
140,200 USB Capital Trust V 7.250% Aa3 3,516,216
63,300 USB Capital Trust VI 5.750% Aa3 1,336,896
118,600 USB Capital Trust VII 5.875% Aa3 2,555,830
92,300 VNB Capital Trust I 7.750% Baa1 2,324,114
38,900 Wells Fargo Capital Trust IV 7.000% Aa2 968,610
308,100 Wells Fargo Capital Trust V 7.000% Aa2 7,650,123
41,300 Wells Fargo Capital Trust VI 6.950% A- 1,017,632
45,975 Wells Fargo Capital Trust VII 5.850% Aa2 1,011,450
55,900 Wells Fargo Capital Trust IX 5.625% Aa2 1,182,844
578,650 Zions Capital Trust B 8.000% BBB- 14,975,462
-----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 196,188,214
----------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.2%
2,600 IBM Inc., Series 2001-1 (SATURNS) 7.125% A+ 64,454
11,700 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 290,102
20,200 IBM Trust II (CORTS) 7.125% A+ 500,354
45,500 IBM Trust III (CORTS) 7.200% A+ 1,136,590
-----------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 1,991,500
----------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 1.0%
73,600 Household Capital Trust VII 7.500% A1 1,856,928
584,000 HSBC Finance Corporation 6.360% A 14,337,200
24,350 SLM Corporation 6.000% A 527,908
-----------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 16,722,036
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 8.8%
78,800 BBVA Preferred Capital Ltd., Series B 7.750% A1 1,972,364
279,100 CIT Group Inc., Series A, (3) 6.350% BBB+ 6,840,741
40,200 CIT Group Incorporated (CORTS) 7.750% A3 1,065,702
5,960 Citigroup Capital Trust IX 6.000% Aa2 133,146
587,400 Citigroup Capital Trust VII 7.125% Aa2 14,720,244
779,495 Citigroup Capital Trust VIII 6.950% Aa2 19,222,347
28,500 Citigroup Capital Trust XI 6.000% Aa2 634,125
10,700 Citigroup, Series CIT (CORTS) 6.750% A3 261,829
3,900 General Electric Capital Corporation (CORTS) 6.000% AAA 89,895
199,700 General Electric Capital Corporation 6.625% AAA 4,924,602
1,523,600 ING Group N.V. 7.200% A 38,867,036
1,445,555 ING Group N.V. 7.050% A 36,471,353
8,900 ING Group N.V. 6.200% A 204,433
5,000 JP Morgan Chase Capital Trust XII 6.250% A1 114,750
92,500 JPM Capital Trust (CORTS) 7.200% A1 2,343,950
10,600 JPMorgan Chase & Company (PCARS) 7.125% A2 261,290
323,000 JPMorgan Chase Capital Trust IX, Series I 7.500% A1 8,171,900
198,600 JPMorgan Chase Capital Trust X 7.000% A1 4,935,210
22,156 JPMorgan Chase Capital Trust XI 5.875% A1 478,791
20
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
210,900 JPMorgan Chase Capital Trust XVI 6.350% A- $ 4,890,771
JPMorgan Chase Trust, Series 2002-6, Class A
52,900 (SATURNS) 7.125% A1 1,353,182
-----------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 147,957,661
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.6%
116,999 AT&T Inc. 7.000% A 2,871,155
17,500 BellSouth Capital Funding (CORTS) 7.100% A 437,500
21,600 BellSouth Corporation (CORTS) 7.000% Aa3 526,392
16,300 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 391,200
16,200 BellSouth Corporation, Series BLS (CORTS) 7.000% A 388,800
42,600 BellSouth Corporation 7.125% A 1,020,696
17,500 BellSouth Inc. (CORTS) 7.000% A 434,000
29,200 BellSouth Telecommunications (PPLUS) 7.300% A 715,692
Deutsche Telekom International Finance B.V.,
1,400 Series 2001-24, Class A-1 (CORTS) 7.875% A- 35,392
30,600 Verizon Communications (CORTS) 7.625% A 777,546
7,600 Verizon Communications (CORTS) 7.375% A 192,052
70,100 Verizon Global Funding Corporation (SATURNS) 7.500% A 1,770,025
22,100 Verizon New England Inc., Series B 7.000% A3 547,196
13,000 Verizon South Inc., Series F 7.000% A 316,810
-----------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 10,424,456
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 4.6%
162,600 Alabama Power Company, (3) 5.830% BBB+ 3,691,020
17,200 Consolidated Edison Company of New York Inc. 7.500% A1 430,172
2,800 Consolidated Edison, Inc. 7.250% A- 70,252
27,400 DTE Energy Trust I 7.800% BB+ 694,316
4,200 Entergy Arkansas Inc. 6.700% AAA 104,244
57,650 Entergy Louisiana LLC 7.600% A- 1,441,250
1,299,100 Entergy Mississippi Inc. 7.250% A- 32,672,365
1,700 Georgia Power Capital Trust VII 5.875% A3 37,536
12,700 Georgia Power Capital Trust V 7.125% BBB+ 318,135
59,500 Georgia Power Company 5.900% A 1,347,080
941,500 Interstate Power and Light Company, Series B, (3) 8.375% Baa2 28,951,125
National Rural Utilities Cooperative Finance
30,200 Corporation 7.400% A3 762,852
National Rural Utilities Cooperative Finance
7,700 Corporation 6.100% A3 172,480
National Rural Utilities Cooperative Finance
19,600 Corporation 5.950% A3 427,672
2,600 Southern Company Capital Trust I (CORTS) 8.190% BBB+ 70,161
3,900 Southern Company Capital Trust I (CORTS) 7.375% BBB+ 100,191
265,500 Virginia Power Capital Trust 7.375% BB+ 6,664,050
-----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 77,954,901
----------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.7%
122,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 11,795,875
-----------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.7%
462,400 Pulte Homes Inc. 7.375% BBB 11,574,473
-----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.0%
9,200 General Electric Company, Series GE (CORTS) 6.800% AAA 232,760
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 18.6%
1,214,900 Ace Ltd., Series C 7.800% Baa2 31,405,165
94,000 Aegon N.V. 6.500% A- 2,239,080
2,129,500 Aegon N.V. 6.375% A- 49,915,479
20,200 AMBAC Financial Group Inc. 7.000% AA 503,586
63,400 AMBAC Financial Group Inc. 5.950% AA 1,379,584
9,100 AMBAC Financial Group Inc. 5.875% AA 197,652
8,400 Arch Capital Group Limited, Series B 7.875% Baa3 207,480
980,283 Arch Capital Group Limited 8.000% Baa3 24,938,400
479,357 Delphi Financial Group, Inc. 8.000% BBB 12,309,888
1,702,521 EverestRe Group Limited 7.850% Baa1 43,158,907
61,400 Financial Security Assurance Holdings 6.875% AA 1,501,844
710,100 Financial Security Assurance Holdings 6.250% AA 16,112,169
369,700 Hartford Capital Trust III, Series C 7.450% BBB+ 9,216,621
105,300 Hartford Life Capital Trust II, Series B 7.625% BBB+ 2,675,673
96,900 Lincoln National Capital Trust V, Series E 7.650% A- 2,427,345
55,300 Lincoln National Capital Trust VI 6.750% A- 1,348,214
118,600 MetLife Inc., Series B, (3) 6.500% BBB 2,921,118
21
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
646,320 PartnerRe Limited, Series C 6.750% BBB+ $ 15,459,974
27,400 PartnerRe Limited, Series D 6.500% BBB+ 626,090
301,581 PartnerRe Limited 7.900% A3 7,584,762
108,700 PLC Capital Trust III 7.500% BBB+ 2,726,196
453,940 PLC Capital Trust IV 7.250% BBB+ 11,176,003
22,200 PLC Capital Trust V 6.125% BBB+ 499,500
6,500 Prudential Financial Inc. (CORTS) 6.000% A 144,755
223,000 Prudential PLC 6.750% A 5,456,810
145,800 RenaissanceRe Holdings Limited, Series B 7.300% BBB 3,572,100
20,200 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 441,572
324,060 RenaissanceRe Holdings Ltd., Series A 8.100% BBB+ 8,140,387
22,400 Safeco Capital Trust I (CORTS) 8.750% Baa2 659,008
6,300 Safeco Capital Trust III (CORTS) 8.072% Baa2 164,588
2,300 Safeco Capital Trust IV (CORTS) 8.375% Baa2 60,720
2,600 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 65,962
8,500 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 215,348
144,100 Saint Paul Capital Trust I 7.600% Baa1 3,651,494
130,400 Torchmark Capital Trust I 7.750% A- 3,310,856
8,300 Torchmark Capital Trust II 7.750% A- 210,820
22,500 W.R. Berkley (CORTS) 8.250% BBB- 567,225
26,800 W.R. Berkley Capital Trust, Series 2002-1 (CBTCS) 8.125% BBB- 270,412
711,146 W.R. Berkley Corporation 6.750% BBB- 16,690,597
572,200 XL Capital Ltd, Series A 8.000% Baa1 14,505,270
600,417 XL Capital Ltd, Series B 7.625% Baa1 15,190,550
-----------------------------------------------------------------------------------------------------------------------------
Total Insurance 313,849,204
----------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.0%
16,100 Vertex Industries Inc. (PPLUS) 7.625% A 406,686
-----------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.3%
166,800 CBS Corporation 7.250% BBB+ 4,103,280
6,500 Comcast Corporation 7.000% BBB+ 162,906
3,900 Walt Disney Company (CORTS) 6.875% A- 97,734
18,200 Walt Disney Company 7.000% A- 455,364
-----------------------------------------------------------------------------------------------------------------------------
Total Media 4,819,284
----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.4%
119,400 Dominion CNG Capital Trust I 7.800% Baa2 3,027,984
46,300 Dominion Resources Capital Trust II 8.400% Baa3 1,177,409
120,200 Energy East Capital Trust I 8.250% BBB- 3,049,474
-----------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 7,254,867
----------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.6%
906,911 Nexen Inc. 7.350% Baa3 22,699,982
147,400 TransCanada Pipeline 8.250% A3 3,758,700
-----------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 26,458,682
----------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.0%
10,800 Bristol Myers Squibb Company (CORTS) 6.250% A+ 250,992
8,300 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 206,753
-----------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 457,745
----------------------------------------------------------------------------------------------------------------
REAL ESTATE - 23.5%
95,400 AvalonBay Communities, Inc., Series H 8.700% BBB 2,555,766
16,400 BRE Properties, Series B 8.080% BBB- 413,608
155,943 BRE Properties, Series C 6.750% BBB- 3,641,269
81,006 BRE Properties, Series D 6.750% BBB- 1,899,996
717,370 CarrAmerica Realty Corporation, Series E 7.500% BBB- 18,113,593
Developers Diversified Realty Corporation, Series
135,925 F 8.600% BBB- 3,452,495
Developers Diversified Realty Corporation, Series
639,813 G 8.000% BBB- 16,443,194
Developers Diversified Realty Corporation, Series
187,823 H 7.375% BBB- 4,582,881
40,467 Developers Diversified Realty Corporation 7.500% BBB- 1,012,484
298,900 Duke Realty Corporation, Series L 6.600% BBB 6,991,271
220,650 Duke-Weeks Realty Corporation, Series B 7.990% BBB 11,191,103
150,000 Duke-Weeks Realty Corporation 6.950% BBB 3,682,500
5,600 Duke-Weeks Realty Corporation 6.625% BBB 129,584
536,000 Equity Office Properties Trust, Series G 7.750% BBB- 13,694,800
22
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
54,000 Equity Residential Properties Trust, Series C 9.125% BBB $ 1,355,400
68,250 Equity Residential Properties Trust, Series D 8.600% BBB 1,739,010
36,484 Equity Residential Properties Trust, Series N 6.480% BBB 833,295
332,800 Federal Realty Investment Trust 8.500% BBB- 8,476,416
446,000 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 12,131,200
279,700 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 6,894,605
1,805,025 HRPT Properties Trust, Series B 8.750% BBB- 46,930,649
71,980 HRPT Properties Trust, Series C 7.125% BBB- 1,767,109
119,680 Kimco Realty Corporation, Series F 6.650% BBB+ 2,862,746
199,550 New Plan Excel Realty Trust, Series D 7.800% BBB- 9,890,197
771,600 New Plan Excel Realty Trust, Series E 7.625% BBB- 19,675,800
1,700 Prologis Trust, Series F 6.750% BBB 40,001
97,728 Prologis Trust, Series G 6.750% BBB 2,305,404
108,300 PS Business Parks, Inc., Series I 6.875% BBB- 2,512,560
110,700 PS Business Parks, Inc., Series K 7.950% BBB- 2,856,060
401,000 PS Business Parks, Inc., Series L 7.600% BBB- 10,025,000
735,970 PS Business Parks, Inc. 7.000% BBB- 17,810,474
390,700 Public Storage Inc., Series I 7.250% BBB+ 9,689,360
234,300 Public Storage, Inc., Series C 6.600% BBB+ 5,400,615
36,000 Public Storage, Inc., Series D 6.180% BBB+ 780,480
38,600 Public Storage, Inc., Series E 6.750% BBB+ 902,854
72,566 Public Storage, Inc., Series F 6.450% BBB+ 1,629,107
128,300 Public Storage, Inc., Series H 6.950% BBB+ 3,111,275
268,295 Public Storage, Inc., Series R 8.000% BBB+ 6,734,205
69,600 Public Storage, Inc., Series S 7.875% BBB+ 1,749,744
137,065 Public Storage, Inc., Series T 7.625% BBB+ 3,430,737
114,900 Public Storage, Inc., Series U 7.625% BBB+ 2,883,990
148,000 Public Storage, Inc., Series V 7.500% BBB+ 3,788,800
2,129 Public Storage, Inc., Series X 6.450% BBB+ 48,243
7,500 Public Storage, Inc. 7.125% BBB+ 190,500
165,900 Realty Income Corporation 7.375% BBB- 4,205,565
309,100 Regency Centers Corporation 7.450% BBB- 7,959,325
245,800 Regency Centers Corporation 7.250% BBB- 6,183,099
17,200 Regency Centers Corporation 6.700% BBB- 402,824
34,500 Simon Property Group, Inc., Series F 8.750% Baa2 870,435
326,041 Simon Property Group, Inc., Series G 7.890% BBB+ 16,628,091
82,000 United Dominion Realty Trust 8.600% BBB- 2,091,000
22,300 Vornado Realty Trust, Series F 6.750% BBB- 527,395
213,940 Vornado Realty Trust, Series G 6.625% BBB- 4,920,620
113,500 Vornado Realty Trust, Series H 6.750% BBB- 2,655,900
220,250 Vornado Realty Trust, Series I 6.625% BBB- 5,072,358
2,461,900 Wachovia Preferred Funding Corporation 7.250% A2 64,821,823
158,600 Weingarten Realty Trust, Series E 6.950% A- 3,933,280
-----------------------------------------------------------------------------------------------------------------------------
Total Real Estate 396,522,095
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.5%
10,900 Countrywide Capital Trust II, Series II (CORTS) 8.000% BBB+ 274,680
1,050,000 Countrywide Capital Trust IV 6.750% BBB+ 24,748,500
16,800 Harris Preferred Capital Corporation, Series A 7.375% A1 417,312
-----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 25,440,492
----------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.6%
1,043,372 United States Cellular Corporation 8.750% A- 27,179,841
-----------------------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES
(COST $1,386,536,164) 1,375,857,749
----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2)
--------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 0.9% (0.6% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 0.3%
$ 6,500 HBOS PLC, Series 144A 6.413% 9/29/49 A1
--------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.5%
8,600 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A-
--------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) VALUE
------------ --------------
CORPORATE
BONDS - 0.9%
(0.6% OF
TOTAL
INVESTMENTS)
COMMERCIAL
BANKS - 0.3%
$ 6,500 $ 5,840,419
------------
INSURANCE - 0.5%
8,600 8,414,498
------------
23
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2)
--------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.1%
Caisse Nationale Des Caisses d'Epargne et de
$ 1,000 Prevoyance 6.750% 1/27/49 A+
--------------------------------------------------------------------------------------------------------------------------
$ 16,100 TOTAL CORPORATE BONDS (COST $15,534,686)
--------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) VALUE
------------ --------------
THRIFTS &
MORTGAGE
FINANCE - 0.1%
$ 1,000 $ 949,955
------------
$ 16,100 15,204,872
------------
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 58.6% (40.0% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 7.1%
15,000 Ahmanson Capital Trust I, 144A 8.360% 12/01/26 Baa1 $ 15,692,070
1,465 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 1,535,215
4,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 4,171,268
2,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 2,089,568
500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 523,789
5,000 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 4,894,535
18,600 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 18,208,582
5,050 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A- 5,341,531
1,000 First Security Capital I 8.410% 12/15/26 Aa2 1,050,431
17,095 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 19,813,173
20,000 Mellon Capital Trust I, Series A 7.720% 12/01/26 A2 20,891,240
3,240 State Street Institutional Capital Trust, 144A 7.940% 12/30/26 A1 3,392,604
19,800 UBS Preferred Funding Trust I 8.622% 10/29/49 AA- 21,678,901
--------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 119,282,907
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 32.0%
19,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 18,700,731
37,250 Abbey National Capital Trust I 8.963% 6/30/50 A 45,318,349
7,100 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 7,197,831
6,500 Bank One Capital III 8.750% 9/01/30 A1 8,042,846
21,000 BankBoston Capital Trust I, Series B 8.250% 12/15/26 Aa3 22,049,244
5,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 5,246,180
36,000 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 39,737,556
200 Barclays Bank PLC 6.278% 12/15/55 Aa3 176,500
2,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 2,090,570
3,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 3,945,251
1,500 First Empire Capital Trust I 8.234% 2/01/27 Baa1 1,575,374
1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 1,481,052
22,080 Fleet Capital Trust II 7.920% 12/11/26 Aa3 23,107,338
39,510 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 38,033,353
2,400 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 2,691,773
6,250 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 8,565,025
32,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A2 35,561,984
8,000 KeyCorp Capital III 7.750% 7/15/29 A3 8,853,768
2,500 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 2,611,903
13,500 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 13,232,660
25,000 M&I Capital Trust A 7.650% 12/01/26 A2 26,049,650
19,500 NB Capital Trust II 7.830% 12/15/26 Aa3 20,403,689
14,000 Nordbanken AB, 144A 8.950% 11/29/49 A 15,220,394
2,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 A3 2,101,938
8,000 North Fork Capital Trust II 8.000% 12/15/27 A3 8,480,064
2,000 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 2,120,362
289,600 PFCI Capital Corporation 7.750% 8/17/52 A- 7,611,064
33,085 PNC Institutional Capital Securities, 144A 7.950% 12/15/26 A- 34,603,866
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 1,826,118
12,100 RBS Capital Trust B 6.800% 12/31/49 A1 11,663,795
8,000 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 8,533,264
500 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 521,022
17,500 Royal Bank of Scotland Group PLC 9.118% 3/31/49 A1 19,233,725
5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 4,824,395
9,000 St. George Funding Company LLC, 144A 8.485% 12/31/47 A3 9,562,437
3,400 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 3,795,406
7,500 Union Planters Capital Trust A 8.200% 12/15/26 A2 7,846,088
240 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 25,372,500
Washington Mutual Preferred Funding Cayman, Series
26,500 A-1, 144A 7.250% 3/15/49 BBB 25,245,808
24
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
--------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
Washington Mutual Preferred Funding Delaware,
6,300 Series A-1, 144A 6.534% 3/15/49 BBB $ 6,056,864
10,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 10,506,350
--------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 539,798,087
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 2.7%
1,000 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A+ 1,114,021
2,750 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 2,751,070
21,200 Citigroup Capital X 6.100% 9/30/33 A 480,392
3,700 Fulton Capital Trust I 6.290% 2/01/36 A3 3,363,322
22,085 JPM Capital Trust II 7.950% 2/01/27 A1 23,158,088
13,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 14,185,820
--------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 45,052,713
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.1%
30,250 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 35,534,297
--------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.6%
8,600 Stanley Works Capital Trust I, 144A 5.902% 12/01/45 Baa1 8,029,467
--------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 10.5%
14,280 Ace Capital Trust II 9.700% 4/01/30 Baa1 17,635,629
28,000 American General Institutional Capital, 144A 8.125% 3/15/46 Aa3 33,094,096
2,000 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 1,913,074
6,000 MIC Financing Trust I 8.375% 2/01/27 A+ 6,051,018
12,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 11,983,800
10,250 Prudential PLC 6.500% 6/29/49 A 9,451,279
Sun Life Canada Capital Trust, Capital Securities,
51,700 144A 8.526% 5/06/47 A+ 54,735,513
40,500 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 42,822,756
--------------------------------------------------------------------------------------------------------------------------------
Total Insurance 177,687,165
----------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.2%
3,680 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 3,454,902
10,750 KN Capital Trust III 7.630% 4/15/28 Baa3 9,019,755
7,355 Phillips 66 Capital Trust II 8.000% 1/15/37 A3 7,707,775
--------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 20,182,432
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.4%
5,595 Countrywide Capital Trust I 8.000% 12/15/26 BBB+ 5,636,358
8,460 Countrywide Capital Trust III, Series B 8.050% 6/15/27 BBB+ 9,112,046
11,825 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 12,657,918
13,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 13,664,105
--------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 41,070,427
----------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST
$999,449,191) 986,637,495
----------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) VALUE
--------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 2.4% (1.6% OF TOTAL INVESTMENTS)
Flaherty and Crumrine/Claymore Preferred
486,173 Securities Income Fund Inc. $ 9,480,374
Flaherty and Crumrine/Claymore Total Return Fund
257,293 Inc. 4,919,442
8,222 John Hancock Preferred Income Fund 184,913
40,989 John Hancock Preferred Income Fund II 907,906
583,827 John Hancock Preferred Income Fund III 11,524,745
139,021 Preferred and Corporate Strategies Fund Inc. 2,772,079
563,812 Preferred Income Strategies Fund Inc. 10,689,876
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $40,967,715) 40,479,335
----------------------------------------------------------------------------------------------------------------
25
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.5% (1.7% OF TOTAL INVESTMENTS)
Repurchase Agreement with State Street Bank, dated
$ 42,417 6/30/06, repurchase price $42,431,269, 4.130% 7/03/06 $ 42,416,671
collateralized by $46,030,000 U.S. Treasury
Notes, 4.000%, due 2/15/14, value $43,268,200
-----------
--------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $42,416,671) 42,416,671
----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $2,490,536,140) - 146.4% 2,465,979,850
----------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.1% 18,519,752
----------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, AT LIQUIDATION VALUE - (47.5)% (800,000,000)
----------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $1,684,499,602
----------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS OUTSTANDING AT JUNE 30, 2006:
FIXED RATE
PAID FIXED RATE FLOATING RATE FLOATING RATE UNREALIZED
NOTIONAL BY THE FUND PAYMENT RECEIVED PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT (ANNUALIZED) FREQUENCY BY THE FUND (4) FREQUENCY DATE (DEPRECIATION)
------------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $100,000,000 4.713% Monthly 5.138% Monthly 12/06/06 $ 401,974
Citigroup Inc. 200,000,000 3.375 Monthly 5.138 Monthly 11/06/07 5,740,380
Citigroup Inc. 200,000,000 3.910 Monthly 5.138 Monthly 11/06/09 9,901,744
------------------------------------------------------------------------------------------------------------------------
$ 16,044,098
------------------------------------------------------------------------------------------------------------------------
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by
Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be
below investment grade.
(3) Investment is eligible for the Dividends Received Deduction.
(4) Based on USD-LIBOR (United States Dollar - London Inter-Bank Offered Rate).
N/R Not rated.
WI/DD Purchased on a when-issued or delayed delivery basis.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CBTCS Corporate Backed Trust Certificates.
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.
26
Nuveen Quality Preferred Income Fund 3 (JHP)
Portfolio of
INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 0.1% (0.1% OF TOTAL INVESTMENTS)
THRIFTS & MORTGAGE FINANCE - 0.1%
13,400 PMI Group Inc. 5.875% A1 $ 340,762
-----------------------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED SECURITIES (COST
$326,331) 340,762
----------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 91.8% (62.5% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.1%
8,000 DaimlerChrysler AG (CORTS) 7.875% A3 $ 197,520
-----------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 8.5%
21,206 Bear Stearns Capital Trust III 7.800% A2 538,632
59,900 Compass Capital Trust III 7.350% A3 1,485,520
39,900 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 985,530
11,300 First Union Institutional Capital II (CORTS) 8.200% A1 302,219
5,500 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 120,450
5,300 Goldman Sachs Group Incorporated (SATURNS) 5.750% Aa3 112,943
Lehman Brothers Holdings Capital Trust III, Series
356,800 K 6.375% A2 8,242,080
800 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 17,600
22,000 Merrill Lynch Capital Trust II 8.000% A1 557,920
70,800 Merrill Lynch Preferred Capital Trust III 7.000% A1 1,760,796
20,400 Merrill Lynch Preferred Capital Trust IV 7.120% A1 512,244
84,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 2,143,760
38,500 Merrill Lynch Preferred Capital Trust 7.750% A1 979,825
41,900 Morgan Stanley (PPLUS) 7.050% Aa3 1,041,634
80,000 Morgan Stanley Capital Trust II 7.250% A1 2,019,200
197,741 Morgan Stanley Capital Trust III 6.250% A1 4,468,947
10,100 Morgan Stanley Capital Trust V 5.750% A+ 211,999
75,700 Morgan Stanley Capital Trust VI 6.600% A1 1,804,688
-----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 27,305,987
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 17.7%
23,900 Abbey National PLC, Series B 7.375% A 625,224
61,800 Abbey National PLC, Series B 7.250% A1 1,552,416
108,898 ABN AMRO Capital Trust Fund VII 6.080% A 2,465,451
38,200 ASBC Capital I 7.625% Baa1 969,516
66,694 BAC Capital Trust I 7.000% Aa3 1,647,342
41,300 BAC Capital Trust II 7.000% Aa3 1,032,087
96,300 BAC Capital Trust III 7.000% Aa3 2,418,093
6,000 BAC Capital Trust IV 5.875% Aa3 130,740
65,600 BAC Capital Trust V 6.000% Aa3 1,458,288
8,900 BAC Capital Trust VIII 6.000% Aa3 196,957
30,618 Banco Santander 6.410% A2 734,832
59,300 Banco Totta & Acores Finance, Series A 8.875% A3 1,514,006
2,800 BancorpSouth Capital Trust I 8.150% Baa2 70,364
244,100 Banesto Holdings, Series A, 144A 10.500% A2 7,384,025
33,200 Bank One Capital Trust VI 7.200% A1 836,640
6,100 BankNorth Capital Trust II 8.000% A3 154,147
3,700,000 BOI Capital Funding 3, 144A 6.107% A2 3,451,763
26,800 Capital One Capital II Corporation 7.500% Baa2 688,425
24,800 Chittenden Capital Trust I 8.000% Baa1 635,624
44,500 Cobank ABC, 144A, (3) 7.000% N/R 2,265,095
57,500 Comerica Capital Trust I 7.600% A3 1,438,075
164,700 Fleet Capital Trust VII 1.800% Aa3 4,109,265
35,316 Fleet Capital Trust VIII 7.200% Aa3 892,082
141,700 HSBC Finance Corporation 6.875% Aa3 3,533,998
8,700 KeyCorp (PCARS) 7.500% A3 219,458
5,733 KeyCorp Capital Trust V 5.875% A3 124,234
27
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
25,900 National Commerce Capital Trust II 7.700% A1 $ 652,680
16,500 National Westminster Bank PLC, Series B 7.875% Aa3 417,450
12,200 PNC Capital Trust 6.125% A3 269,620
40,000 Royal Bank of Scotland Group PLC, Series M 6.400% A1 961,600
104,465 Royal Bank of Scotland Group PLC, Series N 6.350% A1 2,470,597
18,000 SunTrust Capital Trust IV 7.125% A1 445,140
27,000 SunTrust Capital Trust V 7.050% A1 666,630
103,500 USB Capital Trust IV 7.350% Aa3 2,614,410
70,400 USB Capital Trust V 7.250% Aa3 1,765,632
16,100 USB Capital Trust VII 5.875% Aa3 346,955
19,000 VNB Capital Trust I 7.750% Baa1 478,420
51,000 Wells Fargo Capital Trust V 7.000% Aa2 1,266,330
6,800 Wells Fargo Capital Trust VI 6.950% Aa2 167,552
65,925 Wells Fargo Capital Trust VII 5.850% Aa2 1,450,350
16,000 Wells Fargo Capital Trust IX 5.625% Aa2 338,560
80,800 Zions Capital Trust B 8.000% Baa1 2,091,104
-----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 56,951,177
----------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
2,700 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 66,947
-----------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 1.4%
101,800 Household Capital Trust VII 7.500% A1 2,568,414
77,100 HSBC Finance Corporation 6.360% A 1,892,805
-----------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 4,461,219
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 8.1%
10,000 BBVA Preferred Capital Ltd., Series B 7.750% A1 250,300
26,700 CIT Group Inc., Series A, (3) 6.350% BBB+ 654,417
45,500 CIT Group Incorporated (CORTS) 7.750% A3 1,206,205
51,100 Citigroup Capital Trust VII 7.125% Aa2 1,280,566
14,202 Citigroup Capital Trust VIII 6.950% Aa2 350,221
2,880 Citigroup Capital Trust IX 6.000% Aa2 64,339
17,800 Citigroup Capital Trust XI 6.000% Aa2 396,050
50,901 Citigroup Inc., Series M, (3) 5.864% Aa3 2,509,928
3,500 General Electric Capital Corporation (CORTS) 6.000% AAA 80,675
1,100 General Electric Capital Corporation 6.625% AAA 27,126
504,300 ING Group N.V. 7.200% A 12,864,693
142,900 ING Group N.V. 7.050% A 3,605,367
42,600 JPMorgan Chase Capital Trust X 7.000% A1 1,058,610
43,800 JPMorgan Chase Capital Trust XVI 6.350% A1 1,015,722
JPMorgan Chase Trust, Series 2002-6, Class A
25,800 (SATURNS) 7.125% A1 659,964
Royal Bank of Scotland Public Limited Company,
6,300 Series 2006Q 6.750% A1 159,264
-----------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 26,183,447
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8%
32,500 AT&T Inc. 7.000% A 797,550
1,900 BellSouth Capital Funding (CORTS) 7.100% A 47,500
4,200 BellSouth Corporation (CORTS) 7.000% Aa3 102,354
6,900 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 165,600
8,000 BellSouth Corporation, Series BLS (CORTS) 7.000% A 192,000
15,700 BellSouth Inc. (CORTS) 7.000% A 389,360
7,600 BellSouth Telecommunications (PPLUS) 7.300% A 186,276
25,600 Verizon Communications (CORTS) 7.625% A 650,496
-----------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 2,531,136
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 2.4%
54,500 Entergy Louisiana LLC 7.600% A- 1,362,500
203,447 Entergy Mississippi Inc. 7.250% A- 5,116,692
National Rural Utilities Cooperative Finance
5,300 Corporation 7.400% A3 133,878
National Rural Utilities Cooperative Finance
2,300 Corporation 6.100% A3 51,520
National Rural Utilities Cooperative Finance
33,018 Corporation 5.950% A3 720,453
8,900 Virginia Power Capital Trust 7.375% Baa2 223,390
-----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 7,608,433
----------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.7%
23,500 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 2,272,156
-----------------------------------------------------------------------------------------------------------------------------
28
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.0%
1,400 General Electric Company, Series GE (CORTS) 6.800% AAA $ 35,420
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 21.6%
194,400 Ace Ltd., Series C 7.800% Baa2 5,025,240
26,400 Aegon N.V. 6.500% A- 628,848
406,738 Aegon N.V. 6.375% A- 9,533,939
2,600 Allstate Corporation (PCARS) 7.150% A2 65,624
32,400 AMBAC Financial Group Inc. 5.950% AA 705,024
95,400 AMBAC Financial Group Inc. 5.875% AA 2,072,088
195,649 Arch Capital Group Limited 8.000% Baa3 4,977,311
138,600 Delphi Financial Group, Inc. 8.000% BBB 3,559,248
45,067 EverestRe Capital Trust II 6.200% Baa1 961,279
293,816 EverestRe Group Limited 7.850% Baa1 7,448,236
151,100 Financial Security Assurance Holdings 6.250% AA 3,428,459
246,000 Hartford Capital Trust III, Series C 7.450% BBB+ 6,132,780
107,300 Lincoln National Capital Trust V, Series E 7.650% A- 2,687,865
20,900 MetLife Inc., Series B, (3) 6.500% Baa1 514,767
144,900 PartnerRe Limited, Series C 6.750% BBB+ 3,466,008
3,000 PartnerRe Limited, Series D 6.500% BBB+ 68,550
65,000 PartnerRe Limited 7.900% A3 1,634,750
57,100 PLC Capital Trust III 7.500% BBB+ 1,432,068
15,600 PLC Capital Trust IV 7.250% BBB+ 384,072
4,500 PLC Capital Trust V 6.125% BBB+ 101,250
52,544 Prudential PLC 6.750% A 1,285,752
41,500 RenaissanceRe Holdings Limited, Series A 8.100% BBB+ 1,042,480
60,401 RenaissanceRe Holdings Limited, Series B 7.300% BBB 1,479,825
32,800 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 832,136
28,900 Saint Paul Capital Trust I 7.600% Baa1 732,326
32,600 W.R. Berkley Capital Trust, Series 2002-1 (CBTCS) 8.125% BBB- 328,934
7,000 W.R. Berkley Corporation 6.750% BBB- 164,290
65,100 XL Capital Ltd, Series A 8.000% Baa1 1,650,285
294,200 XL Capital Ltd, Series B 7.625% Baa1 7,443,260
-----------------------------------------------------------------------------------------------------------------------------
Total Insurance 69,786,694
----------------------------------------------------------------------------------------------------------------
MEDIA - 2.3%
1,700 CBS Corporation 7.250% BBB+ 41,820
294,700 Comcast Corporation 7.000% BBB+ 7,385,919
1,900 Walt Disney Company 7.000% A- 47,538
-----------------------------------------------------------------------------------------------------------------------------
Total Media 7,475,277
----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.2%
17,900 Dominion CNG Capital Trust I 7.800% Baa2 453,944
24,500 Energy East Capital Trust I 8.250% BBB- 621,565
-----------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 1,075,509
----------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.8%
194,200 Nexen Inc. 7.350% Baa3 4,860,826
34,700 TransCanada Pipeline 8.250% A3 884,850
-----------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 5,745,676
----------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
10,400 Bristol Myers Squibb Company (CORTS) 6.250% A+ 241,696
4,300 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 107,113
-----------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 348,809
----------------------------------------------------------------------------------------------------------------
REAL ESTATE - 22.8%
10,700 AvalonBay Communities, Inc., Series H 8.700% BBB 286,653
43,037 BRE Properties, Series C 6.750% BBB- 1,004,914
8,029 BRE Properties, Series D 6.750% BBB- 188,320
140,517 CarrAmerica Realty Corporation, Series E 7.500% BBB- 3,548,054
Developers Diversified Realty Corporation, Series
26,700 F 8.600% BBB- 678,180
Developers Diversified Realty Corporation, Series
171,200 G 8.000% BBB- 4,399,840
Developers Diversified Realty Corporation, Series
32,000 H 7.375% BBB- 780,800
112,900 Duke Realty Corporation, Series L 6.600% BBB 2,640,731
149,000 Duke-Weeks Realty Corporation 6.950% BBB 3,657,950
61,444 Equity Office Properties Trust, Series G 7.750% BBB- 1,569,894
18,500 Equity Residential Properties Trust, Series C 9.125% BBB 464,350
20,800 Equity Residential Properties Trust, Series D 8.600% BBB 529,984
29
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
56,200 Federal Realty Investment Trust 8.500% BBB- $ 1,431,414
223,471 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 6,078,411
145,900 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 3,596,435
247,207 HRPT Properties Trust, Series B 8.750% BBB- 6,427,382
129,611 HRPT Properties Trust, Series C 7.125% BBB- 3,181,950
21,000 New Plan Excel Realty Trust, Series D 7.800% BBB- 1,040,813
36,300 New Plan Excel Realty Trust, Series E 7.625% BBB- 925,650
20,000 Prologis Trust, Series G 6.750% BBB 471,800
8,300 PS Business Parks, Inc., Series F 8.750% BBB- 210,405
120,000 PS Business Parks, Inc., Series L 7.600% BBB- 3,000,000
136,000 PS Business Parks, Inc. 7.000% BBB- 3,291,200
16,100 Public Storage, Inc., Series F 6.450% BBB+ 361,445
2,100 Public Storage, Inc., Series H 6.950% BBB+ 50,925
167,633 Public Storage, Inc., Series R 8.000% BBB+ 4,207,588
26,900 Public Storage, Inc., Series S 7.875% BBB+ 676,266
31,100 Public Storage, Inc., Series T 7.625% BBB+ 778,433
15,200 Public Storage, Inc., Series U 7.625% BBB+ 381,520
17,000 Public Storage, Inc., Series V 7.500% BBB+ 435,200
3,700 Public Storage, Inc., Series X 6.450% BBB+ 83,842
3,000 Public Storage, Inc. 7.125% BBB+ 76,200
5,900 Realty Income Corporation 7.375% BBB- 149,565
12,600 Regency Centers Corporation 7.450% BBB- 324,450
84,500 Regency Centers Corporation 7.250% BBB- 2,125,598
19,600 Regency Centers Corporation 6.700% BBB- 459,032
7,500 Simon Property Group, Inc., Series F 8.750% Baa2 189,225
68,600 Simon Property Group, Inc., Series G 7.890% BBB 3,498,600
41,000 United Dominion Realty Trust 8.600% BBB- 1,045,500
61,800 Vornado Realty Trust, Series G 6.625% BBB- 1,421,400
7,500 Vornado Realty Trust, Series I 6.625% BBB- 172,725
252,700 Wachovia Preferred Funding Corporation 7.250% A2 6,653,591
39,900 Weingarten Realty Trust, Series E 6.950% A- 989,520
-----------------------------------------------------------------------------------------------------------------------------
Total Real Estate 73,485,755
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.0%
21,100 Countrywide Capital Trust II, Series II (CORTS) 8.000% BBB+ 531,720
241,430 Countrywide Capital Trust IV 6.750% BBB+ 5,690,505
3,300 Harris Preferred Capital Corporation, Series A 7.375% A1 81,972
-----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 6,304,197
----------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.3%
157,500 United States Cellular Corporation 8.750% A- 4,102,875
4,300 United States Cellular Corporation 7.500% A- 108,274
-----------------------------------------------------------------------------------------------------------------------------
Total Wireless Telecommunication Services 4,211,149
----------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES
(COST $303,618,579) 296,046,508
----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2)
--------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 0.5% (0.4% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 0.1%
$ 300 HBOS PLC, Series 144A 6.413% 9/29/49 A1
--------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.4%
1,500 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A-
--------------------------------------------------------------------------------------------------------------------------
$ 1,800 TOTAL CORPORATE BONDS (COST $1,768,093)
--------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) VALUE
------------ --------------
CORPORATE
BONDS - 0.5%
(0.4% OF
TOTAL
INVESTMENTS)
COMMERCIAL
BANKS - 0.1%
$ 300 $ 269,558
------------
INSURANCE - 0.4%
1,500 1,467,645
------------
$ 1,800 1,737,203
--------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)/ RATINGS
SHARES DESCRIPTION (1) COUPON MATURITY (2) VALUE
----------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 49.7% (33.9% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 6.5%
2,500 Ahmanson Capital Trust I, 144A 8.360% 12/01/26 Baa1 $ 2,615,345
1,000 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 1,047,928
1,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 1,042,817
30
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
---------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS (continued)
1,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 $ 1,044,784
500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 523,789
250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 244,727
3,750 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 3,671,085
1,000 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A- 1,057,729
8,485 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 9,834,149
---------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 21,082,353
-----------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 23.7%
2,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 1,968,498
1,000 Abbey National Capital Trust I 8.963% 6/30/50 A 1,216,600
1,900 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 1,926,180
1,000 BankAmerica Capital II, Series 2 8.000% 12/15/26 Aa3 1,047,417
1,500 BankBoston Capital Trust II, Series B 7.750% 12/15/26 Aa3 1,568,076
1,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 1,049,236
6,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 6,843,690
100 Barclays Bank PLC 6.278% 12/15/55 Aa3 88,250
900 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 959,656
1,000 First Empire Capital Trust I 8.234% 2/01/27 Baa1 1,050,249
500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 493,684
8,800 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 8,471,109
1,430 HSBC USA Capital Trust II, 144A 8.380% 5/15/27 A 1,514,750
2,500 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A2 2,778,280
2,500 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 2,450,493
4,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 A3 4,203,876
3,150 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 3,339,570
5,000 PNC Institutional Capital Trust B, 144A 8.315% 5/15/27 A3 5,281,160
1,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 913,059
4,500 RBS Capital Trust B 6.800% 12/31/49 A1 4,337,775
2,500 St. George Funding Company LLC, 144A 8.485% 12/31/47 A3 2,656,233
655 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 731,174
4,600 Union Planters Capital Trust A 8.200% 12/15/26 A2 4,812,267
70 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 7,400,313
Washington Mutual Preferred Funding Cayman, Series
5,300 A-1, 144A 7.250% 3/15/49 BBB 5,049,162
Washington Mutual Preferred Funding Delaware,
1,200 Series A-1, 144A 6.534% 3/15/49 BBB 1,153,688
3,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 3,151,905
---------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 76,456,350
-----------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 1.2%
1,000 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 1,000,389
10,300 Citigroup Capital X 6.100% 9/30/33 Aa2 233,398
700 Fulton Capital Trust I 6.290% 2/01/36 A3 636,304
12,550 General Electric Capital Corporation 6.450% 6/15/46 AAA 303,710
1,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 1,850,324
---------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 4,024,125
-----------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.9%
5,260 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 6,178,856
---------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.6%
1,700 Stanley Works Capital Trust I, 144A 5.902% 12/01/45 Baa1 1,587,220
---------------------------------------------------------------------------------------------------------------------------
INSURANCE - 11.9%
3,450 Ace Capital Trust II 9.700% 4/01/30 Baa1 4,260,709
750 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 717,403
10,000 MIC Financing Trust I 8.375% 2/01/27 A+ 10,085,030
2,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 1,997,300
1,500 Prudential PLC 6.500% 6/29/49 A 1,383,114
Sun Life Canada Capital Trust, Capital Securities,
10,000 144A 8.526% 5/06/47 A+ 10,587,140
1,000 ZFS FINANCE USA TRUST II 144A 6.450% 12/15/65 Baa2 916,532
8,000 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 8,458,816
---------------------------------------------------------------------------------------------------------------------------
Total Insurance 38,406,044
-----------------------------------------------------------------------------------------------------------
31
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
---------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 2.2%
3,000 KN Capital Trust III 7.630% 4/15/28 Baa3 $ 2,517,141
4,500 Phillips 66 Capital Trust II 8.000% 1/15/37 A3 4,715,838
---------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 7,232,979
-----------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.7%
1,000 Countrywide Capital Trust I 8.000% 12/15/26 BBB+ 1,007,392
4,225 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 4,522,596
---------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 5,529,988
-----------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST
$165,689,369) 160,497,915
-----------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) VALUE
----------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 2.5% (1.7% OF TOTAL INVESTMENTS)
Flaherty and Crumrine/Claymore Preferred
112,569 Securities Income Fund Inc. $ 2,195,096
Flaherty and Crumrine/Claymore Total Return Fund
50,222 Inc. 960,245
4,025 John Hancock Preferred Income Fund 90,522
9,846 John Hancock Preferred Income Fund II 218,089
115,889 John Hancock Preferred Income Fund III 2,287,649
33,458 Preferred and Corporate Strategies Fund Inc. 667,153
95,416 Preferred Income Strategies Fund Inc. 1,809,082
----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $8,321,030) 8,227,836
---------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.1% (1.4% OF TOTAL INVESTMENTS)
Repurchase Agreement with State Street Bank, dated
$ 6,783 6/30/06, repurchase price $6,785,140, 4.130% 7/03/06 $ 6,782,806
collateralized by $7,365,000 U.S. Treasury
Notes, 4.000%, due 2/15/14, value $6,923,100
----------
----------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $6,782,806) 6,782,806
---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $486,506,208) - 146.7% 473,633,030
---------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 4.7% 15,252,812
---------------------------------------------------------------------------------------------------------
PREFERRED SHARES, AT LIQUIDATION VALUE - (51.4)% (166,000,000)
---------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 322,885,842
---------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS OUTSTANDING AT JUNE 30, 2006:
FIXED RATE
PAID FIXED RATE FLOATING RATE FLOATING RATE UNREALIZED
NOTIONAL BY THE FUND PAYMENT RECEIVED PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT (ANNUALIZED) FREQUENCY BY THE FUND (4) FREQUENCY DATE (DEPRECIATION)
-------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $42,000,000 3.255% Monthly 5.138% Monthly 3/06/08 $ 1,504,821
Citigroup Inc. 42,000,000 3.815 Monthly 5.138 Monthly 3/06/10 2,342,438
JPMorgan Chase 21,000,000 5.338 Monthly 5.138 Monthly 11/06/06 16,376
JPMorgan Chase 21,000,000 5.318 Monthly 5.138 Monthly 5/06/07 49,592
-------------------------------------------------------------------------------------------------------------------
$ 3,913,227
-------------------------------------------------------------------------------------------------------------------
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by
Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be
below investment grade.
(3) Investment is eligible for the Dividends Received Deduction.
(4) Based on USD-LIBOR (United States Dollar - London Inter-Bank Offered Rate).
N/R Not rated.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CBTCS Corporate Backed Trust Certificates.
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.
32
Statement of
ASSETS AND LIABILITIES June 30, 2006 (Unaudited)
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
-----------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $1,324,365,953, $2,490,536,140
and $486,506,208, respectively) $1,304,040,496 $2,465,979,850 $473,633,030
Cash -- 1,292 --
Unrealized appreciation on interest rate swaps 5,909,220 16,044,098 3,913,227
Receivables:
Dividends 1,915,043 2,761,807 529,911
Interest 6,335,109 9,831,743 1,809,158
Investments sold 9,505,163 15,767,947 12,755,668
Reclaims -- 40,864 7,211
Other assets 76,831 150,026 27,925
-----------------------------------------------------------------------------------------------------------------
Total assets 1,327,781,862 2,510,577,627 492,676,130
-----------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 12,736,635 24,261,612 3,412,085
Accrued expenses:
Management fees 591,721 1,061,949 228,876
Other 271,423 466,089 91,713
FundPreferred share dividends payable 176,671 288,375 57,614
-----------------------------------------------------------------------------------------------------------------
Total liabilities 13,776,450 26,078,025 3,790,288
-----------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000
-----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 874,005,412 $1,684,499,602 $322,885,842
-----------------------------------------------------------------------------------------------------------------
Common shares outstanding 64,462,104 119,541,842 23,642,721
-----------------------------------------------------------------------------------------------------------------
Net asset value per Common share outstanding (net assets
applicable to
Common shares, divided by Common shares outstanding) $ 13.56 $ 14.09 $ 13.66
-----------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
-----------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 644,621 $ 1,195,418 $ 236,427
Paid-in surplus 911,539,983 1,693,035,834 334,356,632
Undistributed (Over-distribution of) net investment income 1,002,892 (2,419,837) (1,211,353)
Accumulated net realized gain (loss) from investments and
derivative transactions (24,765,847) 1,200,379 (1,535,913)
Net unrealized appreciation (depreciation) of investments
and derivative transactions (14,416,237) (8,512,192) (8,959,951)
-----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 874,005,412 $1,684,499,602 $322,885,842
-----------------------------------------------------------------------------------------------------------------
Authorized shares:
Common Unlimited Unlimited Unlimited
FundPreferred Unlimited Unlimited Unlimited
-----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
33
Statement of
OPERATIONS Six Months Ended June 30, 2006 (Unaudited)
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
-------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $8,392
$11,400 and $2,684, respectively) $ 21,795,947 $ 40,897,850 $ 9,152,520
Interest 19,505,188 35,958,492 6,239,511
-------------------------------------------------------------------------------------------------------------
Total investment income 41,301,135 76,856,342 15,392,031
-------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 5,750,242 10,522,042 2,192,935
FundPreferred shares - auction fees 545,480 991,780 205,795
FundPreferred shares - dividend disbursing agent fees 14,914 20,568 6,695
Shareholders' servicing agent fees and expenses 6,405 9,611 1,712
Custodian's fees and expenses 161,517 272,303 69,589
Trustees' fees and expenses 13,560 27,308 5,187
Professional fees 34,853 53,412 17,297
Shareholders' reports - printing and mailing expenses 91,886 177,015 37,586
Stock exchange listing fees 11,682 21,663 4,871
Investor relations expense 37,925 68,690 15,611
Other expenses 22,885 26,812 11,439
-------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 6,691,349 12,191,204 2,568,717
Custodian fee credit (6,198) (2,484) (452)
Expense reimbursement (2,122,692) (4,016,976) (789,593)
-------------------------------------------------------------------------------------------------------------
Net expenses 4,562,459 8,171,744 1,778,672
-------------------------------------------------------------------------------------------------------------
Net investment income 36,738,676 68,684,598 13,613,359
-------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments 6,913,146 12,478,976 1,059,136
Interest rate swaps 728,782 2,052,055 607,805
Change in net unrealized appreciation (depreciation) of:
Investments (44,410,068) (85,289,694) (14,358,827)
Interest rate swaps 2,898,118 5,089,432 880,419
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (33,870,022) (65,669,231) (11,811,467)
-------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From and in excess of net investment income (9,651,430) (17,353,925) (3,699,289)
From accumulated net realized gains -- -- --
-------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (9,651,430) (17,353,925) (3,699,289)
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $ (6,782,776) $(14,338,558) $ (1,897,397)
-------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
34
Statement of
CHANGES IN NET ASSETS (Unaudited)
QUALITY PREFERRED INCOME (JTP) QUALITY PREFERRED INCOME 2 (JPS)
------------------------------- ---------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
6/30/06 12/31/05 6/30/06 12/31/05
---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 36,738,676 $ 83,656,560 $ 68,684,598 $ 160,397,786
Net realized gain (loss) from:
Investments 6,913,146 10,256,942 12,478,976 29,542,155
Futures -- -- -- 626,810
Interest rate swaps 728,782 (1,997,325) 2,052,055 (1,219,301)
Change in net unrealized appreciation (depreciation) of:
Investments (44,410,068) (58,087,700) (85,289,694) (120,450,106)
Futures -- -- -- 313,500
Interest rate swaps 2,898,118 6,484,892 5,089,432 9,852,715
Distributions to FundPreferred shareholders:
From and in excess of net investment income (9,651,430) -- (17,353,925) --
From net investment income -- (13,746,475) -- (21,967,419)
From accumulated net realized gains -- -- -- (2,969,505)
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations (6,782,776) 26,566,894 (14,338,558) 54,126,635
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (34,809,536) (66,704,349)
From net investment income -- (72,552,099) -- (138,788,080)
From accumulated net realized gains -- -- -- (22,079,378)
---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (34,809,536) (72,552,099) (66,704,349) (160,867,458)
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares (41,592,312) (45,985,205) (81,042,907) (106,740,823)
Net assets applicable to Common shares at the beginning of
period 915,597,724 961,582,929 1,765,542,509 1,872,283,332
---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of
period $874,005,412 $915,597,724 $1,684,499,602 $1,765,542,509
---------------------------------------------------------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment income
at the end of period $ 1,002,892 $ 8,725,182 $ (2,419,837) $ 12,953,839
---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
35
Statement of
CHANGES IN NET ASSETS (Unaudited) (continued)
QUALITY PREFERRED INCOME 3 (JHP)
---------------------------------
SIX MONTHS
ENDED YEAR ENDED
6/30/06 12/31/05
-----------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 13,613,359 $ 31,177,398
Net realized gain (loss) from:
Investments 1,059,136 2,801,561
Futures -- --
Interest rate swaps 607,805 (22,484)
Change in net unrealized appreciation (depreciation) of:
Investments (14,358,827) (21,236,219)
Futures -- --
Interest rate swaps 880,419 2,007,568
Distributions to FundPreferred shareholders:
From and in excess of net investment income (3,699,289) --
From net investment income -- (4,959,898)
From accumulated net realized gains -- (324,959)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations (1,897,397) 9,442,967
-----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (13,074,425) --
From net investment income -- (27,602,875)
From accumulated net realized gains -- (2,179,859)
-----------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (13,074,425) (29,782,734)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares (14,971,822) (20,339,767)
Net assets applicable to Common shares at the beginning of
period 337,857,664 358,197,431
-----------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $322,885,842 $337,857,664
-----------------------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment income
at the end of period $ (1,211,353) $ 1,949,002
-----------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
36
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The funds (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.
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.
Investment Valuation
Exchange-listed securities and instruments, other than futures, are generally
valued at the last sales price on the exchange on which such securities or
instruments are primarily traded. Securities or instruments traded on an
exchange for which there are no transactions on a given day or securities or
instruments not listed on an 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. Futures contracts are valued using the closing settlement price
or, in the absence of such a price, at the mean of the bid and asked prices.
Prices of the other derivative instruments are provided by an independent
pricing service approved by the Funds' Board of Trustees. The prices of
fixed-income securities are generally also 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, the
pricing service or, in the absence of a pricing service for a particular
security or instrument, the Board of Trustees of the Funds, or its designee, may
establish fair market value using a wide variety of market data including yields
or prices of securities of comparable quality, type of issue, coupon, maturity
and rating, market quotes or indications of value from security dealers,
evaluations of anticipated cash flows or collateral, general market conditions
and other information and analysis, including the obligor's credit
characteristics considered relevant by the pricing service or the Board of
Trustee's designee. Short-term investments are valued at amortized cost, which
approximates market value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. Investments purchased on a when-issued or delayed
delivery basis may have extended settlement periods. Any investments 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/delayed delivery purchase commitments. At June
30, 2006, Preferred Income (JTP) and Preferred Income 2 (JPS) had outstanding
when-issued/delayed delivery purchase commitments of $6,821,720 and $12,932,311,
respectively. There were no such outstanding purchase commitments in the other
Fund.
Investment Income
Dividend income is recorded on the ex-dividend date or, for foreign securities,
when information is available. Interest income, which includes the amortization
of premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis.
Professional Fees
Professional fees presented in the Statement of Operations consist of legal fees
incurred in the normal course of operations, audit fees, tax consulting fees
and, in some cases, workout expenditures. Workout expenditures are incurred in
an attempt to protect or enhance an investment, or to pursue other claims or
legal actions on behalf of Fund shareholders.
Federal Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to distribute substantially all net investment income and net capital
gains to shareholders and to otherwise comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no federal income tax provision is required.
37
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
Distributions to Common shareholders are declared monthly. Real Estate
Investment Trust ("REIT") distributions received by the Funds are generally
comprised of ordinary income, long-term and short-term capital gains, and a
return of REIT capital. The actual character of amounts received during the
period is not known until after the fiscal year-end. For the fiscal year ended
December 31, 2005, 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 77.28% 74.67% 78.86%
Long-term and short-term capital gains 22.72 25.33 21.14
Return of REIT capital -- -- --
------------------------------------------------------------------------------------------------------------
For the fiscal year ended December 31, 2005, the Funds applied the actual
character of distributions reported by the REITs in which the Funds invest to
their receipts from the REITs. If a REIT held in the portfolio of investments
did not report the actual character of its distributions during the period, the
Fund treated the distributions as ordinary income.
For the six months ended June 30, 2006, each Fund applied the actual percentages
for the twelve months ended December 31, 2005, described above, to its receipts
from the REITs and treated as income in the Statement of Operations only the
amount of ordinary income so calculated. The Funds adjust that estimated
breakdown of income type (and consequently their net investment income) as
necessary early in the following calendar year when REITs inform their
shareholders of the actual breakdown of income type.
The actual character of distributions made by the Funds during the fiscal year
ended December 31, 2005, are reflected in the accompanying financial statements.
The distributions made by the Funds during the six months ended June 30, 2006,
are provisionally classified as being "From and in excess of net investment
income", and those distributions will be classified as being from net investment
income, net realized capital gains and/or a return of capital for tax purposes
after the fiscal year end. For purposes of calculating "Undistributed (Over-
distribution of) net investment income as of June 30, 2006, the distribution
amounts provisionally classified as "From and in excess of net investment
income" were treated as being entirely from net investment income. Consequently,
the financial statements at June 30, 2006, reflect an over-distribution of net
investment income.
38
FundPreferred Shares
The Funds have issued and outstanding FundPreferred shares, $25,000 stated value
per share, as a means of effecting financial leverage. Each Fund's FundPreferred
shares are issued in more than one Series. The dividend rate paid by the Funds
on each Series is determined every seven days, pursuant to a dutch auction
process overseen by the auction agent, and is payable at the end of each rate
period. The number of FundPreferred 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 are authorized to invest in certain derivative financial instruments.
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.
Futures Contracts
Each Fund may use futures contracts to hedge against changes in the values of
securities the Fund owns. Each Fund bears the market risk arising from changes
in the value of these financial instruments. At the time a Fund enters into a
futures contract, the Fund deposits and maintains as collateral an initial
margin as required by the exchange on which the transaction is affected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract.
Such receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses on futures contracts. Risk may arise from the
potential inability of the counterparty to meet the terms of the contract. When
a contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
time is was closed. At June 30, 2006, there were no open futures contracts in
any of the Funds.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Funds'
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
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.
39
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
The Funds did not engage in transactions in their own shares during the six
months ended June 30, 2006, nor during the fiscal year ended December 31, 2005.
3. INVESTMENT TRANSACTIONS
Purchases and sales (including maturities but excluding short-term investments
and derivative transactions) during the six months ended June 30, 2006, were as
follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------------
Purchases $188,495,048 $325,427,708 $81,388,234
Sales and maturities 185,107,542 315,384,763 88,860,091
--------------------------------------------------------------------------------------------------------------------
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 timing
differences in the recognition of income and timing differences in recognizing
certain gains and losses on investment transactions.
At June 30, 2006, the cost of investments was as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------------
Cost of investments $1,324,864,665 $2,495,074,775 $486,828,781
--------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation and gross unrealized depreciation of investments
at June 30, 2006, were as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------------
Gross unrealized:
Appreciation $17,590,918 $41,833,835 $3,868,518
Depreciation (38,415,087) (70,928,760) (17,064,269)
--------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments $(20,824,169) $(29,094,925) $(13,195,751)
--------------------------------------------------------------------------------------------------------------------
40
The tax components of undistributed net ordinary income and net long-term
capital gains at July 31, 2005, the Funds' last tax year end, were as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------------
Undistributed net ordinary income * $3,556,793 $8,682,726 $1,603,497
Undistributed net long-term capital gains -- 19,370,073 1,521,742
--------------------------------------------------------------------------------------------------------------------
* 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 Funds' last tax year ended
July 31, 2005, was designated for purposes of the dividends paid deduction as
follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $86,458,729 $168,985,896 $32,675,994
Distributions from net long-term capital gains -- 19,485,262 1,415,750
--------------------------------------------------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
At July 31, 2005, the Funds' last tax year end, Quality Preferred Income (JTP)
had unused capital loss carryforwards of $22,268,801 available for federal
income tax purposes to be applied against future capital gains, if any. If not
applied, the carryforwards will expire in the year 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
Each Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by Nuveen
Asset Management (the "Adviser"), a wholly owned subsidiary of Nuveen
Investments, Inc. ("Nuveen"), and a specific fund-level component, based only on
the amount of assets within 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.
The annual fund-level fee, payable monthly, for each Fund is based upon the
average daily Managed Assets of each Fund as follows:
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
---------------------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
---------------------------------------------------------------------------------------------
41
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the table below. As
of June 30, 2006, the complex-level fee rate was .1887%.
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE
---------------------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion (2) .1400
---------------------------------------------------------------------------------------------
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds in
the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level fee
rate for such complex-wide Managed Assets shall be .1400% until such time as
a different rate or rates is determined.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with 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 their 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.
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.
42
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. NEW ACCOUNTING PRONOUNCEMENT
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and does not expect the adoption of FIN 48
will have a significant impact on the net assets or results of operations of the
Funds.
7. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Funds declared Common share distributions which were paid on August 1, 2006,
to shareholders of record on July 15, 2006, as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------------
Distributions per share $.0900 $.0930 $.0910
--------------------------------------------------------------------------------------------------------------------
43
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations
-----------------------------------------------------------------
Distributions
from Net Distributions
Beginning Investment from Capital
Common Net Income to Gains to
Share Net Realized/ FundPreferred FundPreferred
Net Asset Investment Unrealized Share- Share-
Value Income(a) Gain (Loss) holders+ holders+ Total
-----------------------------------------------------------------------------------------------------------
QUALITY PREFERRED INCOME (JTP)
-----------------------------------------------------------------------------------------------------------
2006(f) $ 14.20 $ .57 $ (.52) $ (.15)* $ -- $ (.10)
Year ended 12/31:
2005 14.92 1.30 (.68) (.21) -- .41
8/1/04-12/31/04 14.40 .60 .47 (.05) -- 1.02
Year Ended 7/31:
2004(b) 14.10 1.37 .26 (.08) -- 1.55
2003 14.12 1.31 .16 (.09) -- 1.38
2002(c) 14.33 .06 (.25) -- -- (.19)
QUALITY PREFERRED INCOME 2 (JPS)
-----------------------------------------------------------------------------------------------------------
2006(f) 14.77 .57 (.54) (.15)* -- (.12)
Year ended 12/31:
2005 15.66 1.34 (.69) (.18) (.02) .45
8/1/04-12/31/04 15.32 .60 .50 (.04) (.01) 1.05
Year Ended 7/31:
2004(b) 14.97 1.42 .37 (.08) -- 1.71
2003(d) 14.33 1.02 .79 (.07) -- 1.74
QUALITY PREFERRED INCOME 3 (JHP)
-----------------------------------------------------------------------------------------------------------
2006(f) 14.29 .58 (.50) (.16)* -- (.08)
Year ended 12/31:
2005 15.15 1.32 (.70) (.21) (.01) .40
8/1/04-12/31/04 14.71 .60 .46 (.05) -- 1.01
Year Ended 7/31:
2004(b) 14.38 1.38 .40 (.08) (.01) 1.69
2003(e) 14.33 .67 .22 (.04) -- .85
-----------------------------------------------------------------------------------------------------------
Less Distributions
------------------------------
Net Offering
Investment Capital Costs and Ending
Income to Gains to FundPreferred Common
Common Common Share Share Ending
Share- Share- Underwriting Net Asset Market
holders holders Total Discounts Value Value
--------------------------- --------------------------------------------------------------------
QUALITY PREFERRED INCOME (J
---------------------------
2006(f) $ (.54)* $ -- $ (.54) $ -- $ 13.56 $ 12.94
Year ended 12/31:
2005 (1.13) -- (1.13) -- 14.20 12.40
8/1/04-12/31/04 (.50) -- (.50) -- 14.92 14.00
Year Ended 7/31:
2004(b) (1.25) -- (1.25) -- 14.40 13.96
2003 (1.25) -- (1.25) (.15) 14.10 14.59
2002(c) -- -- -- (.02) 14.12 15.15
QUALITY PREFERRED INCOME 2
---------------------------
2006(f) (.56)* -- (.56) -- 14.09 $ 13.64
Year ended 12/31:
2005 (1.16) (.18) (1.34) -- 14.77 12.80
8/1/04-12/31/04 (.53) (.18) (.71) -- 15.66 14.40
Year Ended 7/31:
2004(b) (1.32) (.04) (1.36) -- 15.32 14.61
2003(d) (.95) -- (.95) (.15) 14.97 14.65
QUALITY PREFERRED INCOME 3
---------------------------
2006(f) (.55)* -- (.55) -- 13.66 $ 12.99
Year ended 12/31:
2005 (1.17) (.09) (1.26) -- 14.29 12.92
8/1/04-12/31/04 (.51) (.06) (.57) -- 15.15 14.44
Year Ended 7/31:
2004(b) (1.24) (.12) (1.36) -- 14.71 14.34
2003(e) (.62) -- (.62) (.18) 14.38 14.36
---------------------------
* Represents distributions paid "From and in excess of net investment income"
for the six months ended June 30, 2006.
** Annualized.
*** Total Return on Market Value is the combination of changes in the market
price per share and the effect of reinvested dividend income and reinvested
capital gains distributions, if any, at the average price paid per share at
the time of reinvestment. Total Return on Common Share Net Asset Value is
the combination of changes in Common Share net asset value, reinvested
dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. Total returns are not annualized.
**** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ - Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders.
- Income ratios reflect income earned on assets attributable to
FundPreferred shares.
- 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)
Year Ended 7/31:
2003 .80%
2002(c) --
QUALITY PREFERRED INCOME 2 (JPS)
Year Ended 7/31:
2003(d) .58**
QUALITY PREFERRED INCOME 3 (JHP)
Year Ended 7/31:
2003(e) .51**
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) 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.
(f) For the six months ended June 30, 2006.
44
Ratios/Supplemental Data
----------------------------------------------------------------------------------------
Total Returns Before Credit/Reimbursement After Credit/Reimbursement****
------------------- ---------------------------- ------------------------------
Ratio of Net Ratio of Net
Based Ratio of Investment Ratio of Investment
on Expenses Income to Expenses Income to
Common Ending Net to Average Average to Average Average
Based Share Assets Net Assets Net Assets Net Assets Net Assets
on Net Applicable Applicable Applicable Applicable Applicable Portfolio
Market Asset to Common to Common to Common to Common to Common Turnover
Value*** Value*** Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
8.72% (.73)% $ 874,005 1.50%** 7.78%** 1.03%** 8.26%** 14%
(3.69) 2.89 915,598 1.49 8.47 1.02 8.94 19
3.79 7.10 961,583 1.49** 9.15** 1.02** 9.62** 8
4.20 11.17 927,892 1.51 8.87 1.04 9.33 18
4.95 9.15 907,746 2.38 8.84 1.91 9.31 45
1.00 (1.47) 880,006 .96** 4.51** .64** 4.83** 1
-------------------------------------------------------------------------------------------------------------------
10.96 (.85) 1,684,500 1.42** 7.54** .95** 8.01** 13
(2.06) 3.01 1,765,543 1.40 8.32 .94 8.78 17
3.34 6.94 1,872,283 1.40** 8.69** .94** 9.14** 6
8.98 11.60 1,830,878 1.41 8.64 .95 9.10 19
4.02 11.22 1,789,809 1.99** 7.59** 1.54** 8.04** 35
-------------------------------------------------------------------------------------------------------------------
4.76 (.56) 322,886 1.56** 7.80** 1.08** 8.29** 17
(2.16) 2.88 337,858 1.54 8.48 1.07 8.96 16
4.64 6.81 358,197 1.54** 9.03** 1.07** 9.50** 7
9.36 11.93 347,900 1.55 8.75 1.08 9.22 17
(.19) 4.62 339,499 1.97** 7.14** 1.53** 7.58** 57
FundPreferred Shares at End of Period
---------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Per Coverage
(000) Share Per Share
--- ---------------------------------------
---
$ 440,000 $ 25,000 $ 74,659
440,000 25,000 77,023
440,000 25,000 79,635
440,000 25,000 77,721
440,000 25,000 76,577
-- -- --
---
800,000 25,000 77,641
800,000 25,000 80,173
800,000 25,000 83,509
800,000 25,000 82,215
800,000 25,000 80,932
---
166,000 25,000 73,627
166,000 25,000 75,882
166,000 25,000 78,945
166,000 25,000 77,395
166,000 25,000 76,129
See accompanying notes to financial statements.
45
ANNUAL INVESTMENT
MANAGEMENT AGREEMENT
APPROVAL PROCESS
The Board of Trustees is responsible for overseeing the performance of the
investment adviser to the Funds and determining whether to continue the advisory
arrangements. At a meeting held on May 23-25, 2006 (the "May Meeting"), the
Board of Trustees of the Funds, including the independent Trustees, unanimously
approved the continuance of the Investment Management Agreement between each
Fund and NAM and the Sub-Advisory Agreement between NAM and Spectrum (the
"Sub-Adviser"). NAM and the Sub-Adviser are each a "Fund Adviser."
THE APPROVAL PROCESS
During the course of the year, the Board received a wide variety of materials
relating to the services provided by the Fund Advisers and the performance of
each Fund. To assist the Board in its evaluation of the advisory contract with a
Fund Adviser at the May Meeting, the independent Trustees received extensive
materials in advance of their meeting which outlined, among other things:
- the nature, extent and quality of services provided by the Fund Adviser;
- the organization and business operations of the Fund Adviser, including
the responsibilities of various departments and key personnel;
- the Fund's past performance, the Fund's performance compared to funds of
similar investment objectives compiled by an independent third party and
with recognized and/or customized benchmarks (as appropriate);
- the profitability of the Fund Adviser and certain industry profitability
analyses for unaffiliated advisers;
- the expenses of the Fund Adviser in providing the various services;
- the advisory fees (gross and net management fees) and total expense ratios
of the Fund, including comparisons of such fees and expenses with those of
comparable, unaffiliated funds based on information and data provided by
Lipper (the "Peer Universe") as well as compared to a subset of funds
within the Peer Universe (the "Peer Group") to the respective Fund (as
applicable);
- the advisory fees the Fund Adviser assesses to other types of investment
products or clients;
- the soft dollar practices of the Fund Adviser, if any; and
- from independent legal counsel, a legal memorandum describing, among other
things, the duties of the Trustees under the Investment Company Act of
1940 (the "1940 Act") as well as the general principles of relevant state
law in reviewing and approving advisory contracts; the requirements of the
1940 Act in such matters; an adviser's fiduciary duty with respect to
advisory agreements and compensation; the standards used by courts in
determining whether investment company boards of directors have fulfilled
their duties and factors to be considered by the board in voting on
advisory agreements.
At the May Meeting, NAM made a presentation to and responded to questions from
the Board. After the presentations and after reviewing the written materials,
the independent Trustees met privately with their legal counsel to review the
Board's duties in reviewing advisory contracts and consider the renewal of the
advisory contracts. It is with this background that the Trustees considered each
advisory contract (which includes the Sub-Advisory Agreements) with the
respective Fund Adviser. The independent Trustees, in consultation with
independent counsel, reviewed the factors set out in judicial decisions and SEC
directives relating to the renewal of advisory contracts. As outlined in more
detail below, the Trustees considered all factors they believed relevant with
respect to each Fund, including the following: (a) the nature, extent and
quality of the services to be provided by the Fund Adviser; (b) the investment
performance of the Fund and the Fund Adviser; (c) the costs of the services to
be provided and profitability of the Fund Adviser and its affiliates; (d) the
extent to which economies of scale would be realized as the Fund grows; and (e)
whether fee levels reflect these economies of scale for the benefit of Fund
investors.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In reviewing the Fund Advisers, the Trustees considered the nature, extent and
quality of the respective Fund Adviser's services. The Trustees reviewed
materials outlining, among other things, the Fund Adviser's organization and
business; the types of services that the Fund Adviser or its affiliates provide
and are expected to provide to the Funds; the performance record of the
applicable Fund (as described in further detail below); and any initiatives
Nuveen has taken for its fund product line. In connection with their continued
service as Trustees, the Trustees also have a good understanding of each Fund
Adviser's organization, operations and personnel. In this regard, the Trustees
are familiar with and have evaluated the professional experience, qualifications
and credentials of the Fund Adviser's personnel. With respect to the
Sub-Adviser, the Trustees also received and reviewed an evaluation of the
Sub-Adviser from NAM. Such evaluation outlined, among other things, the
Sub-Adviser's organizational history, client base, product mix, investment team
and any changes thereto, investment process and any changes to its investment
strategy, the Fund's investment objectives and performance (as applicable). The
Trustees noted that NAM recommended the renewal of the Sub-Advisory Agreements
and
46
considered the basis for such recommendation and any qualifications in
connection therewith. Given the Trustees' experience with the Funds (including
any other Nuveen funds advised by a Fund Adviser) and each Fund Adviser, the
Trustees recognized and considered the quality of their investment processes in
making portfolio management decisions as well as any refinements or improvements
thereto. In this regard, the Trustees considered the continued quality of the
Fund Adviser's investment process in making portfolio management decisions as
well as any additional refinements and improvements adopted to the portfolio
management processes.
In addition to advisory services, the independent Trustees considered the
quality of any administrative or non-advisory services provided. With respect to
the Sub-Adviser, the independent Trustees noted that the Sub-Advisory Agreements
were essentially agreements for portfolio management services only and the
Sub-Adviser was not expected to supply other significant administrative services
to the Funds.
With respect to NAM, NAM provides the Funds with such administrative and other
services (exclusive of, and in addition to, any such services provided by others
for the Funds) and officers and other personnel as are necessary for the
operations of the respective Fund. In connection with the review of the
Investment Management Agreement, the Trustees considered the extent and quality
of these other services which include, among other things, providing: product
management (e.g., product positioning, performance benchmarking, risk
management); fund administration (e.g., daily net asset value pricing and
reconciliation, tax reporting, fulfilling regulatory filing requirements);
oversight of third party service providers; administration of board relations
(e.g., organizing board meetings and preparing related materials); compliance
(e.g., monitoring compliance with investment policies and guidelines and
regulatory requirements); and legal support (e.g., helping prepare and file
registration statements, amendments thereto, proxy statements and responding to
regulatory requests and/or inquiries). As the Funds operate in a highly
regulated industry and given the importance of compliance, the Trustees
considered, in particular, the additions of experienced personnel to the
compliance teams and the enhancements to technology and related systems to
support the compliance activities for the Funds (including a new reporting
system for quarterly portfolio holdings). In addition to the above, because the
Funds utilize a Sub-Adviser, the Trustees also considered NAM's ability and
procedures to monitor the Sub-Adviser's performance, business practices and
compliance policies and procedures. In this regard, the Trustees noted the
enhancements in the investment oversight process, including increased site
visits and departments participating in investment oversight.
In addition to the foregoing, the Trustees also noted the additional services
that the Fund Adviser or its affiliates provide to closed-end funds, including,
in particular, secondary market support activities. The Trustees recognized
Nuveen's continued commitment to supporting the secondary market for the common
shares of its closed-end funds through a variety of initiatives designed to
raise investor and analyst awareness and understanding of closed-end funds.
These efforts include providing advertising and other media relations programs,
continued contact with analysts, maintaining and enhancing its website for
closed-end funds, and targeted advisor communication programs. With respect to
Funds that utilize leverage through the issuance of preferred shares, the
Trustees noted Nuveen's continued support for the preferred shares by
maintaining, among other things, an in-house preferred trading desk; designating
a product manager whose responsibilities include creating and disseminating
product information and managing relations in connection with the preferred
share auction; and maintaining systems necessary to test compliance with rating
agency requirements.
Based on their review, the Trustees found that, overall, the nature, extent and
quality of services provided (and expected to be provided) to the respective
Funds under the Investment Management Agreement or Sub-Advisory Agreement, as
applicable, were of a high level and were satisfactory.
B. THE INVESTMENT PERFORMANCE OF THE FUND AND FUND ADVISERS
The Board considered the investment performance for each Fund, including the
Fund's historic performance as well as its performance compared to funds with
similar investment objectives identified by an independent third party
(the"Performance Peer Group") and recognized and/or customized benchmarks (as
applicable). In evaluating the performance information, in certain instances,
the Trustees noted that the closest Performance Peer Group for a Fund still may
not adequately reflect such Fund's investment objectives, strategies and
portfolio duration, thereby limiting the usefulness of the comparisons of such
Fund's performance with that of the Performance Peer Group (such as, the Nuveen
Diversified Dividend and Income Fund, Nuveen Preferred and Convertible Income
Fund, Nuveen Preferred and Convertible Income Fund 2, Nuveen Tax-Advantaged
Floating Rate Fund, and the Nuveen Real Estate Income Fund).
In reviewing performance, the Trustees reviewed performance information
including, among other things, total return information compared with the Fund's
Performance Peer Group as well as recognized and/or customized benchmarks (as
appropriate) for the one-, three- and five-year periods (as applicable) ending
December 31, 2005. This information supplements the Fund performance information
provided to the Board at each of their quarterly meetings. Based on their
review, the Trustees determined that the respective Fund's absolute and relative
investment performance over time had been satisfactory.
C. FEES, EXPENSES AND PROFITABILITY
1. FEES AND EXPENSES
In evaluating the management fees and expenses of a Fund, the Board reviewed,
among other things, the Fund's advisory fees (net and gross management fees)
and total expense ratios (before and after expense reimbursements and/or
waivers) in absolute terms as well as comparisons to the gross management
fees (before waivers), net management fees (after waivers) and total expense
ratios (before and after waivers) of comparable funds in the Peer Universe
and the Peer Group. The Trustees reviewed data regarding the construction of
Peer Groups as well as the methods of measurement for the fee and expense
analysis and the performance analysis. In certain cases, due to the small
number of peers in the Peer Universe, the Peer Universe and the Peer Group
may be the same. Further, the Trustees recognized that in certain cases the
closest Peer Universe and/or Peer Group may not adequately reflect the Fund's
investment objectives and strategies limiting the usefulness of
47
ANNUAL INVESTMENT
MANAGEMENT AGREEMENT APPROVAL PROCESS (continued)
comparisons. In reviewing comparisons, the Trustees also considered the size
of the Peer Universe and/or Peer Group, the composition of the Peer Group
(including differences in the use of leverage) as well as differing levels of
fee waivers and/or expense reimbursements. In this regard, the Trustees
considered the fund-level and complex-wide breakpoint schedules (described in
further detail below) and any fee waivers and reimbursements provided by
Nuveen (applicable, in particular, for certain funds launched since 1999).
Based on their review of the fee and expense information provided, the
Trustees determined that each Fund's net total expense ratio was within an
acceptable range compared to peers.
2. COMPARISONS WITH THE FEES OF OTHER CLIENTS
The Trustees further reviewed data comparing the advisory fees of NAM with
fees NAM charges to other clients (such as separate managed accounts and
funds that are not offered by Nuveen Investments but are sub-advised by one
of Nuveen's investment management teams). In general, the advisory fees
charged for separate accounts are somewhat lower than the advisory fees
assessed to the Funds. The Trustees recognized that the differences in fees
are attributable to a variety of factors, including the differences in
services provided, product distribution, portfolio investment policies,
investor profiles, account sizes and regulatory requirements. The Trustees
noted, in particular, that the range of services provided to the Funds is
more extensive than that provided to managed separate accounts. As described
in further detail above, such additional services include, but are not
limited to, providing: product management, fund administration, oversight of
third party service providers, administration of board relations, and legal
support. Funds further operate in a highly regulated industry requiring
extensive compliance functions compared to the other investment products. In
addition to the costs of the additional services, administrative costs may
also be greater for funds as the average account size for separate accounts
is notably larger than the retail accounts of funds. Given the differences in
the product structures, particularly the extensive services provided to
closed-end funds, the Trustees believe such facts justify the different
levels of fees.
In considering the advisory fees of the Sub-Adviser, the Trustees also
considered the pricing schedule that the Sub-Adviser charges for similar
investment management services for other sponsors or clients.
3. PROFITABILITY OF FUND ADVISERS
In conjunction with its review of fees, the Trustees also considered the
profitability of Nuveen Investments for advisory activities (which
incorporated Nuveen's wholly-owned affiliated sub-advisers). The Trustees
reviewed data comparing Nuveen's profitability with other fund sponsors
prepared by three independent third party service providers as well as
comparisons of the revenues, expenses and profits margins of various
unaffiliated management firms with similar amounts of assets under management
prepared by Nuveen. The Trustees further reviewed the 2005 Annual Report for
Nuveen Investments. In considering profitability, the Trustees recognized the
inherent limitations in determining profitability as well as the difficulties
in comparing the profitability of other unaffiliated advisers. Profitability
may be affected by numerous factors, including the methodology for allocating
expenses, the adviser's business mix, the types of funds managed, the
adviser's capital structure and cost of capital. Further, individual fund or
product line profitability of other sponsors is generally not publicly
available. Accordingly, the profitability information that is publicly
available from various investment advisory or management firms may not be
representative of the industry.
Notwithstanding the foregoing, in reviewing profitability, the Trustees reviewed
Nuveen's methodology and assumptions for allocating expenses across product
lines to determine profitability. In this regard, the methods of allocation used
appeared reasonable. The Trustees also, to the extent available, compared
Nuveen's profitability margins (including pre- and post-marketing profit
margins) with the profitability of various unaffiliated management firms. The
Trustees noted that Nuveen's profitability is enhanced due to its efficient
internal business model. The Trustees also recognized that while a number of
factors affect profitability, Nuveen's profitability may change as fee waivers
and/or expense reimbursement commitments of Nuveen to various funds in the
Nuveen complex expire. To keep apprised of profitability and developments that
may affect profitability, the Trustees have requested profitability analysis be
provided periodically during the year. The Trustees also considered the
Sub-Adviser's revenues from serving as a Sub-Adviser to the Funds, expenses
(including the basis for allocating expenses) and profitability margins (pre-
and post-tax). Based on their review, the Trustees were satisfied that the
respective Fund Adviser's level of profitability was reasonable in light of the
services provided.
In evaluating the reasonableness of the compensation, the Trustees also
considered any other revenues paid to a Fund Adviser as well as any indirect
benefits (such as soft dollar arrangements, if any) the Fund Adviser and its
affiliates are expected to receive that are directly attributable to their
management of the Funds, if any. See Section E below for additional information.
Based on their review of the overall fee arrangements of the applicable Fund,
the Trustees determined that the advisory fees and expenses of the respective
Fund were reasonable.
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
With respect to economies of scale, the Trustees recognized the potential
benefits resulting from the costs of a fund being spread over a larger asset
base as a fund grows. To help ensure the shareholders share in these benefits,
the Trustees have reviewed and considered the breakpoints in the advisory fee
schedules that reduce advisory fees as the applicable Fund's assets grow. In
addi-
48
tion to advisory fee breakpoints as assets in a respective Fund rise, after
lengthy discussions with management, the Board also approved a complex-wide fee
arrangement that was introduced on August 1, 2004. Pursuant to the complex-wide
fee arrangement, the fees of the funds in the Nuveen complex, including the
Funds, are reduced as the assets in the fund complex reach certain levels. In
evaluating the complex-wide fee arrangement, the Trustees considered, among
other things, the historic and expected fee savings to shareholders as assets
grow, the amount of fee reductions at various asset levels, and that the
arrangement would extend to all funds in the Nuveen complex. The Trustees noted
that 2005 was the first full year to reflect the fee reductions from the complex
wide fee arrangement. The Trustees also considered the impact, if any, the
complex-wide fee arrangement may have on the level of services provided. Based
on their review, the Trustees concluded that the breakpoint schedule and
complex-wide fee arrangement currently was acceptable and desirable in providing
benefits from economies of scale to shareholders.
E. INDIRECT BENEFITS
In evaluating fees, the Trustees also considered any indirect benefits or
profits the Fund Adviser or its affiliates may receive as a result of its
relationship with each Fund. In this regard, the Trustees considered revenues
received by affiliates of the Fund Adviser for serving as agent at Nuveen's
preferred trading desk and for serving as a co-manager in the initial public
offering of new closed-end exchange traded funds.
In addition to the above, the Trustees considered whether the Fund Adviser
received any benefits from soft dollar arrangements. With respect to NAM, the
Trustees noted that NAM does not currently have any soft dollar arrangements and
does not pay excess brokerage commissions (or spreads on principal transactions)
in order to receive research services; however, NAM may from time to time
receive and have access to research generally provided to institutional clients.
The Trustees also considered the soft dollar arrangements, if any, of the
Sub-Adviser, and noted that Sub-Adviser does not currently use soft dollar
arrangements.
The Trustees did not identify any single factor discussed previously as
all-important or controlling. The Trustees, including a majority of independent
Trustees, concluded that the terms of the Investment Management Agreement and
Sub-Advisory Agreements were fair and reasonable, that the respective Fund
Adviser's fees are reasonable in light of the services provided to each Fund,
and that the renewal of the respective Investment Management Agreement and
Sub-Advisory Agreement should be approved.
49
Reinvest Automatically
EASILY AND CONVENIENTLY
NUVEEN EXCHANGE-TRADED CLOSED-END FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Exchange-Traded Closed-End Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO
SET UP YOUR REINVESTMENT ACCOUNT.
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of the shares may increase before
purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
50
AUTOMATIC DIVIDEND
REINVESTMENT PLAN
NOTICE OF AMENDMENT TO THE TERMS AND CONDITIONS
The Fund is amending the terms and conditions of its Automatic Dividend
Reinvestment Plan (the "Plan") as further described below effective with the
close of business on December 1, 2006. THESE CHANGES ARE INTENDED TO ENABLE PLAN
PARTICIPANTS UNDER CERTAIN CIRCUMSTANCES TO REINVEST FUND DISTRIBUTIONS AT A
LOWER AGGREGATE COST THAN IS POSSIBLE UNDER THE EXISTING PLAN. Shareholders who
do not wish to continue as participants under the amended Plan may withdraw from
the Plan by notifying the Plan Agent prior to the effective date of the
amendments. Participants should refer to their Plan document for notification
instructions, or may simply call Nuveen at (800) 257-8787.
Fund shareholders who elect to participate in the Plan are able to have Fund
distributions consisting of income dividends, realized capital gains and returns
of capital automatically reinvested in additional Fund shares. Under the Plan's
existing terms, the Plan Agent purchases Fund shares in the open market if the
Fund's shares are trading at a discount to their net asset value on the payable
date for the distribution. If the Fund's shares are trading at or above their
net asset value on the payable date for the distribution, the Plan Agent
purchases newly-issued Fund shares directly from the Fund at a price equal to
the greater of the shares' net asset value or 95% of the shares' market value.
Under the Plan's amended terms, if the Plan Agent begins purchasing Fund shares
on the open market while shares are trading below net asset value, but the
Fund's shares subsequently trade at or above their net asset value before the
Plan Agent is able to complete its purchases, the Plan Agent may cease
open-market purchases and may invest the uninvested portion of the distribution
in newly-issued Fund shares at a price equal to the greater of the shares' net
asset value or 95% of the shares' market value. This change will permit Plan
participants under these circumstances to reinvest Fund distributions at a lower
aggregate cost than is possible under the existing Plan.
51
Notes
52
Notes
53
Notes
54
OTHER USEFUL
INFORMATION
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
The Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
most recent 12-month period ended June 30, 2006, and (iii) a description of the
policies and procedures that the Fund used to determine how to vote proxies
relating to portfolio securities are available without charge, upon request, by
calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
MARKET YIELD: Market yield is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Funds'
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any MuniPreferred shares
issued in order to leverage the Fund) from its total assets and then dividing
the remainder by the number of shares outstanding. Fund NAVs are calculated at
the end of each business day.
BOARD OF TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
David J. Kundert
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Eugene S. Sunshine
FUND MANAGER
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust Company
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
The 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 period covered by this report. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
55
(back cover photo)
NUVEEN INVESTMENTS:
SERVING INVESTORS
FOR GENERATIONS
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past
century, Nuveen Investments has adhered to the belief that the best
approach to investing is to apply conservative risk-management principles
to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity
and fixed-income solutions that are integral to a well-diversified core
portfolio. Our clients have come to appreciate this diversity, as well as
our continued adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT
NEEDS.
Managing more than $149 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 six distinct brands: Nuveen, a leader in fixed-income
investments; NWQ, a leader in value-style equities; Rittenhouse, a leader
in growth-style equities; Symphony, a leading institutional manager of
market-neutral alternative investment portfolios; Santa Barbara, a leader
in growth equities; and Tradewinds NWQ, a leader in global equities.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers,
talk to your financial advisor, or call us at (800) 257-8787. Please read
the information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should
consider the investment objective and policies, risk considerations,
charges and expenses of the Fund carefully before investing. The
prospectus contains this and other information relevant to an investment
in the Fund. For a prospectus, please contact your securities
representative or Nuveen Investments, 333 W. Wacker Dr., Chicago, IL
60606. Please read the prospectus carefully before you invest or send
money.
- Share prices
- Fund details
- Daily financial news
- Investor education
- Interactive planning tools
LEARN MORE
ABOUT NUVEEN FUNDS AT
WWW.NUVEEN.COM/CEF
ESA-E-0606D
NUVEEN LOGO
ITEM 2. CODE OF ETHICS.
Not applicable to this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During this reporting period, the registrant's Board of Trustees implemented a
change to the procedures by which shareholders may recommend nominees to the
registrant's board of trustees by amending the registrant's by-laws to include a
provision specifying the date by which shareholder nominations for election as
trustee at a subsequent meeting must be submitted to the registrant.
Shareholders must deliver or mail notice to the registrant not less than
forty-five days nor more than sixty days prior to the first anniversary date of
the date on which the registrant first mailed its proxy materials for the prior
year's annual meeting; provided, however, if and only if the annual meeting is
not scheduled to be held within a period that commences thirty days before the
first anniversary date of the annual meeting for the preceding year and ends
thirty days after such anniversary date (an annual meeting date outside such
period being referred to as an "Other Annual Meeting Date" hereafter), the
shareholder notice must be given no later than the close of business on the date
forty-five days prior to such Other Annual Meeting Date or the tenth business
day following the date such Other Annual Meeting Date is first publicly
announced or disclosed. The shareholder's notice must be in writing and set
forth the name, age, date of birth, business address, residence address and
nationality of the person(s) being nominated and the class or series, number of
all shares of the registrant owned of record or beneficially be each such
person(s), any other information regarding such person required by Item 401 of
Regulation S-K or Item 22 of Rule 14a-101 (Schedule 14A) under the Securities
Exchange Act of 1934, as amended, any other information regarding the person(s)
to be nominated that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitation of proxies for
election of trustees, and whether such shareholder believes any nominee is or
will be an "interested person" (as that term is defined in the Investment
Company Act of 1940, as amended) of the registrant or sufficient information to
enable the registrant to make that determination and the written and signed
consent of the person(s) to be nominated.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of this report that
includes the disclosure required by this paragraph, based on their
evaluation of the controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")(17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable to
this filing.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons: Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Quality Preferred Income Fund 2
By (Signature and Title)* /s/ Jessica R. Droeger
---------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: September 8, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
---------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: September 8, 2006
By (Signature and Title)* /s/ Stephen D. Foy
---------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: September 8, 2006
* Print the name and title of each signing officer under his or her signature.