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: December 31, 2004
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Annual Report December 31, 2004
Nuveen Investments
Closed-End
Exchange-Traded
Funds
NUVEEN QUALITY PREFERRED INCOME FUND
JTP
NUVEEN QUALITY PREFERRED INCOME FUND 2
JPS
NUVEEN QUALITY PREFERRED INCOME FUND 3
JHP
Photo of: Man and woman sitting on porch.
Photo of: 2 children sitting in the grass.
HIGH CURRENT INCOME
FROM A PORTFOLIO OF
INVESTMENT-GRADE
PREFERRED SECURITIES
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Photo of: Man and child
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Photo of: Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
Chairman's
Letter to Shareholders
I am pleased to report that for the year ended December 31, 2004, your
Fund continued to provide you with attractive monthly income from a
diversified portfolio of quality preferred securities. The date of this
report represents a change that aligns your Fund's fiscal year with the
calendar year. We believe this change in your Fund's shareholder reporting
cycle will lead to greater efficiencies and other benefits in the
operation of your Fund.
"We continue to believe that your Fund provides a valuable source of regular
monthly income, and that it also may provide an opportunity to reduce the
overall risk of your entire investment portfolio."
As you'll see as you review this report, there has been no change in the
objectives or management of your Fund. We continue to believe that your
Fund provides a valuable source of regular monthly income, and that it
also may provide an opportunity to reduce the overall risk of your entire
investment portfolio. This is because the price of your Fund's shares may
move differently than the prices of other investments that you may own.
Your financial advisor can explain the advantages of portfolio
diversification in more detail. I urge you to contact him or her soon for
more information on this important investment strategy.
I also urge you to consider receiving future Fund reports and other Fund
information faster by using e-mail and the Internet. Sign up is quick and
easy - see the inside front cover of this report for instructions.
For more than 100 years, Nuveen has specialized in offering quality
investments such as your Fund to those seeking to accumulate and preserve
wealth. Our mission continues to be to assist you and your financial
advisor by offering the investment solutions and services that can help
you secure your long-term financial goals. We thank you for choosing us as
a partner as you work toward that objective.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
February 15, 2005
Nuveen Closed-End Exchange-Traded Funds (JTP, JPS, JHP)
Portfolio Managers'
Perspective
The Nuveen Quality Preferred Income Funds are subadvised by a team of
specialists at Spectrum Asset Management, Inc., 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 12-month period ended December 31, 2004.
What were the general economic and market conditions for the 12-month period
ended December 31, 2004?
Generally, the U.S. economy presented a slowly improving picture in 2004. The
Gross Domestic Product (GDP) grew at a preliminary estimate of 4.4% over the
course of the full year. Inflation remained largely in check, as the Consumer
Price Index rose 3.3% due primarily to increased energy costs. Corporate profits
grew by an average of about 20%, and there was an increase of approximately 2
million jobs with the unemployment rate dropping to 5.4% at the end of 2004 from
5.7% at the beginning of the year. The fourth quarter stock market rally seemed
to reflect a belief by some that the economic recovery had become more
self-sustaining.
In the fixed-income markets, the Federal Reserve raised the fed funds rate five
times between June 30 and December 14. At the close of the year, this benchmark
rate stood at 2.25%, compared with 1.00% one year earlier. (On February 2, 2005,
after the close of this reporting period, the Federal Reserve raised the fed
funds rate by another 0.25% to 2.50%.) At the same time, rates remained
essentially unchanged at the long end of the yield curve, with the yield on
10-year U.S. Treasuries standing at 4.22% on December 31, 2004, compared with
4.26% at the beginning of the year.
Despite this significant flattening of the yield curve, longer duration
investments such as preferred securities continued to enjoy generally wide yield
spreads over money market funds and other short-term instruments. As a result,
individual investors remained aggressive buyers throughout the year in the $25
par sector of the market. Within the $1000 par capital securities sector, buying
interest also was strong throughout the year as U.S. and European insurance
companies joined other institutional investors who sought to garner incremental
yield. Encouraging this demand was the continued improvement in the general
credit quality of many issuers, especially among the financial-oriented
companies that make up a large proportion of the holdings of these Funds. The
ratio of upgrades to downgrades was more favorable over this year period than at
any time since the Funds' inceptions.
4
What was your overall management strategy for the 12-month period ended December
31, 2004?
We continued to maintain a balance between the two major preferred sectors - the
$25 par and the $1000 par capital securities. While both sectors presented
attractive investment opportunities at particular points in time, by the end of
2004 the relative weighting between the two in each Fund was essentially
unchanged from the beginning of the period. Over the course of 2004, our
investment focus centered on buying high quality, higher coupon preferred issues
that usually traded on the basis of their yield-to-call rather than their
yield-to-maturity.
Within the $25 par sector, this meant seeking securities with coupons of 7.00%
or more and call dates two or three years in the future. Early in the year these
types of preferreds had yields-to-call that generally were about 2.00% higher
than short-term U.S. Treasury securities (it is important to note that U.S.
Treasury securities are backed by the full faith and credit of the U.S.
Government while preferred securities are not). As the yield curve flattened
over the course of the year, these spreads closed to about 1.50%.
In the $1000 par capital securities sector, much of our investment focus was on
"Yankee step-up" securities. These are $US-denominated preferreds issued
primarily by highly-rated European financial institutions. They pay a fixed rate
for a period of time and then move to a wide spread above LIBOR (London
Interbank Offered Rate) if the issuer does not call the security. This step-up
feature makes the exercise of the call option more likely and creates a shorter
duration, less interest rate sensitive investment vehicle.
One of our longer-term goals is to position each of these Funds so that they
provide return variability and interest rate risk exposure roughly comparable to
the variability and risk of the markets in which they invest. As one strategy to
reach this goal, we attempted to reduce some of their inherent interest rate
risk (the risk that the value of a Fund's portfolio will decline if market
interest rates rise) by utilizing U.S. Treasury note and bond futures to hedge
some of this risk. Our only objective with these hedges was to reduce the
duration of these Funds without having a negative impact on their dividends.
These hedges do not affect the Funds' income streams or dividend-paying
capabilities over the short-term. Instead, the costs of the hedges are reflected
as an addition or subtraction from each Fund's net asset value as the value of
the hedge fluctuates. Some of the
5
hedges had a negative impact on Fund performance as of December 31, 2004,
because interest rates fell and bond prices rose during the periods in which the
hedges were in place. However, this loss in value was at least partly offset by
the fact that some of the securities in each Fund's portfolio, because they had
longer-than-target durations, increased in value by more as a result of these
interest rate decreases than if the securities had the shorter, targeted
duration.
How did the Funds perform over the 12-months ended December 31, 2004?
Each of the Funds performed well during the 12 months ended December 31, 2004.
Their performance, as well as the performance of several widely followed market
indexes, is shown in the nearby chart.
Total Return on Net Asset Value
For 12 months ended December 31, 2004
JTP 7.65%
--------------------------------------------------------------------------------
JPS 7.99%
--------------------------------------------------------------------------------
JHP 7.73%
--------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index(1) 4.34%
--------------------------------------------------------------------------------
Merrill Lynch Preferred Stock
Hybrid Securities Index(2) 5.51%
--------------------------------------------------------------------------------
Past performance does not guarantee future results. 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.
For the 12 months ended December 31, 2004, all three Funds outperformed the
Lehman Brothers and Merrill Lynch indexes. One of the primary factors benefiting
the performance of these Funds relative to that of the unmanaged indexes was the
Funds' use of financial leverage. While leveraging can add volatility to a
Fund's NAV and share price, especially during periods of rising interest rates,
this strategy can also provide opportunities for additional income and total
returns for common shareholders when short-term interest rates remain relatively
low and long-term rates fall or remain relatively constant, as they did during
this reporting period.
Individual security selection also played a prominent role in each Fund's strong
relative performance for the year. Highly-rated preferreds issued by financial
institutions, especially banks, were the mainstays of their portfolios. Over the
course of the year,
(1) The Lehman Brothers Aggregate Bond Index is an unmanaged index that
includes all investment-grade, publicly issued, fixed-rate,
dollar-denominated, nonconvertible debt issues and commercial mortgage
backed securities with maturities of at least one year and outstanding par
values of $150 million or more.
(2) The Merrill Lynch Preferred Stock Hybrid Securities Index is an unmanaged
index of investment-grade, exchange-traded preferred stocks with
outstanding market values of at least $30 million and at least one year to
maturity.
6
these securities often performed better than lower-rated securities. This was
especially true for some of the securities issued by non-US companies that we
were able to purchase at attractive yields relative to similarly rated
preferreds from U.S. issuers.
Seasoned "repackaged preferreds" also provided some good returns for the Funds.
These securities are created when an investment bank buys a specific tranche of
bonds or $1000 par preferred securities of a particular issuer, places them in a
trust, and then issues $25 par preferreds backed by this trust. The repackaged
preferreds are often not widely followed in the secondary market, which can
produce some very attractive pricing and yields. In addition to their attractive
return potential, they also provided the Funds with exposure to some issuers who
have little or no other preferreds outstanding, such as IBM, BellSouth and
Safeco. This helped improve the overall diversification of each portfolio.
Within the $1000 par capital securities sector, our focus increased on
$US-denominated preferreds from foreign issuers and on preferreds that trade in
the "Euro listed" sector. These provided good returns to the portfolios as these
two areas were among the best performing sectors in the overall corporate
market.
Other actions that positively impacted Fund performance over this period
included our participation in a tender offer for Safeco preferreds,
opportunistic buying of some insurance company securities that we believed were
unfairly discounted because of the ongoing investigations of the industry, and
the year end purchase of a very attractively priced Fannie Mae floating rate
preferred stock that appreciated 12% in two days.
While it was generally a very good year from a credit standpoint, there were a
few blemishes that hurt overall Fund performance. While we limited the Funds'
exposure to the auto sector (and actually reduced it as the year went on), the
prices on Ford and GM preferreds and bonds tended to weaken over the period,
given concerns over eroding market share and unfunded pension and health care
obligations. Another position that negatively impacted performance was
Converium. The Swiss reinsurance company surprised the markets with a large
addition to reserves due to losses in their U.S. operations, and the company was
subsequently downgraded to below investment grade.
7
While we liquidated the entire position, the prices we were able to obtain were
well below our costs.
One event that indirectly had a positive impact on the market and the Funds was
an increasing sense among many market participants that the 15% tax rate for
individuals on qualifying dividend income may become permanent. While the Funds
do not specifically target this type of tax-advantaged income, many of our
non-U.S. holdings qualify for the lower rate, and we saw increased buying
interest in these securities toward the end of the year.
What about Fund dividends and share prices?
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 the second half of the 12-month
period, the Funds paid higher dividends to their FundPreferred shareholders. As
a result, the leveraging strategy - while still beneficial - did not provide as
much income enhancement as it did before short-term interest rates began to
rise. This had an impact on all three of the Funds' dividends. Over the 12-month
period, JPS and JHP each had one monthly dividend reduction and JTP had two
dividend reductions.
All of these Funds seek to pay stable dividends at rates that reflect each
Fund's past results and projected future performance. During certain periods,
each Fund may pay dividends at a rate that may be more or less than the amount
of net investment income actually earned by the Fund during the period. If a
Fund has cumulatively earned more than it has paid in dividends, it holds the
excess in reserve as undistributed net investment income (UNII) as part of the
Fund's NAV. Conversely, if a Fund has cumulatively paid dividends in excess of
its earnings, the excess constitutes negative UNII that is likewise reflected in
the Fund's NAV. Each Fund will, over time, pay all of its net investment income
as dividends to shareholders. As of December 31, 2004, each of the Funds in this
report had positive UNII balances for both financial statement purposes and tax
purposes.
8
As of December 31, 2004, the Funds were trading at discounts to their net asset
values as shown in the accompanying chart.
Fund 12/31 Discount Period Avg. Discount
--------------------------------------------------------------------------------
JTP -6.17% -0.87%
--------------------------------------------------------------------------------
JPS -8.05% -4.30%
--------------------------------------------------------------------------------
JHP -4.69% -2.08%
--------------------------------------------------------------------------------
9
Nuveen Quality Preferred Income Fund
JTP
Performance
Overview As of December 31, 2004
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
$25 Par (or similar) Securities 45.7%
Capital Preferred Securities 45.2%
Convertible Preferred Securities 5.4%
Corporate Bonds 3.2%
Repurchase Agreements 0.5%
Bar Chart:
2004 MONTHLY DIVIDENDS PER SHARE
Jan 0.105
Feb 0.105
Mar 0.105
Apr 0.105
May 0.105
Jun 0.101
Jul 0.101
Aug 0.101
Sep 0.101
Oct 0.101
Nov 0.101
Dec 0.097
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
1/1/04 15.8
15.89
15.93
15.89
15.86
15.96
16.09
15.83
15.85
15.86
15.97
15.97
15.95
15.93
15.8
15.77
15.76
15.78
15.84
15.87
15.87
15.91
15.89
15.81
15.8
15.87
15.93
15.93
15.8
15.87
15.88
15.85
15.9
15.82
15.75
15.73
15.71
15.75
15.9
16
16
16.01
16.06
16
15.98
16.04
16.16
16.12
16.13
16.09
16.1
16.08
15.96
16.03
16.02
16.01
16.07
16.02
16.05
15.9
15.97
16.02
16.08
16.14
16.18
15.58
14.91
15.15
15.29
15.29
15
14.5
14.3
14.52
14.62
14.69
14.41
14.19
14.14
13.91
13.45
13.69
13.94
14.1
14.23
14
13.81
13.73
13.53
12.91
12.5
13.19
13.25
13.14
13.39
13.32
13.55
13.63
13.52
13.57
13.77
13.8
13.9
13.99
14.04
14.04
14.13
13.99
13.78
13.82
13.74
13.62
13.53
13.41
13.09
13.2
13.25
13.31
13.34
13.41
13.28
13.25
13.17
13.33
13.27
13.34
13.46
13.6
13.69
13.89
13.88
13.92
13.9
13.99
13.71
13.72
13.77
13.83
13.87
13.82
13.65
13.64
13.74
13.69
13.58
13.72
13.86
13.96
13.96
14.04
14.13
14.13
14.01
14.1
14.16
14.2
14.13
14.2
14.26
14.27
14.3
14.36
14.44
14.38
14.37
14.2
14.27
14.46
14.46
14.5
14.6
14.55
14.48
14.54
14.55
14.54
14.59
14.55
14.5
14.56
14.55
14.56
14.57
14.59
14.61
14.67
14.58
14.62
14.58
14.7
14.61
14.6
14.56
14.57
14.65
14.69
14.69
14.75
14.79
14.77
14.7
14.63
14.65
14.62
14.63
14.68
14.63
14.64
14.58
14.62
14.67
14.72
14.8
14.8
14.85
14.92
14.94
14.97
14.63
14.22
14.47
14.52
14.55
14.49
14.57
14.59
14.71
14.7
14.73
14.75
14.75
14.77
14.86
14.74
14.65
14.6
14.42
14.55
14.66
14.6
14.52
14.49
14.51
14.36
14.15
13.96
13.81
13.61
13.65
13.83
13.83
13.73
13.71
13.74
13.82
13.93
12/31/04 14
Portfolio Statistics
--------------------------------------------------------------------------------
Share Price $14.00
--------------------------------------------------------------------------------
Common Share
Net Asset Value $14.92
--------------------------------------------------------------------------------
Premium/Discount to NAV -6.17%
--------------------------------------------------------------------------------
Latest Dividend $.0970
--------------------------------------------------------------------------------
Market Yield 8.31%
--------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $961,583
--------------------------------------------------------------------------------
Industries
(as a % of total investments)
--------------------------------------------------------------------------------
Commercial Banks 28.3%
--------------------------------------------------------------------------------
Real Estate 15.1%
--------------------------------------------------------------------------------
Insurance 14.4%
--------------------------------------------------------------------------------
Diversified Financial Services 9.9%
--------------------------------------------------------------------------------
Capital Markets 9.1%
--------------------------------------------------------------------------------
Thrifts & Mortgage Finance 4.2%
--------------------------------------------------------------------------------
Oil & Gas 3.8%
--------------------------------------------------------------------------------
Automobiles 3.2%
--------------------------------------------------------------------------------
Repurchase Agreements 0.5%
--------------------------------------------------------------------------------
Other 11.5%
--------------------------------------------------------------------------------
Top Five Issuers
(excluding repurchase agreements)
(as a % of total investments)
--------------------------------------------------------------------------------
Wachovia Corporation 3.4%
--------------------------------------------------------------------------------
Abbey National Public
Limited Company 3.2%
--------------------------------------------------------------------------------
ING Groep NV 3.1%
--------------------------------------------------------------------------------
Zurich Financial Services 2.8%
--------------------------------------------------------------------------------
HSBC Holdings Public
Limited Company 2.5%
--------------------------------------------------------------------------------
Average Annual Total Return
(Inception 6/25/02)
--------------------------------------------------------------------------------
On Share Price On NAV
--------------------------------------------------------------------------------
1-Year -3.80% 7.65%
--------------------------------------------------------------------------------
Since
Inception 5.58% 10.31%
--------------------------------------------------------------------------------
10
Nuveen Quality Preferred Income Fund 2
JPS
Performance
Overview As of December 31, 2004
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
$25 Par (or similar) Securities 47.2%
Capital Preferred Securities 44.4%
Convertible Preferred Securities 5.1%
Corporate Bonds 3.3%
Bar Chart:
2004 MONTHLY DIVIDENDS PER SHARE1
Jan 0.105
Feb 0.105
Mar 0.105
Apr 0.105
May 0.105
Jun 0.105
Jul 0.105
Aug 0.105
Sep 0.105
Oct 0.105
Nov 0.105
Dec 0.102
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
1/1/04 15.94
15.96
15.99
15.92
15.95
16
16.05
15.99
15.96
15.92
16
16.08
16.15
16.03
15.84
15.76
15.75
15.82
15.82
15.89
15.89
15.93
15.97
15.99
15.9
15.97
15.97
15.99
15.92
15.97
15.9
15.99
16.02
15.89
15.83
15.88
15.75
15.83
16.02
16.07
16.07
16.13
16.1
16.06
16.09
16.11
16.26
16.34
16.32
16.23
16.3
16.31
16.31
16.3
16.35
16.39
16.39
16.42
16.29
16.28
16.31
16.4
16.48
16.57
16.51
15.8
15
15.28
15.37
15.4
15.24
14.85
14.54
14.75
14.89
14.87
14.58
14.38
14.4
14.22
13.83
13.83
14.04
14.21
14.38
14.26
14.2
14.04
13.92
13.3
12.73
13.35
13.41
13.38
13.55
13.55
13.69
13.68
13.64
13.67
13.78
13.86
13.97
14.06
14.14
14.14
14.24
14.24
14.06
14.14
14.14
14.07
13.93
13.91
13.54
13.62
13.67
13.76
13.84
13.81
13.75
13.61
13.6
13.8
13.85
13.85
14.05
14.2
14.32
14.33
14.31
14.46
14.48
14.65
14.47
14.44
14.43
14.6
14.55
14.47
14.34
14.45
14.43
14.25
14.24
14.45
14.52
14.61
14.61
14.73
14.7
14.72
14.61
14.77
14.8
14.89
14.8
14.88
14.87
14.82
14.85
14.9
14.92
14.88
14.84
14.81
14.81
14.96
15.02
15.01
15.1
15.06
14.95
15.04
15.09
15.09
15.06
15.12
15.01
15.04
15.06
15.13
15.16
15.15
15.13
15.09
15.11
15.06
15.13
15.19
15.07
15
15.06
15.09
15.13
15.13
15.12
15.13
15.19
15.24
15.15
15.12
15.15
15.18
15.21
15.2
15.13
15.09
15.06
15.13
15.25
15.31
15.33
15.33
15.33
15.41
15.54
15.64
15.07
14.72
14.93
15.12
15.06
15.03
15.11
15.16
15.2
15.27
15.26
15.16
15.18
15.22
15.23
15.06
14.94
14.95
14.77
14.8
14.92
14.94
14.92
14.88
14.94
14.8
14.66
14.54
14.36
14.3
14.36
14.55
14.59
14.5
14.4
14.41
14.35
14.36
12/31/04 14.4
Portfolio Statistics
--------------------------------------------------------------------------------
Share Price $14.40
--------------------------------------------------------------------------------
Common Share
Net Asset Value $15.66
--------------------------------------------------------------------------------
Premium/Discount to NAV -8.05%
--------------------------------------------------------------------------------
Latest Dividend $.1020
--------------------------------------------------------------------------------
Market Yield 8.50%
--------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $1,872,283
--------------------------------------------------------------------------------
Industries
(as a % of total investments)
--------------------------------------------------------------------------------
Commercial Banks 25.9%
--------------------------------------------------------------------------------
Insurance 16.6%
--------------------------------------------------------------------------------
Real Estate 12.7%
--------------------------------------------------------------------------------
Capital Markets 11.1%
--------------------------------------------------------------------------------
Diversified Financial Services 9.0%
--------------------------------------------------------------------------------
Thrifts & Mortgage Finance 4.8%
--------------------------------------------------------------------------------
Electric Utilities 3.9%
--------------------------------------------------------------------------------
Diversified Telecommunication
Services 3.5%
--------------------------------------------------------------------------------
Automobiles 3.4%
--------------------------------------------------------------------------------
Other 9.1%
--------------------------------------------------------------------------------
Top Five Issuers
(excluding repurchase agreements)
(as a % of total investments)
--------------------------------------------------------------------------------
Wachovia Corporation 3.6%
--------------------------------------------------------------------------------
Abbey National Public
Limited Company 3.3%
--------------------------------------------------------------------------------
ING Groep NV 3.0%
--------------------------------------------------------------------------------
Everest Reinsurance Holdings Inc. 2.7%
--------------------------------------------------------------------------------
Vodafone Airtouch Public
Limited Company 2.2%
--------------------------------------------------------------------------------
Average Annual Total Return
(Inception 9/24/02)
--------------------------------------------------------------------------------
On Share Price On NAV
--------------------------------------------------------------------------------
1-Year -0.66% 7.99%
--------------------------------------------------------------------------------
Since
Inception 7.23% 13.28%
--------------------------------------------------------------------------------
(1) The Fund also paid shareholders capital gains and net ordinary income
distributions in December 2004 of $0.1887 per share.
11
Nuveen Quality Preferred Income Fund 3
JHP
Performance
Overview As of December 31, 2004
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
$25 Par (or similar) Securities 51.0%
Capital Preferred Securities 40.4%
Convertible Preferred Securities 5.3%
Corporate Bonds 3.2%
Repurchase Agreements 0.1%
Bar Chart:
2004 MONTHLY DIVIDENDS PER SHARE1
Jan 0.103
Feb 0.103
Mar 0.103
Apr 0.103
May 0.103
Jun 0.103
Jul 0.103
Aug 0.103
Sep 0.103
Oct 0.103
Nov 0.103
Dec 0.1
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
1/1/04 15.85
15.71
15.93
15.79
15.89
15.89
15.94
15.68
15.67
15.66
15.73
15.81
15.75
15.74
15.74
15.68
15.55
15.55
15.49
15.48
15.48
15.55
15.61
15.58
15.63
15.7
15.7
15.75
15.6
15.54
15.58
15.64
15.72
15.68
15.6
15.5
15.49
15.58
15.78
15.87
15.87
15.89
15.8
15.83
15.8
15.86
15.9
16.05
15.99
15.85
15.92
15.99
15.96
15.96
15.87
15.89
16
15.93
15.9
15.89
15.93
15.9
15.97
16.03
16.1
15.57
14.7
14.91
15.12
15.05
14.85
14.43
14.17
14.25
14.59
14.65
14.53
14.14
14.22
14.02
13.45
13.55
13.7
13.77
13.85
14.04
13.88
13.71
13.45
12.76
12.28
13.04
12.97
13.02
13.21
13.18
13.16
13.25
13.2
13.27
13.44
13.58
13.58
13.69
13.89
13.89
13.96
14
13.85
13.92
13.88
13.83
13.85
13.73
13.38
13.45
13.48
13.45
13.4
13.4
13.42
13.45
13.5
13.45
13.5
13.42
13.53
13.71
13.89
14.1
14.11
14.25
14.28
14.45
14.36
14.31
14.27
14.37
14.3
14.32
14.16
14.23
14.22
14.15
14.24
14.35
14.34
14.34
14.34
14.44
14.43
14.47
14.42
14.49
14.46
14.54
14.39
14.42
14.52
14.61
14.6
14.64
14.57
14.57
14.6
14.51
14.53
14.61
14.68
14.87
14.91
14.92
14.89
14.91
14.98
14.98
14.88
14.95
14.98
14.95
14.93
14.92
15
14.93
14.97
14.94
14.86
14.97
14.95
14.95
14.94
14.82
14.88
14.89
14.93
14.93
14.93
14.95
14.95
15.02
14.92
14.97
14.91
14.87
14.88
14.92
14.9
14.91
14.9
14.84
14.93
14.94
14.99
14.99
15
15.09
15.09
15.19
14.93
14.66
14.85
14.85
14.9
14.89
14.94
14.99
14.92
15
14.96
15
15.01
15.03
15.06
15
14.86
14.82
14.72
14.77
14.87
14.83
14.82
14.83
14.93
14.72
14.62
14.49
14.3
14.25
14.21
14.23
14.23
14.29
14.22
14.3
14.32
14.38
12/31/04 14.44
Portfolio Statistics
--------------------------------------------------------------------------------
Share Price $14.44
--------------------------------------------------------------------------------
Common Share
Net Asset Value $15.15
--------------------------------------------------------------------------------
Premium/Discount to NAV -4.69%
--------------------------------------------------------------------------------
Latest Dividend $.1000
--------------------------------------------------------------------------------
Market Yield 8.31%
--------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $358,197
--------------------------------------------------------------------------------
Industries
(as a % of total investments)
--------------------------------------------------------------------------------
Commercial Banks 23.3%
--------------------------------------------------------------------------------
Insurance 20.3%
--------------------------------------------------------------------------------
Real Estate 11.7%
--------------------------------------------------------------------------------
Diversified Financial Services 10.6%
--------------------------------------------------------------------------------
Capital Markets 10.0%
--------------------------------------------------------------------------------
Thrifts & Mortgage Finance 3.3%
--------------------------------------------------------------------------------
Diversified Telecommunication
Services 3.3%
--------------------------------------------------------------------------------
Oil & Gas 3.3%
--------------------------------------------------------------------------------
Automobiles 3.3%
--------------------------------------------------------------------------------
Repurchase Agreements 0.1%
--------------------------------------------------------------------------------
Other 10.8%
--------------------------------------------------------------------------------
Top Five Issuers
(excluding repurchase agreements)
(as a % of total investments)
--------------------------------------------------------------------------------
Wachovia Corporation 3.6%
--------------------------------------------------------------------------------
ING Groep NV 3.4%
--------------------------------------------------------------------------------
Zurich Financial Services 2.9%
--------------------------------------------------------------------------------
Union Planters Corporation 2.4%
--------------------------------------------------------------------------------
Citigroup 2.3%
--------------------------------------------------------------------------------
Average Annual Total Return
(Inception 12/18/02)
--------------------------------------------------------------------------------
On Share Price On NAV
--------------------------------------------------------------------------------
1-Year -0.41% 7.73%
--------------------------------------------------------------------------------
Since
Inception 6.75% 11.60%
--------------------------------------------------------------------------------
(1) The Fund also paid shareholders a capital gains distribution in December
2004 of $0.0588 per share.
12
Shareholder
Meeting Report
The Shareholder Meeting was held in the Embassy Room of the Mandarin Oriental
Hotel, 222 Sansome Street, San Francisco, California on November 17, 2004.
JTP JPS JHP
------------------------------------------------------------------------------------------------------------------------------------
Approval of the board members
was reached as follows:
Common and Common and Common and
FundPreferred FundPreferred FundPreferred FundPreferred FundPreferred FundPreferred
shares voting shares voting shares voting shares voting shares voting shares voting
together together together together together together
as a class as a class as a class as a class as a class as a class
====================================================================================================================================
Robert P. Bremner
For 63,063,195 -- 116,546,845 -- 23,271,219 --
Withhold 499,423 -- 826,148 -- 108,796 --
------------------------------------------------------------------------------------------------------------------------------------
Total 63,562,618 -- 117,372,993 -- 23,380,015 --
====================================================================================================================================
Lawrence H. Brown
For 63,051,475 -- 116,540,309 -- 23,274,468 --
Withhold 511,143 -- 832,684 -- 105,547 --
------------------------------------------------------------------------------------------------------------------------------------
Total 63,562,618 -- 117,372,993 -- 23,380,015 --
====================================================================================================================================
Jack B. Evans
For 63,056,823 -- 116,543,695 -- 23,270,868 --
Withhold 505,795 -- 829,298 -- 109,147 --
------------------------------------------------------------------------------------------------------------------------------------
Total 63,562,618 -- 117,372,993 -- 23,380,015 --
====================================================================================================================================
William C. Hunter
For 63,056,206 -- 116,541,537 -- 23,272,901 --
Withhold 506,412 -- 831,456 -- 107,114 --
------------------------------------------------------------------------------------------------------------------------------------
Total 63,562,618 -- 117,372,993 -- 23,380,015 --
====================================================================================================================================
William J. Schneider
For -- 16,732 -- 30,095 -- 5,972
Withhold -- 64 -- 119 -- 111
------------------------------------------------------------------------------------------------------------------------------------
Total -- 16,796 -- 30,214 -- 6,083
====================================================================================================================================
Timothy R. Schwertfeger
For -- 16,728 -- 30,095 -- 5,972
Withhold -- 68 -- 119 -- 111
------------------------------------------------------------------------------------------------------------------------------------
Total -- 16,796 -- 30,214 -- 6,083
====================================================================================================================================
Judith M. Stockdale
For 63,055,783 -- 116,513,937 -- 23,274,251 --
Withhold 506,835 -- 859,056 -- 105,764 --
------------------------------------------------------------------------------------------------------------------------------------
Total 63,562,618 -- 117,372,993 -- 23,380,015 --
====================================================================================================================================
13
Report of
Independent Registered
Public Accounting Firm
To the Shareholders and Board of Trustees of
Nuveen Quality Preferred Income Fund
Nuveen Quality Preferred Income Fund 2
Nuveen Quality Preferred Income Fund 3
We have audited the accompanying statements of assets and liabilities of Nuveen
Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen
Quality Preferred Income Fund 3 (the "Funds"), including the portfolios of
investments, as of December 31, 2004, and the related statements of operations
and changes in net assets and the financial highlights for the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Funds'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of December 31,
2004, by correspondence with the custodian and brokers or by other appropriate
auditing procedures where replies from brokers were not received. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Nuveen
Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen
Quality Preferred Income Fund 3 at December 31, 2004, the results of their
operations, the changes in their net assets and the financial highlights for the
periods indicated therein, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 17, 2005
14
Nuveen Quality Preferred Income Fund (JTP)
Portfolio of
Investments December 31, 2004
Ratings*
------------------ Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
$25 PAR (or similar) SECURITIES - 66.3% (45.7% of Total Investments)
Auto Components - 1.1%
422,441 Delphi Trust I 8.250% Baa3 BB $ 10,523,005
------------------------------------------------------------------------------------------------------------------------------------
Automobiles - 0.2%
32,900 Ford Motor Company (CORTS) 8.000% Baa1 BBB- 878,759
51,600 General Motors Acceptance Corporation 7.350% Baa1 BBB- 1,317,864
------------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 5.9%
1,250 ABN AMRO North America, Series L, 144A (a) 6.460% A3 NA 1,322,656
122,000 BCH Capital Ltd., Series B 9.430% A2 BBB+ 3,242,150
60,000 Bear Stearns Capital Trust III 7.800% A2 BBB 1,590,000
31,100 BNY Capital Trust V, Series F 5.950% A1 A- 784,031
270,650 BSCH Finance Ltd., Series Q 8.625% A2 BBB+ 7,077,498
228,095 Compass Capital Trust III 7.350% A3 BBB- 5,996,618
29,400 First Union Capital II, Series II (CORTS) 7.500% A1 BBB+ 790,860
11,300 First Union Institutional Capital II (CORTS) 8.200% A1 BBB+ 319,790
81,500 JPMorgan Chase Capital Trust IX, Series I 7.500% A1 A- 2,154,860
108,549 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 BBB+ 2,773,427
43,500 Lehman Brothers Holdings Capital Trust IV, Series L 6.375% A2 BBB+ 1,121,430
13,200 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 BBB+ 328,680
35,000 Lehman Brothers Holdings Inc., Series C (a) 5.940% NA BBB+ 1,790,250
74,500 Merrill Lynch Capital Trust 7.000% A1 A- 1,998,090
192,500 Merrill Lynch Preferred Capital Trust 7.750% A1 A- 5,149,375
59,700 Merrill Lynch Preferred Capital Trust IV 7.120% A1 A- 1,605,333
77,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 A- 2,101,410
157,200 Morgan Stanley Capital Trust II 7.250% A1 A- 4,159,512
226,700 Morgan Stanley Capital Trust III 6.250% A1 A- 5,764,981
249,095 Morgan Stanley Capital Trust IV 6.250% A1 A- 6,309,576
10,800 Morgan Stanley Capital Trust V 5.750% A1 A+ 264,708
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 8.3%
24,800 Abbey National plc, Series B 7.250% A1 A- 653,728
67,800 Abbey National plc, Series B 7.375% A2 A 1,864,500
100,000 ABN AMRO Capital Fund Trust V 5.900% A2 A 2,450,000
102,800 ASBC Capital I 7.625% Baa1 BBB- 2,760,180
7,200 BAC Capital Trust I 7.000% Aa3 A- 189,648
64,500 BAC Capital Trust II 7.000% Aa3 A- 1,723,440
80,000 BAC Capital Trust III 7.000% Aa3 A- 2,148,000
52,300 Banco Totta & Acores Finance, Series A 8.875% A3 NA 1,426,812
68,300 Bank One Capital II 8.500% A1 A- 1,771,019
59,400 Bank One Capital Trust VI 7.200% A1 A- 1,577,664
198,200 Chittenden Capital Trust I 8.000% Baa1 BB+ 5,373,202
66,300 Citigroup Inc., Series H (a) 6.231% Aa3 NA 3,571,913
116,800 Cobank ABC, 144A (a) 7.000% NA NA 6,204,416
124,700 Comerica Capital Trust I 7.600% A3 BBB+ 3,277,116
87,000 Fleet Capital Trust VI 8.800% Aa3 A- 2,234,160
33,900 Fleet Capital Trust VII 7.200% Aa3 A- 900,045
62,900 KeyCorp (PCARS) 7.500% A3 NA 1,656,786
18,000 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 BBB 485,100
29,800 KeyCorp, Series B (CORTS) 8.250% A3 BBB 777,780
63,500 National Commerce Capital Trust II 7.700% A1 A- 1,701,800
55,300 National Westminster Bank plc, Series A 7.875% Aa2 A+ 1,430,058
29,200 Regions Finance Trust I 8.000% A2 BBB+ 762,412
15
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of Investments December 31, 2004
Ratings*
------------------ Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks (continued)
10,700 Royal Bank of Scotland Group plc, Series L 5.750% A1 A $ 262,257
22,800 Royal Bank of Scotland Group plc, Series M 6.400% A1 A 598,044
23,500 SunTrust Capital Trust IV 7.125% A1 A- 618,285
71,800 SunTrust Capital Trust V 7.050% A1 A- 1,896,956
174,400 USB Capital Trust III 7.750% Aa3 A- 4,632,064
419,005 USB Capital Trust IV 7.350% Aa3 A- 11,149,723
46,100 USB Capital Trust V 7.250% Aa3 A- 1,222,111
35,800 VNB Capital Trust I 7.750% Baa1 BBB 952,996
27,300 Washington Mutual Capital Trust I,
Series 2001-22, Class A-1 (CORTS) 7.650% Baa1 BBB 712,803
11,800 Wells Fargo Capital Trust IV 7.000% Aa2 A 313,880
130,100 Wells Fargo Capital Trust V 7.000% Aa2 A 3,419,028
5,600 Wells Fargo Capital Trust VI 6.950% Aa2 A- 149,128
340,000 Zions Capital Trust B 8.000% Baa1 BB+ 9,316,000
------------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.6%
127,000 Household Capital Trust V, Series X 10.000% A2 BBB+ 3,267,710
60,300 Household Capital Trust VI 8.250% A2 BBB+ 1,600,362
24,700 Household Capital Trust VII 7.500% A2 BBB+ 660,972
------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 6.1%
17,000 BBVA Preferred Capital Ltd., Series B 7.750% A1 A- 451,180
25,200 Chase Capital Trust VIII, Series H 8.300% A1 A- 656,208
30,376 CIT Group Incorporated (CORTS) 7.750% A3 BBB+ 834,581
160,500 Citigroup Capital Trust VII 7.125% Aa2 A 4,237,200
95,200 Citigroup Capital Trust VIII 6.950% Aa2 A 2,498,048
40,800 Citigroup Inc., Series M (a) 5.864% Aa3 A 2,162,400
30,300 ING Capital Funding Trust II 9.200% A2 A- 779,316
563,900 ING Group NV 7.050% NA A- 15,168,910
1,015,458 ING Group NV 7.200% A2 A- 27,589,994
32,600 JPM Capital Trust I, Series 2001-1, Class A-1 (CORTS) 7.850% A1 A- 881,178
73,600 JPMorgan Chase Capital Trust X 7.000% A1 NA 1,967,328
20,000 JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS) 7.125% A1 A- 534,400
46,000 Merrill Lynch Capital Trust II 8.000% A1 A- 1,252,120
------------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 0.1%
14,800 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A2 A 385,244
18,100 SBC Communications Inc. 7.000% A2 A 475,668
16,500 Verizon New England Inc., Series B 7.000% A2 NA 440,550
------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 2.2%
77,740 DTE Energy Trust I 7.800% Baa3 BB+ 2,081,877
95,305 Entergy Louisiana Inc. 7.600% Baa1 A- 2,547,503
117,951 Georgia Power Company 5.900% A2 A 2,972,365
251,220 Interstate Power and Light Company, Series B (a) 8.375% Baa3 BBB- 8,541,480
7,000 Tennessee Valley Authority, Series D 6.750% Aaa AAA 175,000
187,000 Virginia Power Capital Trust 7.375% Baa1 BBB- 5,039,650
------------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.7%
65,000 Dairy Farmers of America Inc., 144A (a) 7.875% Baa3 BBB- 6,784,375
------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1%
32,300 AGL Capital Trust II 8.000% Baa2 BBB 856,919
------------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1%
19,400 General Electric Company (CORTS) 6.800% Aaa AAA 517,786
------------------------------------------------------------------------------------------------------------------------------------
Insurance - 9.8%
14,900 ACE Capital Trust I, Series 1999 8.875% Baa1 BBB- 376,523
673,700 Ace Ltd., Series C 7.800% Baa2 BBB- 17,974,316
1,800 Allstate Corporation (PCARS) 7.150% A2 A- 47,610
21,500 AMBAC Financial Group Inc. 5.950% Aa2 AA 540,510
18,700 American General Capital III 8.050% Aa1 AA 488,070
201,000 Delphi Financial Group Inc. 8.000% Baa3 BBB 5,477,250
262,700 EverestRe Capital Trust II 6.200% Baa1 BBB 6,157,688
16
Ratings*
------------------ Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Insurance (continued)
72,300 EverestRe Group Limited 7.850% Baa1 BBB $ 1,999,818
156,877 Hartford Capital Trust III, Series C 7.450% Baa1 BBB 4,113,315
46,700 Hartford Life Capital Trust II, Series B 7.625% Baa1 BBB 1,236,149
77,100 Lincoln National Capital Trust V, Series E 7.650% Baa1 BBB 2,044,692
26,900 Lincoln National Capital Trust VI 6.750% Baa1 BBB 720,651
26,100 MBIA Inc. 8.000% Aa2 AA 685,125
113,700 PartnerRe Limited 7.900% A3 BBB+ 3,024,420
250,000 PartnerRe Limited, Series C 6.750% Baa1 BBB+ 6,485,000
67,000 PartnerRe Limited, Series D 6.500% Baa1 BBB+ 1,685,720
72,100 PLC Capital Trust III 7.500% Baa1 BBB+ 1,904,882
410,000 PLC Capital Trust IV 7.250% Baa1 BBB+ 10,906,000
264,165 Prudential plc 6.750% Baa1 A 6,849,798
111,450 RenaissanceRe Holdings Ltd., Series A 8.100% Baa2 BBB+ 2,973,486
59,100 RenaissanceRe Holdings Ltd., Series B 7.300% Baa2 BBB+ 1,586,244
13,900 RenaissanceRe Holdings Ltd., Series C 6.080% Baa2 BBB+ 331,793
35,800 Safeco Capital Trust I (CORTS) 8.700% Baa2 BBB- 976,624
31,300 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 BBB- 845,100
61,600 Torchmark Capital Trust I 7.750% Baa1 A- 1,652,420
4,200 W.R. Berkley (CORTS) 8.250% Baa3 BBB- 111,699
391,854 XL Capital Ltd., Series A 8.000% Baa1 BBB+ 10,701,533
72,400 XL Capital Ltd., Series B 7.625% Baa1 BBB+ 1,949,732
------------------------------------------------------------------------------------------------------------------------------------
IT Services - 0.1%
22,800 Vertex Indsutries Inc. (PPLUS) 7.625% A2 A+ 614,688
------------------------------------------------------------------------------------------------------------------------------------
Media - 0.3%
119,000 Viacom Inc. 7.300% A3 A- 3,117,800
------------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power - 0.7%
93,600 Dominion CNG Capital Trust I 7.800% Baa1 BBB- 2,506,608
57,600 Dominion Resources Capital Trust II 8.400% Baa2 BBB- 1,552,320
97,700 Energy East Capital Trust I 8.250% Baa3 BBB- 2,621,291
------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas - 1.5%
445,632 Nexen Inc. 7.350% Baa3 BB+ 12,000,870
108,500 TransCanada Pipeline 8.250% A3 BBB 2,803,640
------------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1%
20,000 Bristol Myers Squibb Company (CORTS) 6.250% A1 A+ 519,900
------------------------------------------------------------------------------------------------------------------------------------
Real Estate - 22.0%
49,658 AMB Property Corporation, Series M 6.750% Baa2 BBB- 1,276,211
13,400 AvalonBay Communities, Inc., Series H 8.700% Baa2 BBB 378,148
608,700 BRE Properties, Series B 8.080% Baa3 BBB- 16,343,595
85,000 BRE Properties, Series D 6.750% Baa3 BBB- 2,133,500
547,145 CarrAmerica Realty Corporation, Series E 7.500% Baa3 BBB- 14,532,171
55,600 Developers Diversified Realty Corporation, Series F 8.600% Ba1 BBB- 1,493,972
45,100 Developers Diversified Realty Corporation, Series G 8.000% Ba1 BBB- 1,206,425
119,000 Developers Diversified Realty Corporation, Series H 7.375% Ba1 BBB- 3,083,290
114,179 Duke-Weeks Realty Corporation, Series B 7.990% Baa2 BBB 5,780,312
10,800 Duke-Weeks Realty Corporation, Series I 8.450% Baa2 BBB 284,040
1,097,400 Equity Office Properties Trust, Series G 7.750% Baa3 BBB 29,629,800
30,400 Equity Residential Properties Trust 9.125% Baa2 BBB 787,056
23,100 Equity Residential Properties Trust, Series D 8.600% Baa2 BBB 632,478
10,600 First Industrial Realty Trust, Inc., Series C 8.625% Baa3 BBB- 291,500
19,000 Firstar Realty LLC, 144A 8.875% Aa3 A 24,174,650
57,900 Harris Preferred Capital Corporation, Series A 7.375% A1 A 1,473,555
1,008,900 HRPT Properties Trust, Series B 8.750% Baa3 BBB- 27,901,130
22,000 New Plan Excel Realty Trust, Series D 7.800% Baa3 BBB- 1,119,939
416,000 New Plan Excel Realty Trust, Series E 7.625% NA BBB- 10,957,440
101,000 Prologis Trust, Series G 6.750% Baa2 BBB 2,548,230
328,400 PS Business Parks Inc. 7.000% Ba1 BBB- 8,141,036
57,000 PS Business Parks Inc., Series I 6.875% Ba1 BBB- 1,407,900
240,000 PS Business Parks Inc., Series L 7.600% Ba1 BBB- 6,134,400
17
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of Investments December 31, 2004
Ratings*
------------------ Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Real Estate (continued)
60,900 Public Storage Inc., Series C 6.600% Baa2 BBB+ $ 1,532,853
14,200 Public Storage Inc., Series E 10.000% Baa2 BBB+ 356,846
22,800 Public Storage Inc., Series F 9.750% Baa2 BBB+ 582,084
25,100 Public Storage Inc., Series Q 8.600% Baa2 BBB+ 657,369
101,300 Public Storage Inc., Series R 8.000% Baa2 BBB+ 2,671,281
200,000 Public Storage Inc., Series S 7.875% Baa2 BBB+ 5,266,000
35,380 Public Storage Inc., Series U 7.625% Baa2 BBB+ 942,523
345,600 Public Storage Inc., Series V 7.500% Baa2 BBB+ 9,158,400
70,000 Realty Income Corporation 7.375% Baa3 BBB- 1,822,800
47,500 Regency Centers Corporation 7.450% Baa3 BBB- 1,266,113
15,500 Regency Centers Corporation 7.250% Baa3 BBB- 408,813
20,500 Simon Property Group, Inc., Series F 8.750% Baa2 BBB- 551,655
176,200 Simon Property Group, Inc., Series G 7.890% Baa2 BBB 9,377,364
191,900 Vornado Realty Trust 6.625% Baa3 BBB- 4,739,930
16,970 Vornado Realty Trust, Series C 8.500% Ba1 BBB- 425,608
315,500 Wachovia Preferred Funding Corporation 7.250% A2 BBB+ 8,953,890
------------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 4.5%
4,200 Countrywide Capital Trust II, Series II (CORTS) 8.000% Baa1 BBB+ 112,308
618,420 Countrywide Capital Trust IV 6.750% Baa1 BBB+ 15,899,578
364,400 Fannie Mae (a) 0.000% Aa3 AA- 20,634,150
61,300 Fannie Mae (a) 3.780% Aa3 AA- 3,080,325
53,200 Federal Home Loan Mortgage Corporation (a) 1.140% Aa3 AA- 2,021,600
39,000 Federal Home Loan Mortgage Corporation (a) 5.100% Aa3 AA- 1,700,400
------------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 1.9%
312,846 Telephone and Data Systems Inc. 7.600% Baa1 A- 8,252,877
157,600 United States Cellular Corporation 8.750% Baa1 A- 4,409,648
224,400 United States Cellular Corporation 7.500% Baa1 A- 6,081,240
------------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $602,793,267) 637,107,959
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 7.7% (5.4% of Total Investments)
Diversified Financial Services - 0.8%
154,000 Citigroup Global Markets 2.000% Aa1 AA- 7,241,542
------------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 1.4%
263,200 Alltel Corporation 7.750% A2 NA 13,920,648
------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 1.2%
266,200 Ameren Corporation 9.750% A3 BBB+ 7,655,912
10,000 American Electric Power 9.250% Baa3 BBB 476,500
60,000 DTE Energy Company 8.750% Baa2 BBB- 1,564,200
30,000 FPL Group Inc. 8.000% NA A- 1,807,200
------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 1.6%
299,400 Keyspan Corporation 8.750% A3 NA 15,619,698
------------------------------------------------------------------------------------------------------------------------------------
Healthcare Equipment & Supplies - 0.3%
54,500 Baxter International Inc. 7.000% Baa1 NA 3,077,070
------------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.1%
50,000 XL Capital Ltd. 6.500% A2 A 1,272,500
------------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power - 2.3%
260,200 Dominion Resources Inc. 8.750% Baa1 BBB+ 14,357,836
115,200 Public Service Enterprise Group 10.250% Baa3 BBB- 7,755,264
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $66,619,068) 74,748,370
--------------------------------------------------------------------------------------------------------------------
18
Principal Ratings*
Amount (000)/ ------------------- Market
Shares Description(1) Coupon Maturity Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 65.4% (45.2% of Total Investments)
Capital Markets - 7.2%
2,500 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 A- $ 2,770,360
2,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 A- 2,237,212
1,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 A- 1,107,440
7,900 BT Preferred Capital Trust II 7.875% 2/25/27 A2 NR 8,913,791
2,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 A 2,357,001
11,250 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 A 11,731,928
2,500 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A3 BBB+ 3,099,568
26,463 First Union Institutional Capital 8.040% 12/01/26 A1 BBB+ 28,894,950
Securities I
7,000 UBS Preferred Funding Trust I 8.622% 10/29/49 A1 AA- 8,423,912
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 32.8%
9,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 Aa3 AA- 9,118,917
30,000 Abbey National Capital Trust I 8.963% 12/30/49 A2 A- 41,938,830
3,100 AgFirst Farm Credit Bank 7.300% 12/15/53 NA NA 3,131,911
2,800 ANZ Capital Trust I, 144A 5.360% 12/29/49 A2 A- 2,845,240
2,500 Bank One Capital III 8.750% 9/01/30 A1 A- 3,394,460
2,000 BankAmerica Institutional Capital Trust, 7.700% 12/31/26 Aa3 A- 2,156,138
Series B, 144A
5,700 BankBoston Capital Trust II, Series B 7.750% 12/15/26 Aa3 A- 6,176,081
1,500 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 BBB- 1,650,147
7,200 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 A+ 8,778,535
10 BBVA Privanza International Gibraltar, 7.764% 9/30/47 A1 NA 10,600,000
144A (b)
3,000 Centura Capital Trust I, 144A 8.845% 6/01/27 A2 BBB+ 3,470,808
3,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 A- 3,280,455
1,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 A- 1,968,275
1,800 Farm Credit Bank of Texas 7.561% 11/05/49 NA NA 1,854,745
1,000 First Chicago NBD Institutional Capital, 7.950% 12/01/26 A1 NA 1,087,886
144A
1,000 First Empire Capital Trust II 8.277% 6/01/27 Baa1 BBB 1,112,938
1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 BBB- 1,639,731
5,750 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 A- 7,171,613
17,150 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 A- 26,631,652
12,000 KBC Bank Fund Trust III, 144A 9.860% 11/02/49 A2 A- 14,737,008
2,000 KeyCorp Capital III 7.750% 7/15/29 A3 BBB 2,402,784
2,000 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 BBB 2,171,914
8,850 Lloyds TSB Bank plc, Subordinate Note 6.900% 11/22/49 Aa2 A+ 9,289,385
11,150 NB Capital Trust II 7.830% 12/15/26 Aa3 A- 12,273,942
7,655 Nordbanken AB, 144A 8.950% 11/29/49 A2 A- 9,076,564
1,000 North Fork Capital Trust I, Capital 8.700% 12/15/26 A3 BBB- 1,110,862
Securities
8,000 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 Baa1 BB+ 9,072,096
19,000 PNC Institutional Capital Securities, 7.950% 12/15/26 A3 BBB+ 20,783,568
144A
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 BBB- 2,112,396
15,750 RBS Capital Trust B 6.800% 12/31/49 A1 A 16,291,784
17,500 Reliance Capital Trust I, Series B 8.170% 5/01/28 NA NA 19,618,445
1,400 Republic New York Capital II, Capital 7.530% 12/04/26 A1 A- 1,507,254
Securities
1,100 Royal Bank of Scotland Group plc 7.648% 8/31/49 A1 A 1,343,409
3,000 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 A 3,292,737
5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 NA 5,100,250
23,000 Summit Capital Trust I, Capital 8.400% 3/15/27 Aa3 A- 25,487,059
Securities
6,676 Union Planters Capital Trust A 8.200% 12/15/26 A2 BBB+ 7,251,498
4,000 Wachovia Capital Trust I, Capital 7.640% 1/15/27 A1 BBB+ 4,454,912
Securities, 144A
5,000 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 BBB 5,558,925
1,050 Wells Fargo Capital Securities 7.950% 12/01/26 Aa2 A 1,148,452
3,000 Zions Institutional Capital Trust, 8.536% 12/15/26 Baa1 BBB- 3,402,762
Series A
------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 7.1%
4,250 BNP Paribas Capital Trust 7.200% 12/31/49 A1 A+ 4,501,099
1,500 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A1 A+ 1,850,589
5,000 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 A- 5,390,285
25,500 HBOS Capital Funding LP, Notes 6.850% 3/01/49 A1 A 26,279,127
19
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of Investments December 31, 2004
Principal Ratings*
Amount (000)/ ------------------- Market
Shares Description(1) Coupon Maturity Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services (continued)
19,500 JPM Capital Trust II 7.950% 2/01/27 A1 A- $ 21,334,638
8,100 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 NA 8,570,764
------------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 1.8%
13,250 Centaur Funding Corporation, Series B,
144A 9.080% 4/21/20 Baa1 BBB+ 17,485,866
------------------------------------------------------------------------------------------------------------------------------------
Insurance - 10.9%
7,570 Ace Capital Trust II 9.700% 4/01/30 Baa1 BBB- 10,087,033
1,000 Allstate Financing II 7.830% 12/01/45 A2 A- 1,082,689
1,000 American General Capital II 8.500% 7/01/30 Aa1 AA 1,348,959
7,500 Berkeley Capital Trust 8.197% 12/15/45 Baa3 BBB- 7,962,555
2,500 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 Baa1 BBB+ 2,488,970
4,000 MIC Financing Trust I 8.375% 2/01/27 A1 A+ 4,240,444
7,000 Prudential plc 6.500% 6/29/49 Baa1 A 7,043,575
2,000 RenaissanceRe Capital Trust 8.540% 3/01/27 Baa1 BBB+ 2,177,150
26,216 Sun Life Canada Capital Trust, Capital 8.526% 5/06/47 A1 A+ 29,113,052
Securities, 144A
35,095 Zurich Capital Trust I, 144A 8.376% 6/01/37 Baa2 A- 39,522,375
------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas - 4.0%
4,000 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 BB+ 4,455,388
8,860 KN Capital Trust III 7.630% 4/15/28 Baa3 BB+ 9,937,500
20,900 Phillips 66 Capital Trust II 8.000% 1/15/37 Baa2 BBB 24,005,238
------------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 1.6%
8,500 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 BBB 9,667,331
5,000 Great Western Financial Trust II, 8.206% 2/01/27 Baa1 BBB 5,464,065
Series A
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $593,863,120) 629,041,222
--------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 4.7% (3.2% of Total Investments)
Automobiles - 4.4%
5,000 Ford Motor Company 8.900% 1/15/32 Baa1 BBB- 5,699,895
3,400 Ford Motor Company, Debenture 7.400% 11/01/46 Baa1 BBB- 3,250,267
5,700 Ford Motor Company, Debenture 7.700% 5/15/97 Baa1 BBB- 5,523,494
24,500 General Motors Acceptance Corporation, 8.000% 11/01/31 Baa1 BBB- 25,253,664
Notes
2,760 General Motors Corporation, Senior 8.375% 7/15/33 Baa2 BBB- 2,867,508
Debentures
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.3%
2,500 Washington Mutual Bank FA 5.125% 1/15/15 A3 A- 2,487,835
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $40,532,449) 45,082,663
--------------------------------------------------------------------------------------------------------------------
20
Principal Market
Amount (000) Description(1) Value
-----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 0.7% (0.5% of Total Investments)
$ 6,355 State Street Bank, 1.000%, dated 12/31/04, due 1/03/05, repurchase price $6,355,582,
============= collateralized by $5,045,000 U.S. Treasury Bonds, 7.500%, due 11/15/16, value $6,485,186 $ 6,355,052
-------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (cost $6,355,052) 6,355,052
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,310,162,956) - 144.8% 1,392,335,266
-------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.0% 9,247,663
-------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (45.8)% (440,000,000)
-------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 961,582,929
===================================================================================================================
Interest Rate Swap Contracts outstanding at December 31, 2004:
Unrealized
Notional Termination Appreciation
Counterparty Amount Fixed Rate Floating Rate** Date (Depreciation)
--------------------------------------------------------------------------------------------------------------------
Citibank, N.A. $110,000,000 3.1300% 2.4175% 8/29/05 $ (206,840)
Citibank, N.A. 110,000,000 3.8600 2.4175 8/29/07 (990,584)
Citibank, N.A. 110,000,000 4.3500 2.4175 8/29/09 (2,276,366)
--------------------------------------------------------------------------------------------------------------------
$ (3,473,790)
===================================================================================================================
(1) All percentages shown in the Portfolio of Investments are
based on net assets applicable to Common shares unless
otherwise noted.
* Ratings (not covered by the report of independent
registered public accounting firm): Below Baa by Moody's
Investor Service, Inc. or BBB by Standard & Poor's Group
are considered to be below investment grade.
** Based on LIBOR (London Inter-bank Offered Rate).
(a) Security is eligible for the Dividends Received Deduction.
(b) Security valued at fair value using methods determined in
good faith by or at the direction of the Board of
Trustees.
144A 144A securities are those which are exempt from
registration under Rule 144A of the Securities Act of
1933, as amended. These securities may only be resold in
transactions exempt from registration which are normally
those transactions with qualified institutional buyers.
(CORTS) Corporate Backed Trust Securities.
(PCARS) Public Credit and Repackaged Securities.
(PPLUS) PreferredPlus Trust.
(SATURNS) Structured Asset Trust Unit Repackaging.
NA Security is not rated.
See accompanying notes to financial statements.
21
Nuveen Quality Preferred Income Fund 2 (JPS)
Portfolio of
Investments December 31, 2004
Ratings*
------------------ Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
$25 PAR (or similar) SECURITIES - 67.0% (47.2% of Total Investments)
Auto Components - 1.1%
800,357 Delphi Trust I 8.250% Baa3 BB $ 19,936,893
------------------------------------------------------------------------------------------------------------------------------------
Automobiles - 0.1%
23,300 DaimlerChrysler Corp. (PPLUS) 7.250% A3 BBB 605,334
14,500 Ford Motor Company 0.000% Baa1 BBB- 389,180
38,000 Ford Motor Company, Series F (CORTS) 8.000% Baa1 BBB- 1,014,980
------------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 5.2%
340,500 BCH Capital Ltd., Series B 9.430% A2 BBB+ 9,048,788
101,400 Bear Stearns Capital Trust III 7.800% A2 BBB 2,687,100
19,300 BNY Capital Trust IV, Series E 6.875% A1 A- 487,904
46,800 BNY Capital Trust V, Series F 5.950% A1 A- 1,179,828
446,100 BSCH Finance Ltd., Series Q 8.625% A2 BBB+ 11,665,515
381,125 Compass Capital Trust III 7.350% A3 BBB- 10,019,776
24,300 CSFB USA, Series 2002-10 (SATURNS) 7.000% Aa3 A+ 626,940
63,300 First Union Capital II, Series II (CORTS) 7.500% A1 BBB+ 1,702,770
31,300 First Union Institutional Capital II (CORTS) 8.200% A1 BBB+ 885,790
221,100 JPMorgan Chase Capital Trust IX, Series I 7.500% A1 A- 5,845,884
279,300 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 BBB+ 7,136,115
102,900 Lehman Brothers Holdings Capital Trust IV, Series L 6.375% A2 BBB+ 2,652,762
37,300 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 BBB+ 928,770
42,000 Lehman Brothers Holdings Inc., Series C (a) 5.940% NA BBB+ 2,148,300
171,900 Merrill Lynch Capital Trust 7.000% A1 A- 4,610,358
103,500 Merrill Lynch Preferred Capital Trust 7.750% A1 A- 2,768,625
89,400 Merrill Lynch Preferred Capital Trust IV 7.120% A1 A- 2,403,966
152,800 Merrill Lynch Preferred Capital Trust V 7.280% A1 A- 4,148,520
47,700 Morgan Stanley (PPLUS) 7.050% Aa3 A+ 1,264,527
161,408 Morgan Stanley Capital Trust II 7.250% A1 A- 4,270,856
457,500 Morgan Stanley Capital Trust III 6.250% A1 A- 11,634,225
380,000 Morgan Stanley Capital Trust IV 6.250% A1 A- 9,625,400
20,700 Morgan Stanley Capital Trust V 5.750% A1 A+ 507,357
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 8.0%
152,060 ASBC Capital I 7.625% Baa1 BBB- 4,082,811
135,900 BAC Capital Trust I 7.000% Aa3 A- 3,579,606
168,500 BAC Capital Trust II 7.000% Aa3 A- 4,502,320
218,300 BAC Capital Trust III 7.000% Aa3 A- 5,861,355
44,100 Banco Totta & Acores Finance, Series A 8.875% A3 NA 1,203,105
81,600 BancWest Capital I 9.500% A3 A- 2,158,320
621,000 Banesto Holdings, Series A, 144A 10.500% A2 NA 19,348,062
85,800 Bank One Capital II 8.500% A1 A- 2,224,794
198,500 Bank One Capital Trust VI 7.200% A1 A- 5,272,160
47,400 Bank One Capital V 8.000% A1 A- 1,250,886
57,300 BankNorth Capital Trust II 8.000% Baa1 BB+ 1,535,067
120,000 Chittenden Capital Trust I 8.000% Baa1 BB+ 3,253,200
36,900 Citigroup Inc., Series H (a) 6.231% Aa3 NA 1,987,988
225,500 Cobank ABC, 144A (a) 7.000% NA NA 11,978,560
239,700 Comerica Capital Trust I 7.600% A3 BBB+ 6,299,316
128,300 Fleet Capital Trust VI 8.800% Aa3 A- 3,294,744
22
Ratings*
------------------ Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks (continued)
34,400 KeyCorp (PCARS) 7.500% A3 NA $ 906,096
32,100 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 BBB 865,095
91,300 KeyCorp, Series B (CORTS) 8.250% A3 BBB 2,382,930
239,800 National Commerce Capital Trust II 7.700% A1 A- 6,426,640
112,200 National Westminster Bank plc, Series A 7.875% Aa2 A+ 2,901,492
38,100 Regions Finance Trust I 8.000% A2 BBB+ 994,791
139,600 SunTrust Capital Trust IV 7.125% A1 A- 3,672,876
110,200 SunTrust Capital Trust V 7.050% A1 A- 2,911,484
658,100 USB Capital Trust III 7.750% Aa3 A- 17,479,136
225,900 USB Capital Trust IV 7.350% Aa3 A- 6,011,199
95,900 USB Capital Trust V 7.250% Aa3 A- 2,542,309
90,800 VNB Capital Trust I 7.750% Baa1 BBB 2,417,096
41,400 Washington Mutual Capital Trust I, Series 2001-22, 7.650% Baa1 BBB 1,080,954
Class A-1 (CORTS)
14,900 Well Fargo Capital Trust IX 5.625% Aa2 A 359,388
17,800 Wells Fargo Capital Trust IV 7.000% Aa2 A 473,480
182,200 Wells Fargo Capital Trust V 7.000% Aa2 A 4,788,216
25,700 Wells Fargo Capital Trust VI 6.950% Aa2 A- 684,391
539,200 Zions Capital Trust B 8.000% Baa1 BB+ 14,774,080
------------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 2.2%
528,700 Household Capital Trust V, Series X 10.000% A2 BBB+ 13,603,451
620,196 Household Capital Trust VI 8.250% A2 BBB+ 16,460,002
66,100 Household Capital Trust VII 7.500% A2 BBB+ 1,768,836
360,600 HSBC Finance Corporation 6.875% A1 A 9,797,502
------------------------------------------------------------------------------------------------------------------------------------
Diversified Finanacial Services - 6.8%
75,800 BBVA Preferred Capital Ltd., Series B 7.750% A1 A- 2,011,732
73,800 Chase Capital Trust VIII, Series H 8.300% A1 A- 1,921,752
33,900 CIT Group Incorporated (CORTS) 7.750% A3 BBB+ 931,403
1,800 Citigroup Capital Trust IX 6.000% Aa2 A 45,360
264,300 Citigroup Capital Trust VII 7.125% Aa2 A 6,977,520
415,000 Citigroup Capital Trust VIII 6.950% Aa2 A 10,889,600
40,490 Citigroup Inc., Series M (a) 5.864% Aa3 A 2,145,970
300,000 General Electric Capital Corporation 6.100% Aaa AAA 7,863,000
199,700 General Electric Capital Corporation 6.625% Aaa AAA 5,341,975
63,600 ING Capital Funding Trust II 9.200% A2 A- 1,635,792
1,406,955 ING Group NV 7.050% NA A- 37,847,090
1,476,400 ING Group NV 7.200% A2 A- 40,113,788
5,000 ING Group NV 6.200% A2 A- 126,850
5,000 JP Morgan Chase Capital XII Trust 6.250% A1 A- 128,500
88,300 JPM Capital Trust (CORTS) 7.200% A2 A- 2,341,716
10,600 JPM Capital Trust I, Series 2001-1, Class A-1 (CORTS) 7.850% A1 A- 286,518
120,500 JPMorgan Chase Capital Trust X 7.000% A1 NA 3,220,965
11,000 JPMorgan Chase Capital Trust XI 5.875% A1 A- 269,610
49,600 JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS) 7.125% A1 A- 1,325,312
117,500 Merrill Lynch Capital Trust II 8.000% A1 A- 3,198,350
------------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 0.2%
15,300 BellSouth Corporation 7.125% Aa2 A 396,423
11,000 BellSouth Inc. (CORTS) 7.000% A2 A 289,300
12,100 BellSouth Telecommunications (PPLUS) 7.300% Aa3 A 312,785
31,800 SBC Communications Inc. 7.000% A2 A 835,704
29,900 Verizon Communications (CORTS) 7.625% A2 A+ 804,310
6,600 Verizon Communications (CORTS) 7.375% A2 A+ 176,781
62,600 Verizon Global Funding Corporation (SATURNS) 7.500% A2 A+ 1,677,680
4,000 Verizon South Inc., Series F 7.000% A2 A+ 106,000
------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 4.6%
189,500 Alabama Power Company (a) 5.830% Baa1 BBB+ 4,860,675
17,200 Consolidated Edison Company of New York Inc. 7.500% A1 A 454,768
1,000 Detroit Edison Company 7.540% Baa2 BB+ 25,250
9,500 Detroit Edison Company 7.625% Baa2 BB+ 240,255
27,400 DTE Energy Trust I 7.800% Baa3 BB+ 733,772
23
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of Investments December 31, 2004
Ratings*
------------------ Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities (continued)
5,500 Entergy Arkansas Inc. 6.700% Aaa AAA $ 145,915
49,000 Entergy Louisiana Inc. 7.600% Baa1 A- 1,309,770
1,298,000 Entergy Mississippi Inc. 7.250% Baa2 A- 35,370,500
3,000 Georgia Power Capital Trust V 7.125% A3 BBB+ 80,550
942,120 Interstate Power and Light Company, Series B (a) 8.375% Baa3 BBB- 32,032,080
20,000 National Rural Utilities Cooperative Finance Corporation 6.100% A3 BBB+ 501,400
51,000 Public Service Company of Oklahoma, Series B 6.000% Aaa AAA 1,313,250
56,700 Tennessee Valley Authority, Series D 6.750% Aaa AAA 1,417,500
254,000 Virginia Power Capital Trust 7.375% Baa1 BBB- 6,845,300
------------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.7%
125,000 Dairy Farmers of America Inc., 144A (a) 7.875% Baa3 BBB- 13,046,875
------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1%
51,700 AGL Capital Trust II 8.000% Baa2 BBB 1,371,601
------------------------------------------------------------------------------------------------------------------------------------
Insurance - 12.4%
972,600 Ace Ltd., Series C 7.800% Baa2 BBB- 25,948,968
62,900 Aetna Incorporated 8.500% Baa2 BBB+ 1,685,091
31,500 AMBAC Financial Group Inc. 5.950% Aa2 AA 791,910
33,900 American General Capital III 8.050% Aa1 AA 884,790
472,557 Delphi Financial Group Inc. 8.000% Baa3 BBB 12,877,178
2,591,000 EverestRe Group Limited 7.850% Baa1 BBB 71,667,060
43,400 Financial Security Assurance Holdings 6.875% Aa2 AA 1,145,760
693,000 Financial Security Assurance Holdings 6.250% Aa2 AA 17,761,590
287,800 Hartford Capital Trust III, Series C 7.450% Baa1 BBB 7,546,116
63,300 Hartford Life Capital Trust II, Series B 7.625% Baa1 BBB 1,675,551
81,000 Lincoln National Capital Trust V, Series E 7.650% Baa1 BBB 2,148,120
34,100 Lincoln National Capital Trust VI 6.750% Baa1 BBB 913,539
22,200 MBIA Inc. 8.000% Aa2 AA 582,750
7,500 Metlife Inc. 5.875% A2 A 187,200
233,681 PartnerRe Limited 7.900% A3 BBB+ 6,215,915
449,720 PartnerRe Limited, Series C 6.750% Baa1 BBB+ 11,665,737
21,600 PartnerRe Limited, Series D 6.500% Baa1 BBB+ 543,456
107,800 PLC Capital Trust III 7.500% Baa1 BBB+ 2,848,076
440,940 PLC Capital Trust IV 7.250% Baa1 BBB+ 11,729,004
10,200 PLC Capital Trust V 6.125% Baa1 BBB+ 250,920
218,000 Prudential plc 6.750% Baa1 A 5,652,740
304,360 RenaissanceRe Holdings Ltd., Series A 8.100% Baa2 BBB+ 8,120,325
139,000 RenaissanceRe Holdings Ltd., Series B 7.300% Baa2 BBB+ 3,730,760
6,200 RenaissanceRe Holdings Ltd., Series C 6.080% Baa2 BBB+ 147,994
16,500 Safeco Capital Trust I (CORTS) 8.750% Baa2 BBB- 504,075
78,900 Safeco Capital Trust I (CORTS) 8.700% Baa2 BBB- 2,152,392
59,700 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 BBB- 1,611,900
2,900 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 BBB- 78,692
64,700 Torchmark Capital Trust I 7.750% Baa1 A- 1,735,578
17,900 W.R. Berkley (CORTS) 8.250% Baa3 BBB- 476,051
558,900 XL Capital Ltd., Series A 8.000% Baa1 BBB+ 15,263,559
537,617 XL Capital Ltd., Series B 7.625% Baa1 BBB+ 14,478,026
------------------------------------------------------------------------------------------------------------------------------------
IT Services - 0.0%
5,400 Vertex Indsutries Inc. (PPLUS) 7.625% A2 A+ 145,584
------------------------------------------------------------------------------------------------------------------------------------
Media - 0.1%
79,400 Viacom Inc. 7.300% A3 A- 2,080,280
------------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power - 0.4%
92,900 Dominion CNG Capital Trust I 7.800% Baa1 BBB- 2,487,862
46,200 Dominion Resources Capital Trust II 8.400% Baa2 BBB- 1,245,090
111,100 Energy East Capital Trust I 8.250% Baa3 BBB- 2,980,813
------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas - 1.3%
789,511 Nexen Inc. 7.350% Baa3 BB+ 21,261,531
151,900 TransCanada Pipeline 8.250% A3 BBB 3,925,096
24
Ratings*
------------------ Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0%
14,500 Bristol Myers Squibb Company (CORTS) 6.250% A1 A+ $ 376,928
------------------------------------------------------------------------------------------------------------------------------------
Real Estate - 18.2%
97,800 AvalonBay Communities, Inc., Series H 8.700% Baa2 BBB 2,759,916
15,500 BRE Properties, Series B 8.080% Baa3 BBB- 416,175
45,300 BRE Properties, Series C 6.750% Baa3 BBB- 1,135,671
100,000 BRE Properties, Series D 6.750% Baa3 BBB- 2,510,000
1,002,995 CarrAmerica Realty Corporation, Series E 7.500% Baa3 BBB- 26,639,547
103,300 Developers Diversified Realty Corporation, Series F 8.600% Ba1 BBB- 2,775,671
489,800 Developers Diversified Realty Corporation, Series G 8.000% Ba1 BBB- 13,102,150
115,000 Developers Diversified Realty Corporation, Series H 7.375% Ba1 BBB- 2,979,650
165,000 Duke Realty Corporation, Series L 6.600% Baa2 BBB 4,125,000
200,650 Duke-Weeks Realty Corporation, Series B 7.990% Baa2 BBB 10,157,906
38,600 Duke-Weeks Realty Corporation, Series I 8.450% Baa2 BBB 1,015,180
327,300 Equity Office Properties Trust, Series G 7.750% Baa3 BBB 8,837,100
88,800 Equity Residential Properties Trust 9.125% Baa2 BBB 2,299,032
40,000 Equity Residential Properties Trust, Series C 9.125% Baa2 BBB 1,075,600
63,250 Equity Residential Properties Trust, Series D 8.600% Baa2 BBB 1,731,785
46,124 Equity Residential Properties Trust, Series N 6.480% Baa2 BBB 1,169,243
329,500 Federal Realty Investment Trust 8.500% Baa3 BBB- 8,939,335
18,600 First Industrial Realty Trust, Inc., Series C 8.625% Baa3 BBB- 511,500
12,609 Gables Residential Trust, Series D 7.500% Baa3 BBB- 325,312
16,800 Harris Preferred Capital Corporation, Series A 7.375% A1 A 427,560
200,000 HRPT Properties Trust, Series A 9.875% Baa3 BBB- 5,410,000
1,542,125 HRPT Properties Trust, Series B 8.750% Baa3 BBB- 42,647,467
153,000 Kimco Realty Corporation, Series F 6.650% Baa2 BBB+ 3,953,520
147,350 New Plan Excel Realty Trust, Series D 7.800% Baa3 BBB- 7,501,043
768,000 New Plan Excel Realty Trust, Series E 7.625% NA BBB- 20,229,120
91,728 Prologis Trust, Series G 6.750% Baa2 BBB 2,314,297
734,970 PS Business Parks Inc. 7.000% Ba1 BBB- 18,219,906
107,600 PS Business Parks Inc., Series I 6.875% Ba1 BBB- 2,657,720
400,000 PS Business Parks Inc., Series L 7.600% Ba1 BBB- 10,224,000
6,800 Public Storage Inc. 6.125% Baa2 BBB+ 168,844
13,000 Public Storage Inc., Series F 9.750% Baa2 BBB+ 331,890
63,700 Public Storage Inc., Series Q 8.600% Baa2 BBB+ 1,668,303
218,595 Public Storage Inc., Series R 8.000% Baa2 BBB+ 5,764,350
40,500 Public Storage Inc., Series S 7.875% Baa2 BBB+ 1,066,365
94,865 Public Storage Inc., Series T 7.625% Baa2 BBB+ 2,493,052
94,900 Public Storage Inc., Series U 7.625% Baa2 BBB+ 2,528,136
142,300 Public Storage Inc., Series V 7.500% Baa2 BBB+ 3,770,950
32,900 Public Storage Inc., Series Z 6.250% Baa2 BBB+ 810,985
160,000 Realty Income Corporation 7.375% Baa3 BBB- 4,166,400
300,000 Regency Centers Corporation 7.450% Baa3 BBB- 7,996,500
149,600 Regency Centers Corporation 7.250% Baa3 BBB- 3,945,700
34,500 Simon Property Group, Inc., Series F 8.750% Baa2 BBB- 928,395
326,041 Simon Property Group, Inc., Series G 7.890% Baa2 BBB 17,351,902
208,440 Vornado Realty Trust 6.625% Baa3 BBB- 5,148,468
34,585 Vornado Realty Trust, Series C 8.500% Ba1 BBB- 867,392
2,461,900 Wachovia Preferred Funding Corporation 7.250% A2 BBB+ 69,868,722
156,000 Weingarten Realty Trust, Series E 6.950% Baa1 A- 4,095,000
------------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.0%
20,800 Sherwin Williams Company, Series III (CORTS) 7.250% A2 A 562,640
------------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 3.4%
1,043,000 Countrywide Capital Trust IV 6.750% Baa1 BBB+ 26,815,530
416,400 Fannie Mae (a) 0.000% Aa3 AA- 23,578,650
80,800 Fannie Mae (a) 5.125% Aa3 AA- 3,455,816
47,300 Fannie Mae (a) 3.780% Aa3 AA- 2,376,825
21,700 Federal Home Loan Mortgage Corporation (a) 1.140% Aa3 AA- 824,600
68,000 Federal Home Loan Mortgage Corporation (a) 5.100% Aa3 AA- 2,964,800
80,000 Federal Home Loan Mortgage Corporation (a) 5.000% Aa3 AA- 3,440,000
25
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of Investments December 31, 2004
Ratings*
------------------ Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 2.2%
157,500 Telephone and Data Systems Inc. 7.600% Baa1 A- $ 4,154,850
1,317,400 United States Cellular Corporation 8.750% Baa1 A- 36,860,852
------------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $1,183,441,400) 1,255,921,778
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 7.3% (5.1% of Total Investments)
Diversified Financial Services - 0.5%
210,000 Citigroup Global Markets 2.000% Aa1 AA- 9,874,830
------------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 1.5%
546,000 Alltel Corporation 7.750% A2 NA 28,877,940
------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 1.0%
357,900 Ameren Corporation 9.750% A3 BBB+ 10,293,204
19,100 American Electric Power 9.250% Baa3 BBB 910,115
126,500 FPL Group Inc. 8.000% NA A- 7,620,360
------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 1.3%
452,500 Keyspan Corporation 8.750% A3 NA 23,606,925
------------------------------------------------------------------------------------------------------------------------------------
Healthcare Equipment & Supplies - 0.4%
128,600 Baxter International Inc. 7.000% Baa1 NA 7,260,756
------------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.2%
118,000 XL Capital Ltd. 6.500% A2 A 3,003,100
------------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power - 2.3%
468,500 Dominion Resources Inc. 8.750% Baa1 BBB+ 25,851,830
250,900 Public Service Enterprise Group 10.250% Baa3 BBB- 16,890,588
------------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 0.1%
69,700 PMI Group Inc. 5.875% A1 A 1,842,868
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $116,910,379) 136,032,516
--------------------------------------------------------------------------------------------------------------------
Principal Ratings*
Amount (000)/ ----------------- Market
Shares Description(1) Coupon Maturity Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 63.2% (44.4% of Total Investments)
Capital Markets - 10.5%
15,000 ABN AMRO North America Holding
Capital, 144A 6.523% 12/31/49 A3 A- $ 16,506,480
15,000 Ahmanson Capital Trust I, 144A 8.360% 12/01/26 Baa1 BBB 16,463,130
1,465 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 A- 1,623,431
4,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 A- 4,474,424
2,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 A- 2,214,880
500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 NR 564,164
5,000 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 A 5,237,780
18,600 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 A 19,396,787
7,500 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A3 BBB+ 9,298,703
5,050 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A3 A- 5,800,612
17,095 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 BBB+ 21,504,245
10,000 Goldman Sachs Group Inc. 6.345% 2/15/34 A1 A- 10,448,280
25,000 M&I Capital Trust A 7.650% 12/01/26 A2 BBB+ 26,954,675
25,000 Mellon Capital Trust I, Series A 7.720% 12/01/26 A2 A- 27,150,100
3,240 State Street Institutional Capital 7.940% 12/30/26 A1 A 3,599,092
Trust, 144A
21,000 UBS Preferred Funding Trust I 8.622% 10/29/49 A1 AA- 25,271,736
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 28.9%
19,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 Aa3 AA- 19,251,047
62,474 Abbey National Capital Trust I 8.963% 12/30/49 A2 A- 87,336,216
7,400 AgFirst Farm Credit Bank 7.300% 12/15/53 NA NA 7,476,176
26
Principal Ratings*
Amount (000)/ ----------------- Market
Shares Description(1) Coupon Maturity Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks (continued)
2,200 ANZ Capital Trust I, 144A 5.360% 12/29/49 A2 A- $ 2,235,545
6,500 Bank One Capital III 8.750% 9/01/30 A1 A- 8,825,596
26,355 BankBoston Capital Trust I, Series B 8.250% 12/15/26 Aa3 A- 28,921,213
3,031 BankBoston Capital Trust II, Series B 7.750% 12/15/26 Aa3 A- 3,284,158
5,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 BBB- 5,500,490
36,000 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 A+ 43,892,676
5,300 Barnett Capital I 8.060% 12/01/26 Aa3 A- 5,798,666
2,229 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 A- 2,437,378
3,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 A- 4,283,893
3,500 Farm Credit Bank of Texas 7.561% 11/05/49 NA NA 3,606,449
5,000 FBS Capital Trust I 8.090% 11/15/26 Aa3 A- 5,457,055
3,500 First Chicago NBD Institutional 7.950% 12/01/26 A1 NA 3,807,601
Capital, 144A
1,500 First Empire Capital Trust I 8.234% 2/01/27 Baa1 BBB 1,661,354
1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 BBB- 1,639,731
22,080 Fleet Capital Trust II 7.920% 12/11/26 Aa3 A- 23,949,337
2,400 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 A- 2,993,369
6,250 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 A- 9,705,413
32,000 KBC Bank Fund Trust III, 144A 9.860% 11/02/49 A2 A- 39,298,688
8,000 KeyCorp Capital III 7.750% 7/15/29 A3 BBB 9,611,136
2,500 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 BBB 2,714,893
13,500 Lloyds TSB Bank plc, Subordinate Note 6.900% 11/22/49 Aa2 A+ 14,170,248
19,500 NB Capital Trust II 7.830% 12/15/26 Aa3 A- 21,465,639
14,000 Nordbanken AB, 144A 8.950% 11/29/49 A2 A- 16,599,856
2,000 North Fork Capital Trust I, Capital 8.700% 12/15/26 A3 BBB- 2,221,724
Securities
8,000 North Fork Capital Trust II 8.000% 12/15/27 A3 BBB- 8,858,552
2,000 Peoples Heritage Capital Trust I, 9.060% 2/01/27 Baa1 BB+ 2,268,024
Series B
33,085 PNC Institutional Capital Securities, 7.950% 12/15/26 A3 BBB+ 36,190,755
144A
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 BBB- 2,112,396
11,600 RBS Capital Trust B 6.800% 12/31/49 A1 A 11,999,028
8,000 Reliance Capital Trust I, Series B 8.170% 5/01/28 NA NA 8,968,432
500 Republic New York Capital II, Capital 7.530% 12/04/26 A1 A- 538,305
Securities
17,500 Royal Bank of Scotland Group plc 9.118% 3/31/49 A1 A 21,338,363
2,150 Royal Bank of Scotland Group plc 7.648% 8/31/49 A1 A 2,625,754
5,000 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 A 5,487,895
5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 NA 5,100,250
9,000 St. George Funding Company LLC, 144A 8.485% 6/30/47 Baa1 NA 10,307,853
7,500 Union Planters Capital Trust A 8.200% 12/15/26 A2 BBB+ 8,146,530
240 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 BBB- 26,362,512
1,000 Wells Fargo Capital I 7.960% 12/15/26 Aa2 A 1,089,088
10,000 Zions Institutional Capital Trust, 8.536% 12/15/26 Baa1 BBB- 11,342,540
Series A
------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 5.4%
2,750 BNP Paribas Capital Trust 7.200% 12/31/49 A1 A+ 2,912,476
1,000 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A1 A+ 1,233,726
8,750 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 A- 9,432,999
44,010 HBOS Capital Funding LP, Notes 6.850% 3/01/49 A1 A 45,354,682
3,600 JPM Capital Trust I 7.540% 1/15/27 A1 A- 3,880,688
22,085 JPM Capital Trust II 7.950% 2/01/27 A1 A- 24,162,845
13,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 NA 14,602,042
27
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of Investments December 31, 2004
Principal Ratings*
Amount (000)/ ----------------- Market
Shares Description(1) Coupon Maturity Moody's S&P Value
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 3.2%
45,250 Centaur Funding Corporation, Series B,
144A 9.080% 4/21/20 Baa1 BBB+ $ 59,715,882
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 11.0%
14,280 Ace Capital Trust II 9.700% 4/01/30 Baa1 BBB- 19,028,114
2,000 Allstate Financing II 7.830% 12/01/45 A2 A- 2,165,378
28,000 American General Institutional 8.125% 3/15/46 Aa1 AA 36,780,324
Capital, 144A
10,000 Berkeley Capital Trust 8.197% 12/15/45 Baa3 BBB- 10,616,740
2,000 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 Baa1 BBB+ 1,991,176
6,000 MIC Financing Trust I 8.375% 2/01/27 A1 A+ 6,360,666
10,250 Prudential plc 6.500% 6/29/49 Baa1 A 10,313,806
10,000 RenaissanceRe Capital Trust 8.540% 3/01/27 Baa1 BBB+ 10,885,750
51,700 Sun Life Canada Capital Trust, Capital 8.526% 5/06/47 A1 A+ 57,413,212
Securities, 144A
44,515 Zurich Capital Trust I, 144A 8.376% 6/01/37 Baa2 A- 50,130,745
-----------------------------------------------------------------------------------------------------------------------------------
Oil & Gas - 1.1%
10,750 KN Capital Trust III 7.630% 4/15/28 Baa3 BB+ 12,057,351
7,355 Phillips 66 Capital Trust II 8.000% 1/15/37 Baa2 BBB 8,447,776
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 3.1%
8,595 Countrywide Capital Trust I 8.000% 12/15/26 Baa1 BBB+ 9,054,454
18,460 Countrywide Capital Trust III, Series B 8.050% 6/15/27 Baa1 BBB+ 22,188,459
11,825 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 BBB 13,448,963
13,000 Great Western Financial Trust II, 8.206% 2/01/27 Baa1 BBB 14,206,569
Series A
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $1,103,987,806) 1,183,775,166
-------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 4.8% (3.3% of Total Investments)
Automobiles - 4.7%
21,500 Ford Motor Company, Debenture 7.400% 11/01/46 Baa1 BBB- 20,553,161
7,525 Ford Motor Company 8.900% 1/15/32 Baa1 BBB- 8,578,342
4,000 Ford Motor Company 7.450% 7/16/31 Baa1 BBB- 4,034,580
52,860 General Motors Acceptance Corporation, 8.000% 11/01/31 Baa1 BBB- 54,486,075
Notes
600 General Motors Corporation, Senior 8.375% 7/15/33 Baa2 BBB- 623,371
Debentures
-----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 0.1%
1,000 Washington Mutual Bank FA 5.125% 1/15/15 A3 A- 995,134
-----------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $79,477,028) 89,270,663
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,483,816,613) - 142.3% 2,665,000,123
-------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.4% 7,283,209
-------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (42.7)% (800,000,000)
-------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $1,872,283,332
===================================================================================================================
28
Interest Rate Swap Contracts outstanding at December 31, 2004:
Unrealized
Notional Termination Appreciation
Counterparty Amount Fixed Rate Floating Rate** Date (Depreciation)
----------------------------------------------------------------------------------------------------------------------------
Citibank, N.A. $200,000,000 2.6300% 2.3313% 11/06/05 $ 511,601
Citibank, N.A. 200,000,000 3.3750 2.3313 11/06/07 831,373
Citibank, N.A. 200,000,000 3.9100 2.3313 11/06/09 (241,023)
----------------------------------------------------------------------------------------------------------------------------
$1,101,951
============================================================================================================================
Futures Contracts Outstanding at December 31, 2004:
Value at Unrealized
Number of Contract Original December 31, Appreciation
Type Contracts Expiration Value 2004 (Depreciation)
----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds 209 3/05 $23,199,000 $23,512,500 $ (313,500)
============================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on
net assets applicable to Common shares unless otherwise noted.
* Ratings (not covered by the report of independent registered
public accounting firm): Below Baa by Moody's Investor Service,
Inc. or BBB by Standard & Poor's Group are considered to be below
investment grade.
** Based on LIBOR (London Inter-bank Offered Rate).
(a) Security is eligible for the Dividends Received Deduction.
144A 144A securities are those which are exempt from registration under
Rule 144A of the Securities Act of 1933, as amended. These
securities may only be resold in transactions exempt from
registration which are normally those transactions with qualified
institutional buyers.
(CORTS) Corporate Backed Trust Securities.
(PCARS) Public Credit and Repackaged Securities.
(PPLUS) PreferredPlus Trust.
(SATURNS) Structured Asset Trust Unit Repackaging. NA Security is not rated.
See accompanying notes to financial statements.
29
Nuveen Quality Preferred Income Fund 3 (JHP)
Portfolio of
Investments December 31, 2004
Ratings*
------------------- Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
$25 PAR (or similar) SECURITES - 73.9% (51.0% of Total Investments)
Auto Components - 0.9%
129,890 Delphi Trust I 8.250% Baa3 BB $ 3,235,560
------------------------------------------------------------------------------------------------------------------------------------
Automobiles - 0.1%
7,500 DaimlerChrysler AG (CORTS) 7.875% A3 BBB 199,050
------------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 7.5%
13,000 BCH Capital Ltd., Series B 9.430% A2 BBB+ 345,475
32,000 Bear Stearns Capital Trust III 7.800% A2 BBB 848,000
47,300 BSCH Finance Ltd., Series Q 8.625% A2 BBB+ 1,236,895
47,600 Compass Capital Trust III 7.350% A3 BBB- 1,251,404
37,400 CSFB USA, Series 2002-10 (SATURNS) 7.000% Aa3 A+ 964,920
23,100 First Union Capital II, Series II (CORTS) 7.500% A1 BBB+ 621,390
11,300 First Union Institutional Capital II (CORTS) 8.200% A1 BBB+ 319,790
355,000 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 BBB+ 9,070,250
36,300 Merrill Lynch Preferred Capital Trust 7.750% A1 A- 971,025
18,300 Merrill Lynch Preferred Capital Trust IV 7.120% A1 A- 492,087
75,100 Merrill Lynch Preferred Capital Trust V 7.280% A1 A- 2,038,965
40,900 Morgan Stanley (PPLUS) 7.050% Aa3 A+ 1,084,259
80,000 Morgan Stanley Capital Trust II 7.250% A1 A- 2,116,800
212,600 Morgan Stanley Capital Trust III 6.250% A1 A- 5,406,418
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 12.4%
3,700 Abbey National plc, Series B 7.375% A2 A 101,750
31,300 ASBC Capital I 7.625% Baa1 BBB- 840,405
40,894 BAC Capital Trust I 7.000% Aa3 A- 1,077,148
32,700 BAC Capital Trust II 7.000% Aa3 A- 873,744
94,500 BAC Capital Trust III 7.000% Aa3 A- 2,537,325
37,300 Banco Totta & Acores Finance, Series A 8.875% A3 NA 1,017,592
18,600 BancWest Capital I 9.500% A3 A- 491,970
211,000 Banesto Holdings, Series A, 144A 10.500% A2 NA 6,573,979
32,400 Bank One Capital II 8.500% A1 A- 840,132
32,100 Bank One Capital Trust VI 7.200% A1 A- 852,576
11,000 Bank One Capital V 8.000% A1 A- 290,290
3,000 BankNorth Capital Trust II 8.000% Baa1 BB+ 80,370
18,800 Chittenden Capital Trust I 8.000% Baa1 BB+ 509,668
68,500 Citigroup Inc., Series H (a) 6.231% Aa3 NA 3,690,438
44,500 Cobank ABC, 144A (a) 7.000% NA NA 2,363,840
52,500 Comerica Capital Trust I 7.600% A3 BBB+ 1,379,700
37,400 Fleet Capital Trust VI 8.800% Aa3 A- 960,432
153,900 Fleet Capital Trust VII 7.200% Aa3 A- 4,086,045
26,416 Fleet Capital Trust VIII 7.200% Aa3 A- 702,666
5,900 KeyCorp (PCARS) 7.500% A3 NA 155,406
6,400 KeyCorp Capital Trust V 5.875% A3 BBB 158,656
6,300 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 BBB 169,785
11,900 KeyCorp, Series B (CORTS) 8.250% A3 BBB 310,590
22,300 National Commerce Capital Trust II 7.700% A1 A- 597,640
30,400 National Westminster Bank plc, Series A 7.875% Aa2 A+ 786,144
16,500 National Westminster Bank plc, Series B 7.875% Aa3 A+ 420,750
20,000 PNC Capital Trust 6.125% A3 BBB 502,400
40,000 Royal Bank of Scotland Group plc, Series M 6.400% A1 A 1,049,200
30
Ratings*
------------------- Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks (continued)
15,400 SunTrust Capital Trust IV 7.125% A1 A- $ 405,174
22,900 SunTrust Capital Trust V 7.050% A1 A- 605,018
110,300 USB Capital Trust III 7.750% Aa3 A- 2,929,568
58,100 USB Capital Trust IV 7.350% Aa3 A- 1,546,041
48,800 USB Capital Trust V 7.250% Aa3 A- 1,293,688
18,400 VNB Capital Trust I 7.750% Baa1 BBB 489,808
28,400 Washington Mutual Capital Trust I, Series 2001-22, 7.650% Baa1 BBB 741,524
Class A-1 (CORTS)
3,000 Wells Fargo Capital Trust IX 5.625% Aa2 A 72,360
21,700 Wells Fargo Capital Trust V 7.000% Aa2 A 570,276
80,000 Zions Capital Trust B 8.000% Baa1 BB+ 2,192,000
------------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 4.2%
111,700 Household Capital Trust V, Series X 10.000% A2 BBB+ 2,874,041
14,600 Household Capital Trust VI 8.250% A2 BBB+ 387,484
100,500 Household Capital Trust VII 7.500% A2 BBB+ 2,689,380
135,400 HSBC Finance Corporation 6.875% A1 A 3,678,818
95,300 SLM Corporation, Series A (a) 6.970% Baa1 BBB+ 5,479,750
------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 7.3%
10,000 BBVA Preferred Capital Ltd., Series B 7.750% A1 A- 265,400
42,900 CIT Group Incorporated (CORTS) 7.750% A3 BBB+ 1,178,678
25,600 Citigroup Capital Trust VII 7.125% Aa2 A 675,840
46,600 Citigroup Capital Trust VIII 6.950% Aa2 A 1,222,784
16,549 Citigroup Inc., Series F (a) 6.365% Aa3 A 883,386
52,941 Citigroup Inc., Series M (a) 5.864% Aa3 A 2,805,873
142,900 ING Group NV 7.050% NA A- 3,844,010
503,600 ING Group NV 7.200% A2 A- 13,682,812
13,000 JPMorgan Chase Capital Trust X 7.000% A1 NA 347,490
25,000 JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS) 7.125% A1 A- 668,000
24,000 Merrill Lynch Capital Trust II 8.000% A1 A- 653,280
------------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 0.4%
12,900 BellSouth Inc. (CORTS) 7.000% A2 A 339,270
24,900 Verizon Communications (CORTS) 7.625% A2 A+ 669,810
15,300 Verizon New England Inc., Series B 7.000% A2 NA 408,510
------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 2.1%
2,900 Detroit Edison Company 7.625% Baa2 BB+ 73,341
53,400 Entergy Louisiana Inc. 7.600% Baa1 A- 1,427,382
203,447 Entergy Mississippi Inc. 7.250% Baa2 A- 5,543,931
18,300 Tennessee Valley Authority, Series D 6.750% Aaa AAA 457,500
------------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.7%
25,000 Dairy Farmers of America Inc., 144A (a) 7.875% Baa3 BBB- 2,609,375
------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.2%
32,900 AGL Capital Trust II 8.000% Baa2 BBB 872,837
------------------------------------------------------------------------------------------------------------------------------------
Insurance - 14.6%
133,000 Ace Ltd., Series C 7.800% Baa2 BBB- 3,548,440
12,500 Aetna Incorporated 8.500% Baa2 BBB+ 334,875
30,700 AMBAC Financial Group Inc. 5.950% Aa2 AA 771,798
95,000 AMBAC Financial Group Inc. 5.875% Aa2 AA 2,388,300
7,700 American General Capital III 8.050% Aa1 AA 200,970
131,000 Delphi Financial Group Inc. 8.000% Baa3 BBB 3,569,750
258,671 EverestRe Group Limited 7.850% Baa1 BBB 7,154,840
151,100 Financial Security Assurance Holdings 6.250% Aa2 AA 3,872,693
60,900 Hartford Capital Trust III, Series C 7.450% Baa1 BBB 1,596,798
104,100 Lincoln National Capital Trust V, Series E 7.650% Baa1 BBB 2,760,732
55,700 PartnerRe Limited 7.900% A3 BBB+ 1,481,620
140,000 PartnerRe Limited, Series C 6.750% Baa1 BBB+ 3,631,600
31
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of Investments December 31, 2004
Ratings*
------------------- Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Insurance (continued)
54,600 PLC Capital Trust III 7.500% Baa1 BBB+ $ 1,442,532
14,800 PLC Capital Trust IV 7.250% Baa1 BBB+ 393,680
52,544 Prudential plc 6.750% Baa1 A 1,362,466
41,500 RenaissanceRe Holdings Ltd., Series A 8.100% Baa2 BBB+ 1,107,220
217,000 RenaissanceRe Holdings Ltd., Series B 7.300% Baa2 BBB+ 5,824,280
16,400 Safeco Capital Trust I (CORTS) 8.700% Baa2 BBB- 447,392
9,300 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 BBB- 251,100
32,200 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 BBB- 852,334
61,800 XL Capital Ltd., Series A 8.000% Baa1 BBB+ 1,687,758
289,400 XL Capital Ltd., Series B 7.625% Baa1 BBB+ 7,793,542
------------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power - 0.3%
17,800 Dominion CNG Capital Trust I 7.800% Baa1 BBB- 476,684
24,300 Energy East Capital Trust I 8.250% Baa3 BBB- 651,969
------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas - 1.3%
137,000 Nexen Inc. 7.350% Baa3 BB+ 3,689,410
34,700 TransCanada Pipeline 8.250% A3 BBB 896,648
------------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1%
10,000 Bristol Myers Squibb Company (CORTS) 6.250% A1 A+ 259,950
------------------------------------------------------------------------------------------------------------------------------------
Real Estate - 17.0%
5,900 AvalonBay Communities, Inc., Series H 8.700% Baa2 BBB 166,498
20,000 BRE Properties, Series D 6.750% Baa3 BBB- 502,000
201,900 CarrAmerica Realty Corporation, Series E 7.500% Baa3 BBB- 5,362,464
26,200 Developers Diversified Realty Corporation, Series F 8.600% Ba1 BBB- 703,994
170,000 Developers Diversified Realty Corporation, Series G 8.000% Ba1 BBB- 4,547,500
30,000 Developers Diversified Realty Corporation, Series H 7.375% Ba1 BBB- 777,300
60,144 Equity Office Properties Trust, Series G 7.750% Baa3 BBB 1,623,888
25,900 Equity Residential Properties Trust 9.125% Baa2 BBB 670,551
18,500 Equity Residential Properties Trust, Series C 9.125% Baa2 BBB 497,465
20,800 Equity Residential Properties Trust, Series D 8.600% Baa2 BBB 569,504
55,300 Federal Realty Investment Trust 8.500% Baa3 BBB- 1,500,289
5,100 First Industrial Realty Trust, Inc., Series C 8.625% Baa3 BBB- 140,250
130,000 HRPT Properties Trust, Series A 9.875% Baa3 BBB- 3,516,500
238,607 HRPT Properties Trust, Series B 8.750% Baa3 BBB- 6,598,677
21,000 New Plan Excel Realty Trust, Series D 7.800% Baa3 BBB- 1,069,032
35,200 New Plan Excel Realty Trust, Series E 7.625% NA BBB- 927,168
20,000 Prologis Trust, Series G 6.750% Baa2 BBB 504,600
136,000 PS Business Parks Inc. 7.000% Ba1 BBB- 3,371,440
36,900 PS Business Parks Inc., Series D 9.500% Ba2 BBB- 989,658
8,300 PS Business Parks Inc., Series F 8.750% Ba2 BBB- 223,063
120,000 PS Business Parks Inc., Series L 7.600% Ba1 BBB- 3,067,200
40,900 Public Storage Inc., Series Q 8.600% Baa2 BBB+ 1,071,171
129,533 Public Storage Inc., Series R 8.000% Baa2 BBB+ 3,415,785
17,600 Public Storage Inc., Series S 7.875% Baa2 BBB+ 463,408
22,500 Public Storage Inc., Series T 7.625% Baa2 BBB+ 591,300
11,000 Public Storage Inc., Series U 7.625% Baa2 BBB+ 293,040
17,000 Public Storage Inc., Series V 7.500% Baa2 BBB+ 450,500
12,600 Regency Centers Corporation 7.450% Baa3 BBB- 335,853
80,000 Regency Centers Corporation 7.250% Baa3 BBB- 2,110,000
7,500 Simon Property Group, Inc., Series F 8.750% Baa2 BBB- 201,825
68,600 Simon Property Group, Inc., Series G 7.890% Baa2 BBB 3,650,892
36,400 United Dominion Realty Trust 8.600% Ba1 BB+ 980,980
60,000 Vornado Realty Trust 6.625% Baa3 BBB- 1,482,000
5,720 Vornado Realty Trust, Series C 8.500% Ba1 BBB- 143,458
252,700 Wachovia Preferred Funding Corporation 7.250% A2 BBB+ 7,171,626
40,000 Weingarten Realty Trust, Series E 6.950% Baa1 A- 1,050,000
------------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2%
20,000 Sherwin Williams Company, Series III (CORTS) 7.250% A2 A 541,000
32
Ratings*
------------------- Market
Shares Description(1) Coupon Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 2.9%
13,700 Countrywide Capital Trust II, Series II (CORTS) 8.000% Baa1 BBB+ $ 366,338
152,830 Countrywide Capital Trust IV 6.750% Baa1 BBB+ 3,929,259
43,400 Fannie Mae (a) 0.000% Aa3 AA- 2,457,525
49,100 Fannie Mae (a) 5.125% Aa3 AA- 2,100,007
13,000 Federal Home Loan Mortgage Corporation (a) 5.100% Aa3 AA- 566,800
23,900 Federal Home Loan Mortgage Corporation (a) 5.000% Aa3 AA- 1,027,700
------------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 1.7%
69,101 Telephone and Data Systems Inc. 7.600% Baa1 A- 1,822,884
157,500 United States Cellular Corporation 8.750% Baa1 A- 4,406,850
------------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $255,352,263) 264,615,991
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 7.6% (5.3% of Total Investments)
Diversified Financial Services - 0.8%
61,000 Citigroup Global Markets 2.000% Aa1 AA- 2,868,403
------------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 1.7%
118,500 Alltel Corporation 7.750% A2 NA 6,267,465
------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.7%
81,900 Ameren Corporation 9.750% A3 BBB+ 2,355,444
900 American Electric Power 9.250% Baa3 BBB 42,885
------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 1.5%
100,000 Keyspan Corporation 8.750% A3 NA 5,217,000
------------------------------------------------------------------------------------------------------------------------------------
Healthcare Equipment & Supplies - 0.4%
28,000 Baxter International Inc. 7.000% Baa1 NA 1,580,880
------------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power - 2.5%
102,400 Dominion Resources Inc. 8.750% Baa1 BBB+ 5,650,432
49,875 Public Service Enterprise Group 10.250% Baa3 BBB- 3,357,585
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $24,056,776) 27,340,094
--------------------------------------------------------------------------------------------------------------------
Principal Ratings*
Amount (000)/ ------------------- Market
Shares Description(1) Coupon Maturity Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 58.6% (40.4% of Total Investments)
Capital Markets - 7.1%
5,000 Ahmanson Capital Trust I, 144A 8.360% 12/01/26 Baa1 BBB 5,487,710
1,000 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 A- 1,108,144
1,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 A- 1,118,606
1,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 A- 1,107,440
500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 NR 564,164
250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 A 261,889
3,750 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 A 3,910,643
1,000 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A3 A- 1,148,636
8,485 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 BBB+ 10,673,502
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 22.4%
2,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 Aa3 AA- 2,026,426
8,000 Abbey National Capital Trust I 8.963% 12/30/49 A2 A- 11,183,688
2,000 AgFirst Farm Credit Bank 7.300% 12/15/53 NA NA 2,020,588
1,000 BankAmerica Capital II, Series 2 8.000% 12/15/26 Aa3 A- 1,099,391
1,500 BankBoston Capital Trust II, Series B 7.750% 12/15/26 Aa3 A- 1,625,285
1,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 BBB- 1,100,098
6,200 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 A+ 7,559,294
900 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 A- 1,042,028
700 Farm Credit Bank of Texas 7.561% 11/05/49 NA NA 721,290
1,000 First Chicago NBD Institutional
Capital, 144A 7.950% 12/01/26 A1 NA 1,087,886
33
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of Investments December 31, 2004
Principal Ratings*
Amount (000)/ ------------------- Market
Shares Description(1) Coupon Maturity Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
Commercial Banks (continued)
1,000 First Empire Capital Trust I 8.234% 2/01/27 Baa1 BBB $ 1,107,569
500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 BBB- 546,577
1,430 HSBC USA Capital Trust II, 144A 8.380% 5/15/27 NA A- 1,590,453
1,000 KBC Bank Fund Trust III, 144A 9.860% 11/02/49 A2 A- 1,228,084
2,500 Lloyds TSB Bank plc, Subordinate Note 6.900% 11/22/49 Aa2 A+ 2,624,120
4,000 North Fork Capital Trust I, Capital 8.700% 12/15/26 A3 BBB- 4,443,448
Securities
1,500 North Fork Capital Trust II 8.000% 12/15/27 A3 BBB- 1,660,979
3,150 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 Baa1 BB+ 3,572,138
9,200 PNC Institutional Capital Trust B, 144A 8.315% 5/15/27 A3 BBB 10,221,476
1,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 BBB- 1,056,198
2,750 RBS Capital Trust B 6.800% 12/31/49 A1 A 2,844,597
200 Royal Bank of Scotland Group plc 7.648% 8/31/49 A1 A 244,256
1,000 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 A 1,097,579
2,500 St. George Funding Company LLC, 144A 8.485% 6/30/47 Baa1 NA 2,863,293
4,600 Union Planters Capital Trust A 8.200% 12/15/26 A2 BBB+ 4,996,538
70 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 BBB- 7,689,066
3,000 Zions Institutional Capital Trust, 8.536% 12/15/26 Baa1 BBB- 3,402,762
Series A
------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 6.5%
1,000 BNP Paribas Capital Trust 7.200% 12/31/49 A1 A+ 1,059,082
1,000 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 A- 1,078,057
9,100 HBOS Capital Funding LP, Notes 6.850% 3/01/49 A1 A 9,378,041
(DD, settling 1/03/05)
9,000 JPM Capital Trust I 7.540% 1/15/27 A1 A- 9,701,721
1,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 NA 1,904,614
------------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 2.7%
7,260 Centaur Funding Corporation, Series B,
144A 9.080% 4/21/20 Baa1 BBB+ 9,580,935
------------------------------------------------------------------------------------------------------------------------------------
Insurance - 14.8%
3,450 Ace Capital Trust II 9.700% 4/01/30 Baa1 BBB- 4,597,128
500 Allstate Financing II 7.830% 12/01/45 A2 A- 541,345
5,000 Berkeley Capital Trust 8.197% 12/15/45 Baa3 BBB- 5,308,370
750 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 Baa1 BBB+ 746,691
10,000 MIC Financing Trust I 8.375% 2/01/27 A1 A+ 10,601,110
1,500 Prudential plc 6.500% 6/29/49 Baa1 A 1,509,338
3,000 RenaissanceRe Capital Trust 8.540% 3/01/27 Baa1 BBB+ 3,265,725
10,000 Sun Life Canada Capital Trust, Capital 8.526% 5/06/47 A1 A+ 11,105,070
Securities, 144A
13,500 Zurich Capital Trust I, 144A 8.376% 6/01/37 Baa2 A- 15,203,079
------------------------------------------------------------------------------------------------------------------------------------
Oil & Gas - 3.5%
6,500 KN Capital Trust III 7.630% 4/15/28 Baa3 BB+ 7,290,491
4,500 Phillips 66 Capital Trust II 8.000% 1/15/37 Baa2 BBB 5,168,592
------------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 1.6%
1,000 Countrywide Capital Trust I 8.000% 12/15/26 Baa1 BBB+ 1,053,456
4,225 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 BBB 4,805,232
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $200,825,324) 209,933,918
--------------------------------------------------------------------------------------------------------------------
34
Principal Ratings*
Amount (000)/ ------------------- Market
Shares Description(1) Coupon Maturity Moody's S&P Value
------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 4.7% (3.2% of Total Investments)
Automobiles - 4.7%
1,000 Ford Motor Company 7.450% 7/16/31 Baa1 BBB- $ 1,008,645
5,100 Ford Motor Company, Debenture 7.400% 11/01/46 Baa1 BBB- 4,875,401
10,500 General Motors Acceptance Corporation, 8.000% 11/01/31 Baa1 BBB- 10,822,998
Notes
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $15,640,817) 16,707,044
--------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 0.2 (0.1% of Total Investments)
$ 749 State Street Bank, 1.000%, dated 12/31/04, due 1/03/05, repurchase price $748,691, collateralized
============= by $665,000 U.S. Treasury Notes, 6.500%, due 2/15/10, value $768,699 748,629
--------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (cost $748,629) 748,629
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $496,623,809) - 145.0% 519,345,676
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.3% 4,851,755
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (46.3)% (166,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 358,197,431
====================================================================================================================
Interest Rate Swap Contracts outstanding at December 31, 2004:
Unrealized
Notional Termination Appreciation
Counterparty Amount Fixed Rate Floating Rate** Date (Depreciation)
--------------------------------------------------------------------------------------------------------------------
Citibank, N.A. $42,000,000 2.4125% 2.3313% 03/06/06 $ 341,379
Citibank, N.A. 42,000,000 3.2550 2.3313 03/06/08 434,720
Citibank, N.A. 42,000,000 3.8150 2.3313 03/06/10 249,141
--------------------------------------------------------------------------------------------------------------------
$ 1,025,240
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are
based on net assets applicable to Common shares unless
otherwise noted.
* Ratings (not covered by the report of independent registered
public accounting firm): Below Baa by Moody's Investor
Service, Inc. or BBB by Standard & Poor's Group are considered
to be below investment grade.
** Based on LIBOR (London Inter-bank Offered Rate).
(a) Security is eligible for the Dividends Received Deduction.
(DD) Portion of security purchased on a delayed delivery basis.
144A 144A securities are those which are exempt from registration
under Rule 144A of the Securities Act of 1933, as amended.
These securities may only be resold in transactions exempt
from registration which are normally those transactions with
qualified institutional buyers.
(CORTS) Corporate Backed Trust Securities.
(PCARS) Public Credit and Repackaged Securities.
(PPLUS) PreferredPlus Trust.
(SATURNS) Structured Asset Trust Unit Repackaging.
NA Security is not rated.
See accompanying notes to financial statements.
35
Statement of
Assets and Liabilities December 31, 2004
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
-----------------------------------------------------------------------------------------------------------------------------------
Assets
Investments, at market value (cost $1,310,162,956, $2,483,816,613 and
$496,623,809, respectively) $ 1,392,335,266 $ 2,665,000,123 $ 519,345,676
Cash 1,652,353 -- 3,039,189
Interest rate swaps, at value -- 1,101,951 1,025,240
Deposits with brokers for open futures contracts -- 292,600 --
Receivables:
Dividends 1,815,882 3,543,212 936,198
Interest 7,041,996 11,547,313 2,508,113
Investments sold 3,171,897 3,670,291 387,470
Reclaims -- 40,864 7,211
Other assets 57,276 109,283 9,168
-----------------------------------------------------------------------------------------------------------------------------------
Total assets 1,406,074,670 2,685,305,637 527,258,265
-----------------------------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft -- 11,042,007 --
Interest rate swaps, at value 3,473,790 -- --
Payable for investments purchased 2,703 -- 2,665,268
Payable for variation margin on futures contracts -- 156,750 --
Accrued expenses:
Management fees 650,944 1,182,758 254,181
Other 274,338 498,167 112,648
FundPreferred share dividends payable 89,966 142,623 28,737
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,491,741 13,022,305 3,060,834
-----------------------------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 961,582,929 $ 1,872,283,332 $ 358,197,431
===================================================================================================================================
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) $ 14.92 $ 15.66 $ 15.15
===================================================================================================================================
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 911,539,984 1,693,035,834 334,356,632
Undistributed net investment income 6,133,164 7,485,948 2,985,426
Accumulated net realized gain (loss) from investments and interest rate swaps (35,433,360) (11,405,829) (3,128,161)
Net unrealized appreciation (depreciation) of investments, futures
and interest rate swaps 78,698,520 181,971,961 23,747,107
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 961,582,929 $ 1,872,283,332 $ 358,197,431
===================================================================================================================================
Authorized shares:
Common Unlimited Unlimited Unlimited
FundPreferred shares Unlimited Unlimited Unlimited
===================================================================================================================================
See accompanying notes to financial statements.
36
Statement of
Operations
Quality Preferred Quality Preferred
Income (JTP) Income 2 (JPS)
-------------------------- ----------------------------
Five Months Five Months
Ended Year Ended Ended Year Ended
12/31/04 7/31/04 12/31/04 7/31/04
------------------------------------------------------------------------------------------------------------------------------------
Investment Income
Dividends (net of foreign tax withheld of $3,472, $13,889,
$0 and $0, respectively) $ 23,355,491 $ 54,016,617 $ 44,217,067 $103,740,227
Interest 19,117,056 44,023,764 35,057,248 83,319,938
------------------------------------------------------------------------------------------------------------------------------------
Total investment income 42,472,547 98,040,381 79,274,315 187,060,165
------------------------------------------------------------------------------------------------------------------------------------
Expenses
Management fees 5,079,171 12,143,659 9,425,815 22,539,893
FundPreferred shares - auction fees 461,022 1,101,547 838,221 2,002,814
FundPreferred shares - dividend disbursing agent fees 13,580 28,448 14,638 39,290
Shareholders' servicing agent fees and expenses 4,404 12,931 7,055 14,780
Custodian's fees and expenses 127,748 294,539 233,301 541,572
Trustees' fees and expenses 8,794 42,326 16,087 88,500
Professional fees 43,201 99,769 75,370 161,068
Shareholders' reports - printing and mailing expenses 86,740 207,135 166,772 322,106
Stock exchange listing fees 10,966 25,476 20,455 63,069
Investor relations expense 80,929 231,418 150,185 420,755
Other expenses 19,338 113,706 26,669 28,299
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 5,935,893 14,300,954 10,974,568 26,222,146
Custodian fee credit (3,206) (2,743) (6,378) (2,434)
Expense reimbursement (1,866,918) (4,430,554) (3,589,208) (8,515,957)
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 4,065,769 9,867,657 7,378,982 17,703,755
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 38,406,778 88,172,724 71,895,333 169,356,410
------------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from investments (789,063) 6,457,519 35,993 24,882,646
Net realized gain (loss) from interest rate swaps (2,754,561) (8,829,243) (4,109,979) (12,395,021)
Change in net unrealized appreciation (depreciation) of investments 34,446,726 15,444,743 66,169,186 28,917,818
Change in net unrealized appreciation (depreciation) of futures -- -- (313,500) --
Change in net unrealized appreciation (depreciation)
of interest rate swaps (130,099) 3,409,919 (1,229,256) 2,018,167
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 30,773,003 16,482,938 60,552,444 43,423,610
------------------------------------------------------------------------------------------------------------------------------------
Distributions to FundPreferred Shareholders
From net investment income (3,338,840) (5,266,011) (4,886,184) (9,136,215)
From accumulated net realized gains from investments -- -- (1,197,900) (408,401)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (3,338,840) (5,266,011) (6,084,084) (9,544,616)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations $ 65,840,941 $ 99,389,651 $126,363,693 $203,235,404
====================================================================================================================================
See accompanying notes to financial statements.
37
Statement of
Operations (continued)
Quality Preferred
Income 3 (JHP)
--------------------------------
Five Months
Ended Year Ended
12/31/04 7/31/04
------------------------------------------------------------------------------------------------------------
Investment Income
Dividends (net of foreign tax withheld of $1,994 and $1,230,
respectively) $ 9,608,428 $ 21,380,872
Interest 6,195,711 15,041,142
------------------------------------------------------------------------------------------------------------
Total investment income 15,804,139 36,422,014
------------------------------------------------------------------------------------------------------------
Expenses
Management fees 1,954,942 4,672,478
FundPreferred shares - auction fees 173,959 416,138
FundPreferred shares - dividend disbursing agent fees 6,140 13,538
Shareholders' servicing agent fees and expenses 964 2,564
Custodian's fees and expenses 57,208 125,031
Trustees' fees and expenses 3,626 13,804
Professional fees 23,492 29,518
Shareholders' reports - printing and mailing expenses 35,669 66,599
Stock exchange listing fees 7,982 17,621
Investor relations expense 29,730 81,895
Other expenses 9,623 27,822
------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 2,303,335 5,467,008
Custodian fee credit (1,476) (1,419)
Expense reimbursement (700,871) (1,663,082)
------------------------------------------------------------------------------------------------------------
Net expenses 1,600,988 3,802,507
------------------------------------------------------------------------------------------------------------
Net investment income 14,203,151 32,619,507
------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from investments (292,843) 1,610,865
Net realized gain (loss) from interest rate swaps (785,894) (2,431,397)
Change in net unrealized appreciation (depreciation) of investments 12,474,854 10,205,143
Change in net unrealized appreciation (depreciation) of futures -- --
Change in net unrealized appreciation (depreciation)
of interest rate swaps (494,654) (63,791)
------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 10,901,463 9,320,820
------------------------------------------------------------------------------------------------------------
Distributions to FundPreferred Shareholders
From net investment income (1,232,711) (1,783,707)
From accumulated net realized gains from investments (79,282) (225,856)
------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (1,311,993) (2,009,563)
------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations $ 23,792,621 $ 39,930,764
============================================================================================================
See accompanying notes to financial statements.
38
Statement of
Changes in Net Assets
Quality Preferred
Income (JTP)
------------------------------------------------
Five Months
Ended Year Ended Year Ended
12/31/04 7/31/04 7/31/03
------------------------------------------------------------------------------------------------
Operations
Net investment income $ 38,406,778 $ 88,172,724 $ 83,719,154
Net realized gain (loss) from investments (789,063) 6,457,519 (30,328,278)
Net realized gain (loss) from interest
rate swaps (2,754,561) (8,829,243) --
Change in net unrealized appreciation
(depreciation) of investments 34,446,726 15,444,743 47,552,557
Change in net unrealized appreciation
(depreciation) of futures -- -- --
Change in net unrealized appreciation
(depreciation) of interest rate
swaps (130,099) 3,409,919 (6,753,609)
Distributions to FundPreferred shareholders:
From net investment income (3,338,840) (5,266,011) (6,004,164)
From accumulated net realized gains
from investments -- -- --
------------------------------------------------------------------------------------------------
Net increase in net assets applicable to
Common shares from operations 65,840,941 99,389,651 88,185,660
------------------------------------------------------------------------------------------------
Distributions to Common Shareholders
From net investment income (32,291,619) (80,656,204) (80,491,725)
From accumulated net realized gains
from investments -- -- --
------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (32,291,619) (80,656,204) (80,491,725)
------------------------------------------------------------------------------------------------
Capital Share Transactions
Common shares:
Net proceeds from sale of shares -- (2,071) (119,042)
Net proceeds from shares issued to
shareholders due to
reinvestment of distributions 141,543 1,421,340 29,383,959
FundPreferred shares offering costs 92 (7,166) (9,218,088)
------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common shares from
capital share transactions 141,635 1,412,103 20,046,829
------------------------------------------------------------------------------------------------
Net increase in net assets applicable
to Common shares 33,690,957 20,145,550 27,740,764
Net assets applicable to Common shares
at the beginning of period 927,891,972 907,746,422 880,005,658
------------------------------------------------------------------------------------------------
Net assets applicable to Common shares
at the end of period $ 961,582,929 $ 927,891,972 $ 907,746,422
================================================================================================
Undistributed net investment income
at the end of period $ 6,133,164 $ 3,356,845 $ 2,145,641
================================================================================================
Quality Preferred
Income 2 (JPS)
------------------------------------------------------
For the
Period 9/24/02
Five Months (commencement
Ended Year Ended of operations)
12/31/04 7/31/04 through 7/31/03
------------------------------------------------------------------------------------------------------
Operations
Net investment income $ 71,895,333 $ 169,356,410 $ 120,895,551
Net realized gain (loss) from investments 35,993 24,882,646 9,651,211
Net realized gain (loss) from interest
rate swaps (4,109,979) (12,395,021) --
Change in net unrealized appreciation
(depreciation) of investments 66,169,186 28,917,818 85,994,925
Change in net unrealized appreciation
(depreciation) of futures (313,500) -- --
Change in net unrealized appreciation
(depreciation) of interest rate
swaps (1,229,256) 2,018,167 313,040
Distributions to FundPreferred shareholders:
From net investment income (4,886,184) (9,136,215) (8,370,051)
From accumulated net realized gains
from investments (1,197,900) (408,401) --
------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to
Common shares from operations 126,363,693 203,235,404 208,484,676
------------------------------------------------------------------------------------------------------
Distributions to Common Shareholders
From net investment income (62,896,099) (157,519,666) (112,911,526)
From accumulated net realized gains
from investments (22,062,289) (4,944,168) --
------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (84,958,388) (162,463,834) (112,911,526)
------------------------------------------------------------------------------------------------------
Capital Share Transactions
Common shares:
Net proceeds from sale of shares -- (3,114) 1,708,927,042
Net proceeds from shares issued to
shareholders due to
reinvestment of distributions -- 302,695 1,703,414
FundPreferred shares offering costs 92 (2,071) (16,495,026)
------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common shares from
capital share transactions 92 297,510 1,694,135,430
------------------------------------------------------------------------------------------------------
Net increase in net assets applicable
to Common shares 41,405,397 41,069,080 1,789,708,580
Net assets applicable to Common shares
at the beginning of period 1,830,877,935 1,789,808,855 100,275
------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares
at the end of period $ 1,872,283,332 $ 1,830,877,935 $ 1,789,808,855
======================================================================================================
Undistributed net investment income
at the end of period $ 7,485,948 $ 3,372,898 $ 787,896
======================================================================================================
See accompanying notes to financial statements.
39
Statement of
Changes in Net Assets (continued)
Quality Preferred
Income 3 (JHP)
--------------------------------------------------------------
For the
Period 12/18/02
Five Months (commencement
Ended Year Ended of operations)
12/31/04 7/31/04 through 7/31/03
---------------------------------------------------------------------------------------------------------------------------------
Operations
Net investment income $ 14,203,151 $ 32,619,507 $ 15,853,471
Net realized gain (loss) from investments (292,843) 1,610,865 3,540,303
Net realized gain (loss) from interest
rate swaps (785,894) (2,431,397) --
Change in net unrealized appreciation
(depreciation) of investments 12,474,854 10,205,143 41,871
Change in net unrealized appreciation
(depreciation) of futures -- -- --
Change in net unrealized appreciation
(depreciation) of interest rate
swaps (494,654) (63,791) 1,583,685
Distributions to FundPreferred shareholders:
From net investment income (1,232,711) (1,783,707) (948,183)
From accumulated net realized gains
from investments (79,282) (225,856) --
---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to
Common shares from operations 23,792,621 39,930,764 20,071,147
---------------------------------------------------------------------------------------------------------------------------------
Distributions to Common Shareholders
From net investment income (12,158,797) (29,147,305) (14,584,390)
From accumulated net realized gains
from investments (1,336,468) (2,968,711) --
---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (13,495,265) (32,116,016) (14,584,390)
---------------------------------------------------------------------------------------------------------------------------------
Capital Share Transactions
Common shares:
Net proceeds from sale of shares -- 101,605 337,150,050
Net proceeds from shares issued to
shareholders due to
reinvestment of distributions -- 489,296 351,072
FundPreferred shares offering costs -- (4,237) (3,589,491)
---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common shares from
capital share transactions -- 586,664 333,911,631
---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable
to Common shares 10,297,356 8,401,412 339,398,388
Net assets applicable to Common shares
at the beginning of period 347,900,075 339,498,663 100,275
---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares
at the end of period $ 358,197,431 $ 347,900,075 $ 339,498,663
=================================================================================================================================
Undistributed net investment income
at the end of period $ 2,985,426 $ 2,173,783 $ 586,540
=================================================================================================================================
See accompanying notes to financial statements.
40
Notes to
Financial Statements
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.
Prior to the commencement of operations of Quality Preferred Income 2 (JPS) and
Quality Preferred Income 3 (JHP), each Fund had no operations other than those
related to organizational matters, the initial capital contribution of $100,275
per Fund by Nuveen Institutional Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Nuveen Investments, Inc., ("Nuveen"), and the recording of the
organization expenses ($15,000 and $11,500, respectively) and their
reimbursement by Nuveen Investments, LLC, also a wholly owned subsidiary of
Nuveen.
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 Board of Trustees of the Funds approved a change in the Funds' fiscal year
end from July 31 to December 31 upon completion of the Funds' July 31, 2004
fiscal year.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Securities Valuation
Exchange-listed securities and instruments 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.
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. Securities
traded on Nasdaq are valued at the Nasdaq Official Closing Price. The prices of
fixed-income securities are generally provided by an independent pricing service
approved by the Funds' Board of Trustees and based on the mean between the bid
and asked prices. When price quotes are not readily available, 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 securities are valued at amortized cost, which approximates market
value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from transactions are determined on the specific identification method.
Securities purchased on a when-issued or delayed delivery basis may have
extended settlement periods. Any securities so purchased are subject to market
fluctuation during this period. The Funds have instructed the custodian to
segregate assets with a current value at least equal to the amount of the
when-issued and delayed delivery purchase commitments. At December 31, 2004,
Quality Preferred Income 3 (JHP) had an outstanding delayed delivery purchase
commitment of $2,635,646. There were no such outstanding purchase commitments in
either of the other Funds.
41
Notes to
Financial Statements (continued)
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.
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.
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.
Dividends to Common shareholders are declared monthly. With respect to the REIT
securities held in the Funds' Portfolio of Investments, distributions received
by the Funds are generally comprised of investment income, long-term and
short-term capital gains, and a return of REIT capital. The actual character of
amounts received during the period is not known until after the fiscal year-end.
For the twelve months ended December 31, 2004, the character of distributions to
the Funds from the REITs was as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
2004 (JTP) (JPS) (JHP)
--------------------------------------------------------------------------------
Ordinary income* 91.42% 91.38% 84.61%
Long-term and short-term capital gains 8.37 7.83 14.31
Return of REIT capital .21 .79 1.08
================================================================================
For the twelve months ended December 31, 2003, the character of distributions to
the Funds from the REITs was as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
2003 (JTP) (JPS) (JHP)
--------------------------------------------------------------------------------
Ordinary income* 84.48% 88.22% 78.93%
Long-term and short-term capital gains .25 .80 1.19
Return of REIT capital 15.27 10.98 19.88
================================================================================
* Ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
For the fiscal period ended December 31, 2004, each Fund applied the actual
character of distributions reported by the REITs in which the Fund invests to
its receipts from the REITs. If a REIT held in the portfolio of investments did
not report the actual character of its distributions during the period, the Fund
treated the distributions as ordinary income.
For fiscal periods ended prior to December 31, 2004, each Fund applied a
percentage estimate for the breakdown of income type, to its receipts from the
REITs and treated as income in the Statement of Operations only the amount of
ordinary income so calculated. Each Fund adjusted that estimated breakdown of
income type (and consequently its net investment income) as necessary in the
following calendar year when the REITs informed their shareholders of the actual
breakdown of income type.
42
With respect to the portion of each Fund's monthly distribution to its
shareholders derived from the Fund's investments in REIT securities each Fund
treats that portion of its distribution as being entirely from net investment
income. The Funds recharacterize those distributions as being from ordinary
income, long-term and short-term capital gains, and return of capital, if
necessary, in the subsequent calendar year, based upon the income type breakdown
information conveyed at that time by the REITs whose securities are held in each
Fund's portfolio. Consequently, the financial statements may reflect an
over-distribution of net investment income that was at least partly attributable
to the fact that, as of the date of the financial statements, some of the
amounts received by the Funds from the portfolio REITs, but none of the
dividends paid by the Fund to shareholders from the portfolio REITs were treated
as something other than ordinary income.
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 on each Series is
determined every seven days, pursuant to a dutch auction process overseen by the
auction agent, and is payable weekly at the end of each rate period. The number
of shares outstanding, by Series and in total, for each Fund is as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------
Number of shares:
Series M 3,520 4,800 3,320
Series T 3,520 4,800 --
Series T2 -- 4,000 --
Series W 3,520 4,800 --
Series TH 3,520 4,800 3,320
Series TH2 -- 4,000 --
Series F 3,520 4,800 --
--------------------------------------------------------------------------------
Total 17,600 32,000 6,640
================================================================================
Interest Rate Swap Transactions
The Funds may invest in certain derivative financial investments. The Funds' use
of interest rate swap transactions is intended to mitigate the negative impact
that an increase in short-term interest rates could have on Common share net
earnings as a result of leverage. Interest rate swap transactions involve each
Fund's agreement with the counterparty to pay a fixed rate payment in exchange
for the counterparty paying the Fund a variable rate payment that is intended to
approximate each Fund's variable rate payment obligation on FundPreferred shares
or any variable rate borrowing. The payment obligation is based on the notional
amount of the interest rate swap contract. Interest rate swaps do not involve
the delivery of securities or other underlying assets or principal. Accordingly,
the risk of loss with respect to the swap counterparty on such transactions is
limited to the net amount of interest payments that each Fund is to receive.
Interest rate swap positions are valued daily. Although there are economic
advantages of entering into interest rate swap transactions, there are also
additional risks. The Funds help manage the credit risks associated with
interest rate swap transactions by entering into agreements only with
counterparties the Adviser believes have the financial resources to honor their
obligations and by having the Adviser continually monitor the financial
stability of the swap counterparties.
Due to recent clarification provided by the SEC to regulated investment
companies, effective with the July 31, 2004, reporting period, the Funds changed
the way they present net interest expense on interest rate swap transactions in
the financial statements. Net interest expense amounts paid during the year are
included in "Net realized gain (loss) from interest rate swap transactions". Net
interest expense amounts accrued, but not yet paid, at the end of the fiscal
year, are included in "Change in net unrealized appreciation (depreciation) of
interest rate swap transactions". Previously, net interest expense was presented
in "Expenses" and reported as "Net interest expense on interest rate swap
transactions". This reclassification does not alter the tax treatment of
interest rate payments on swap transactions which is to include such payments as
an operating expense for tax purposes.
For the fiscal year ended July 31, 2004, this reclassification, for financial
reporting purposes only, resulted in increases to net investment income,
decreases to net realized gain (loss) from interest rate swap transactions and
decreases to change in net unrealized appreciation (depreciation) of interest
rate swap transactions as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
------------------------------------------------------------------------------------------------------------------
Net investment income $ 8,892,767 $ 13,237,853 $ 2,595,268
Net realized gain (loss) from interest rate swap transactions (8,829,243) (12,395,021) (2,431,397)
Change in net unrealized appreciation (depreciation) of
interest rate swap transactions (63,524) (842,832) (163,871)
==================================================================================================================
43
Notes to
Financial Statements (continued)
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.
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.
Organization and Offering Costs
Nuveen Investments, LLC has agreed to reimburse all organization expenses
(approximately $15,000, $15,000 and $11,500, respectively) and pay all Common
shares offering costs (other than the sales load) that exceed $.03 per Common
share for Quality Preferred Income (JTP), Quality Preferred Income 2 (JPS) and
Quality Preferred Income 3 (JHP). Quality Preferred Income's (JTP), Quality
Preferred Income 2's (JPS) and Quality Preferred Income 3's (JHP) total share of
Common shares offering costs ($1,391,687, $1,481,072 and $531,845, respectively)
were recorded as reductions of the proceeds from the sale of the Common shares.
Costs incurred by Quality Preferred Income (JTP), Quality Preferred Income 2
(JPS) and Quality Preferred Income 3 (JHP) in connection with their offering of
FundPreferred shares ($9,225,162, $16,497,005, and $3,593,728, respectively)
were recorded as reductions to paid-in surplus.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on each Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Funds' organizational documents, their Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Funds. In addition, in the normal course of business, the Funds
enter into contracts that provide general indemnifications to other parties. The
Funds' maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Funds that have not yet
occurred. However, the Funds have not had prior claims or losses pursuant to
these contracts and expect the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
44
2. Fund Shares
Transactions in Common and FundPreferred shares were as follows:
Quality Preferred Quality Preferred
Income (JTP) Income 2 (JPS)
--------------------------------------- ----------------------------------------------------
For the
Period 9/24/02
Five Months Year Five Months Year (commencement
Ended Ended Year Ended Ended Ended of operations)
12/31/04 7/31/04 7/31/03 12/31/04 7/31/04 through 7/31/03
------------------------------------------------------------------------------------------------------------------------------
Common shares:
Shares sold -- -- -- -- -- 119,400,000
Shares issued to
shareholders due to
reinvestment of
distributions 9,641 95,759 2,049,704 -- 18,570 116,272
------------------------------------------------------------------------------------------------------------------------------
9,641 95,759 2,049,704 -- 18,570 119,516,272
==============================================================================================================================
FundPreferred shares sold -- -- 17,600 -- -- 32,000
==============================================================================================================================
Quality Preferred
Income 3 (JHP)
----------------------------------------------------
For the
Period 12/18/02
Five Months Year (commencement
Ended Ended of operations)
12/31/04 7/31/04 through 7/31/03
------------------------------------------------------------------------------------------------------------------------------
Common shares:
Shares sold -- -- 23,580,000
Shares issued to
shareholders due to
reinvestment of
distributions -- 32,020 23,701
------------------------------------------------------------------------------------------------------------------------------
-- 32,020 23,603,701
==============================================================================================================================
FundPreferred shares sold -- -- 6,640
==============================================================================================================================
3. Securities Transactions
Purchases and sales (including maturities but excluding short-term investments)
of investment securities during the five months ended December 31, 2004, were as
follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
------------------------------------------------------------------------------------------------------------------------------
Purchases $121,214,590 $163,158,128 $36,282,839
Sales and maturities 113,558,231 151,608,460 35,012,691
==============================================================================================================================
45
Notes to
Financial Statements (continued)
4. Income Tax Information
The following information is presented on an income tax basis based on the
information currently available to the Funds. Differences between amounts for
financial statement and federal income tax purposes are primarily due to the
recognition of income on certain securities which are treated as debt securities
for income tax purposes and equity for financial statement purposes, and timing
differences in recognizing certain gains and losses on security transactions.
At December 31, 2004, the cost of investments was as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------------------------
Cost of investments $ 1,318,317,965 $ 2,489,259,089 $ 497,236,234
===========================================================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments
at December 31, 2004, were as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 79,275,558 $ 184,691,485 $ 24,401,385
Depreciation (5,258,257) (8,950,451) (2,291,943)
---------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments $ 74,017,301 $ 175,741,034 $ 22,109,442
===========================================================================================================================
The tax components of undistributed net ordinary income and net realized gains
at July 31, 2004, 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 * $ 7,699,609 $ 14,357,609 $ 2,824,035
Undistributed net long-term capital gains -- 20,000,209 1,470,615
===========================================================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
46
The tax character of distributions paid during the Funds' tax years ended July
31, 2004 and July 31, 2003, was designated for purposes of the dividends paid
deduction as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
July 31, 2004 (JTP) (JPS) (JHP)
----------------------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $ 86,134,890 $171,962,461 $ 34,119,989
Distributions from net long-term capital gains -- -- --
======================================================================================================================
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
July 31, 2003 (JTP) (JPS) (JHP)
----------------------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $ 79,694,828 $108,646,966 $ 13,076,411
Distributions from net long-term capital gains -- -- --
======================================================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
At July 31, 2004, the Funds' last tax year end, Quality Preferred Income (JTP)
had unused capital loss carryforwards of $25,060,612 available for federal
income tax purposes to be applied against future capital gains, if any. If not
applied, $693,161 of the carryforwards will expire in the year 2011 and
$24,367,451 will expire in 2012.
Calculation of certain of the amounts presented above (namely, undistributed net
ordinary income for tax purposes) involves the application of complex aspects of
the Internal Revenue Code to certain securities held by the Funds. In
calculating the amount of taxable income derived from these securities,
management made assumptions as to the correct tax treatment of certain of those
securities and made estimates about the tax characteristics of income received
from those securities, based on information currently available to the Funds.
The use of these assumptions and estimates will not affect the qualification of
the Funds as regulated investment companies under Subchapter M of the Internal
Revenue Code, nor is it expected that these assumptions and estimates will be
used in computing taxable income for purposes of preparing the federal and state
income and excise tax returns.
5. Management Fee and Other Transactions with Affiliates
As approved by the Board of Trustees, effective August 1, 2004, a complex-wide
management fee structure was adopted for all funds sponsored by the Adviser and
its affiliates. This fee structure separates each fund's management fee into two
components - a complex-level component, based on the aggregate amount of all
funds assets managed by the Adviser and its affiliates, 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 and its affiliates. Under
no circumstances will this pricing structure result in a fund paying management
fees at a rate higher than would otherwise have been applicable had the
complex-wide management fee structure not been implemented. As a consequence of
this new management fee structure, the funds' effective management fees were
reduced by approximately .009% as of January 31, 2005.
Effective August 1, 2004, the annual fund-level fee, payable monthly, for each
of the Funds 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
================================================================================
47
Notes to
Financial Statements (continued)
Effective August 1, 2004, 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 follows:
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.
Each Fund paid through July 31, 2004, an annual management fee, payable monthly,
at the rates set forth below, which were based upon the average daily Managed
Assets of each Fund as follows:
Average Daily Managed Assets Management Fee Rate
--------------------------------------------------------------------------------
For the first $500 million .9000%
For the next $500 million .8750
For the next $500 million .8500
For the next $500 million .8250
For Managed Assets over $2 billion .8000
================================================================================
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with Spectrum Asset Management, Inc. ("Spectrum"),
under which Spectrum manages the investment portfolios of the Funds. Spectrum is
compensated for its services to the Funds from the management fees paid to the
Adviser. Spectrum also receives compensation on certain portfolio transactions
for providing brokerage services to the Funds.
The Funds pay no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its officers, all of whom receive remuneration
for their services to the Funds from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
48
For the first eight years of Quality Preferred Income's (JTP) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
Year Ending Year Ending
June 30, June 30,
--------------------------------------------------------------------------------
2002* .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income (JTP) for any
portion of its fees and expenses beyond June 30, 2010.
For the first eight years of Quality Preferred Income 2's (JPS) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
Year Ending Year Ending
September 30, September 30,
--------------------------------------------------------------------------------
2002* .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income 2 (JPS) for any
portion of its fees and expenses beyond September 30, 2010.
For the first eight years of Quality Preferred Income 3's (JHP) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
Year Ending Year Ending
December 31, December 31,
--------------------------------------------------------------------------------
2002* .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income 3 (JHP) for any
portion of its fees and expenses beyond December 31, 2010.
49
Notes to
Financial Statements (continued)
6. Subsequent Events
Distributions to Common Shareholders
The Funds declared Common share dividend distributions from their net investment
income which were paid on February 1, 2005, to shareholders of record on January
15, 2005, as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------
Dividend per share $.0970 $.1020 $.1000
================================================================================
Adviser Merger
Effective January 1, 2005, the Adviser and its affiliate, Nuveen Advisory Corp.
("NAC"), were merged into Nuveen Asset Management ("NAM"), also a wholly owned
subsidiary of Nuveen. As a result of the merger, NAM is now the adviser to all
funds previously advised by either NAC or the Adviser.
Announcement Regarding Parent Company of Adviser
After the close of trading on the New York Stock Exchange on January 31, 2005,
The St. Paul Travelers Companies, Inc. announced that it intended to explore
strategic alternatives to divest its equity stake in Nuveen.
50
Financial
Highlights
51
Financial
Highlights
Selected data for a Common share outstanding throughout each period:
Investment Operations
------------------------------------------------------------------------
Distributions Distributions
from Net from
Beginning Investment 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)
--------------------------------------------------------------------------------------------------------------------
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)
--------------------------------------------------------------------------------------------------------------------
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)
--------------------------------------------------------------------------------------------------------------------
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 (JTP)
------------------------------------------------------------------------------------------------------------
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 (JPS)
------------------------------------------------------------------------------------------------------------
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 (JHP)
------------------------------------------------------------------------------------------------------------
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
============================================================================================================
Ratios/Supplemental Data
--------------------------------------------
Total Returns Before Credit/Reimbursement
------------------- ----------------------------
Ratio of Net
Based Ratio of Investment
on Ending Expenses Income to
Common Net to Average Average
Based Share Assets Net Assets Net Assets
on Net Applicable Applicable Applicable
Market Asset to Common to Common to Common
Value** Value** Shares (000) Shares++ Shares++
=====================================================================================================
Quality Preferred Income (JTP)
-----------------------------------------------------------------------------------------------------
8/1/04-12/31/04 3.79% 7.10% $ 961,583 1.49%* 9.15%*
Year Ended 7/31:
2004(b) 4.20 11.17% 927,892 1.51 8.87
2003 4.95 9.15 907,746 2.38 8.84
2002(c) 1.00 (1.47) 880,006 .96* 4.51*
Quality Preferred Income 2 (JPS)
-----------------------------------------------------------------------------------------------------
8/1/04-12/31/04 3.34 6.94 1,872,283 1.40* 8.69*
Year Ended 7/31:
2004(b) 8.98 11.60 1,830,878 1.41 8.64
2003(d) 4.02 11.22 1,789,809 1.99* 7.59*
Quality Preferred Income 3 (JHP)
-----------------------------------------------------------------------------------------------------
8/1/04-12/31/04 4.64 6.81 358,197 1.54* 9.03*
Year Ended 7/31:
2004(b) 9.36 11.93 347,900 1.55 8.75
2003(e) (.19) 4.62 339,499 1.97* 7.14*
=====================================================================================================
Ratios/Supplemental Data
------------------------------------------
After Credit/Reimbursement*** FundPreferred Shares at End of Period
----------------------------- ----------------------------------------
Ratio of Net
Ratio of Investment
Expenses Income to
to Average Average
Net Assets Net Assets Aggregate Liquidation
Applicable Applicable Portfolio Amount and Market Asset
to Common to Common Turnover Outstanding Value Coverage
Shares++ Shares++ Rate (000) Per Share Per Share
=========================================================================================================================
Quality Preferred Income (JTP)
-------------------------------------------------------------------------------------------------------------------------
8/1/04-12/31/04 1.02%* 9.62%* 8% $440,000 $25,000 $79,635
Year Ended 7/31:
2004(b) 1.04 9.33 18 440,000 25,000 77,721
2003 1.91 9.31 45 440,000 25,000 76,577
2002(c) .64* 4.83* 1 -- -- --
Quality Preferred Income 2 (JPS)
-------------------------------------------------------------------------------------------------------------------------
8/1/04-12/31/04 .94* 9.14* 6 800,000 25,000 83,509
Year Ended 7/31:
2004(b) .95 9.10 19 800,000 25,000 82,215
2003(d) 1.54* 8.04* 35 800,000 25,000 80,932
Quality Preferred Income 3 (JHP)
-------------------------------------------------------------------------------------------------------------------------
8/1/04-12/31/04 1.07* 9.50* 7 166,000 25,000 78,945
Year Ended 7/31:
2004(b) 1.08 9.22 17 166,000 25,000 77,395
2003(e) 1.53* 7.58* 57 166,000 25,000 76,129
=========================================================================================================================
* Annualized.
** Total Investment 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.
++ o Ratios do not reflect the effect of dividend payments to
FundPreferred shareholders.
o Income ratios reflect income earned on assets attributable to
FundPreferred shares.
o For the periods presented below each ratio includes the effect of
the interest expense paid on interest rate swap transactions as
follows:
Ratio of Net Interest Expense to Average
Net Assets Applicable to Common Shares
----------------------------------------
Quality Preferred Income (JTP)
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) As discussed in the accompanying notes to financial statements the Funds
changed their method of presentation for net interest expense on interest
rate swap transactions. The effect of this reclassification for the fiscal
year ended July 31, 2004, was as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
-----------------------------------------------
Increase of Net Investment Income per share with a corresponding
decrease in Net Realized/Unrealized Investment Gain (Loss) $.14 $.11 $.11
Decrease in each of the Ratios of Expenses to Average Net Assets
Applicable to Common Shares with a corresponding increase
in each of the Ratios of Net Investment Income to Average
Net Assets Applicable to Common Shares .94% .71% .73%
(c) For the period June 25, 2002 (commencement of operations) through July 31,
2002.
(d) For the period September 24, 2002 (commencement of operations) through
July 31, 2003.
(e) For the period December 18, 2002 (commencement of operations) through July
31, 2003.
See accompanying notes to financial statements.
52-53 spread
Board Members
and Officers
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board
Members of the Funds. The number of board members of the Funds is currently set
at nine. None of the board members who are not "interested" persons of the Funds
has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
Number of Portfolios
Principal Occupation(s) in Fund Complex
Name, Birthdate Position(s) Held Year First Elected Including other Directorships Overseen by
and Address with the Funds or Appointed (2) During Past 5 Years Board Member
------------------------------------------------------------------------------------------------------------------------------------
Board member who is an interested person of the Funds:
------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger (1) Chairman of 1994 Chairman and Director (since 1996) of 153
3/28/49 the Board Nuveen Investments, Inc. and Nuveen
333 W. Wacker Drive and Trustee Investments, LLC; Director (since 1992)
Chicago, IL 60606 and Chairman (since 1996) of Nuveen
Advisory Corp. and Nuveen Institutional
Advisory Corp. (3); Chairman and Director
(since 1997) of Nuveen Asset Management;
Director (since 1996) of Institutional
Capital Corporation; Chairman and
Director (since 1999) of Rittenhouse
Asset Management, Inc.; Chairman of Nuveen
Investments Advisers Inc. (since 2002).
Board members who are not interested persons of the Funds:
------------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Board member 1997 Private Investor and Management 153
8/22/40 Consultant.
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Board member 1993 Retired (1989) as Senior Vice President 153
7/29/34 of The Northern Trust Company; Director,
333 W. Wacker Drive Community Advisory Board for Highland
Chicago, IL 60606 Park and Highwood, United Way of the
North Shore (since 2002).
------------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Board member 1999 President, The Hall-Perrine Foundation, a 153
10/22/48 private philanthropic corporation (since
333 W. Wacker Drive 1996); Director and Vice Chairman, United
Chicago, IL 60606 Fire Group, a publicly held company;
Adjunct Faculty Member, University of
Iowa; Director, Gazette Companies; Life
Trustee of Coe College; Director, Iowa
College Foundation; formerly, Director,
Federal Reserve Bank of Chicago;
formerly, President and Chief Operating
Officer, SCI Financial Group, Inc., a
regional financial services firm.
------------------------------------------------------------------------------------------------------------------------------------
William C. Hunter Board member 2004 Dean and Distinguished Professor of 153
3/6/48 Finance, School of Business at the
333 W. Wacker Drive University of Connecticut (since 2003);
Chicago, IL 60606 previously Senior Vice President and
Director of Research at the Federal
Reserve Bank of Chicago (1995-2003);
Director, Credit Research Center at
Georgetown University; Director of Xerox
Corporation (since 2004).
------------------------------------------------------------------------------------------------------------------------------------
David J. Kundert Board member 2005 Retired (2004) as Chairman, JPMorgan 151
10/28/42 Fleming Asset Management, President and
333 W. Wacker Drive CEO, Banc One Investment Advisors
Chicago, IL 60606 Corporation, and President, One Group
Mutual Funds; prior thereto, Executive
Vice President, Banc One Corporation and
Chairman and CEO, Banc One Investment
Management Group; Board of Regents,
Luther College; currently a member of the
American and Wisconsin Bar Associations.
54
Number of Portfolios
Principal Occupation(s) in Fund Complex
Name, Birthdate Position(s) Held Year First Elected Including other Directorships Overseen by
and Address with the Funds or Appointed (2) During Past 5 Years Board Member
------------------------------------------------------------------------------------------------------------------------------------
Board members who are not interested persons of the Funds (continued):
------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Chairman, formerly, Senior Partner and 153
9/24/44 Chief Operating Officer, Miller-Valentine
333 W. Wacker Drive Partners Ltd., a real estate investment
Chicago, IL 60606 company; formerly, Vice President,
Miller-Valentine Realty, a construction
company; Director, Chair of the Finance
Committee and Member of the Audit
Committee of Premier Health Partners, the
not-for-profit parent company of Miami
Valley Hospital; President of the Dayton
Philharmonic Orchestra Association;
Director and Immediate Past Chair, Dayton
Development Coalition; formerly, Member,
Community Advisory Board, National City
Bank, Dayton, Ohio and Business Advisory
Council, Cleveland Federal Reserve Bank.
------------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale Board member 1997 Executive Director, Gaylord and Dorothy 153
12/29/47 Donnelley Foundation (since 1994); prior
333 W. Wacker Drive thereto, Executive Director, Great Lakes
Chicago, IL 60606 Protection Fund (from 1990 to 1994)
------------------------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine Board member 2005 Senior Vice President for Business and 153
1/22/50 Finance (since 1997), Northwestern
333 W. Wacker Drive University; Director (since 2003),
Chicago, IL 60606 Chicago Board of Options Exchange;
Director (since 2003), National Mentor
Holdings, a privately-held, national
provider of home and community-based
services; Chairman (since 1997), Board of
Directors, Rubicon, an insurance company
owned by Northwestern University;
Director (since 1997), Evanston Chamber
of Commerce and Evanston Inventure, a
business development organization.
Number of Portfolios
Name, Birthdate Position(s) Held Year First Elected Principal Occupation(s) in Fund Complex
and Address with the Funds or Appointed (4) During Past 5 Years Overseen by Officer
------------------------------------------------------------------------------------------------------------------------------------
Officers of the Funds:
------------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant 153
9/9/56 Administrative Secretary and Associate General Counsel,
333 W. Wacker Drive Officer formerly, Vice President and Assistant
Chicago, IL 60606 General Counsel of Nuveen Investments,
LLC; Managing Director (since 2002),
General Counsel and Assistant Secretary,
formerly, Vice President of Nuveen
Advisory Corp. and Nuveen Institutional
Advisory Corp. (3); Managing Director
(since 2002), Assistant Secretary and
Associate General Counsel, formerly, Vice
President (since 2000), of Nuveen Asset
Management; Managing Director (since
2004) and Assistant Secretary (since
1994) of Nuveen Investments, Inc.;
Assistant Secretary of NWQ Investment
Management Company, LLC (since 2002);
Vice President and Assistant Secretary of
Nuveen Investments Advisers Inc. (since
2002); Managing Director, Associate
General Counsel and Assistant Secretary
of Rittenhouse Asset Management, Inc.
(since 2003); Chartered Financial
Analyst.
55
Board Members
and Officers (continued)
Number of Portfolios
Name, Birthdate Position(s) Held Year First Elected Principal Occupation(s) in Fund Complex
and Address with the Funds or Appointed (3) During Past 5 Years Overseen by Officer
------------------------------------------------------------------------------------------------------------------------------------
Officers of the Funds (continued):
------------------------------------------------------------------------------------------------------------------------------------
Julia L. Antonatos Vice President 2004 Managing Director (since 2005), 153
9/22/63 previously, Vice President (since 2002),
333 W. Wacker Drive formerly, Assistant Vice President
Chicago, IL 60606 (since 1999) of Nuveen Investments, LLC;
Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, 153
2/3/66 and Assistant Assistant Vice President (since 2000),
333 W. Wacker Drive Secretary previously, Associate of Nuveen
Chicago, IL 60606 Investments, LLC.
------------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC 153
11/28/67 and Treasurer (since 1999), prior thereto, Assistant
333 W. Wacker Drive Vice President (since 1997); Vice
Chicago, IL 60606 President and Treasurer of Nuveen
Investments, Inc. (since 1999); Vice
President and Treasurer of Nuveen
Advisory Corp. and Nuveen Institutional
Advisory Corp (since 1999) (3); Vice
President and Treasurer of Nuveen Asset
Management (since 2002) and of Nuveen
Investments Advisers Inc. (since 2002);
Assistant Treasurer of NWQ Investment
Management Company, LLC (since 2002);
Vice President and Treasurer of Nuveen
Rittenhouse Asset Management, Inc. (since
2003); Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 2000 Vice President (since 2002) and Assistant 153
9/24/64 and Secretary General Counsel (since 1998), formerly,
333 W. Wacker Drive Assistant Vice President (since 1998) of
Chicago, IL 60606 Nuveen Investments, LLC; Vice President
(since 2002) and Assistant Secretary
(since 1998), formerly, Assistant Vice
President of Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp. (3);
Vice President and Assistant Secretary
(since 2002) of Nuveen Asset Management.
------------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Managing Director (since 2004) formerly, 153
10/24/45 Vice President of Nuveen Investments,
333 W. Wacker Drive LLC; Managing Director (since 2004)
Chicago, IL 60606 formerly, Vice President (since 1998) of
Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp. (3);
Managing Director (since 2005) of Nuveen
Asset Management.
------------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen 153
3/2/64 Investments, LLC; Managing Director
333 W. Wacker Drive (since 2001), formerly Vice President of
Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp. (since 1995)
(3); Managing Director of Nuveen Asset
Management (3) (since 2001); Vice
President of Nuveen Investment Advisers
Inc. (since 2002); Chartered Financial
Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds 153
5/31/54 and Controller Controller (since 1998) of Nuveen
333 W. Wacker Drive Investments, LLC and, formerly, Vice
Chicago, IL 60606 President and Funds Controller (since
1998) of Nuveen Investments, Inc.;
Certified Public Accountant.
56
Number of Portfolios
Name, Birthdate Position(s) Held Year First Elected Principal Occupation(s) in Fund Complex
and Address with the Funds or Appointed (3) During Past 5 Years Overseen by Officer
------------------------------------------------------------------------------------------------------------------------------------
Officers of the Funds (continued):
------------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen 153
3/22/63 Investments, LLC, previously Assistant
333 W. Wacker Drive Vice President (since 1999); prior
Chicago, IL 60606 thereto, Associate of Nuveen Investments,
LLC; Certified Public Accountant.
------------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President (since 1999), previously, 153
8/27/61 Assistant Vice President (since 1993) of
333 W. Wacker Drive Nuveen Investments, LLC.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and 153
7/27/51 and Assistant Assistant General Counsel of Nuveen
333 W. Wacker Drive Secretary Investments, LLC; Vice President and
Chicago, IL 60606 Assistant Secretary of Nuveen Advisory
Corp. and Nuveen Institutional Advisory
Corp. (3); Assistant Secretary of Nuveen
Investments, Inc. and (since 1997) Nuveen
Asset Management, Vice President (since
2000), Assistant Secretary and Assistant
General Counsel (since 1998) of
Rittenhouse Asset Management, Inc.; Vice
President and Assistant Secretary of
Nuveen Investments Advisers Inc.
(since 2002); Assistant Secretary of NWQ
Investment Management Company, LLC
(since 2002).
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and board member
of the Adviser.
(2) Board members serve an indefinite term until his/her successor is elected.
The year first elected or appointed represents the year in which the board
member was first elected or appointed to any fund in the Nuveen Complex.
(3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were
reorganized into Nuveen Asset Management, effective January 1, 2005.
(4) Officers serve one year terms through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
57
Reinvest Automatically
Easily and Conveniently
Sidebar text: Nuveen makes reinvesting easy. A phone call is all it takes to set
up your reinvestment account.
Nuveen Closed-End Exchange-Traded Funds
Dividend Reinvestment Plan
Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares.
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of tax-free
compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
Easy and convenient
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
How shares are purchased
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
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.
58
Other Useful
Information
Effective Jan. 1, 2005, the asset management services and operations of Nuveen
Advisory Corp. (NAC) and Nuveen Institutional Advisory Corp (NIAC) became part
of Nuveen Asset Management (NAM). This internal consolidation is intended to
simplify the delivery of services to the investment management clients of Nuveen
Investments. It does not affect the investment objectives or portfolio
management of any Fund.
Quarterly Portfolio of Investments and Proxy voting
Each 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, 2004, and (iii) a description of the
policies and procedures that the Funds 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.
Dividend Information
The Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2
and Nuveen Quality Preferred Income Fund 3 designate 6.58%, 9.69% and 10.29%
respectively, of dividends declared from net investment income as dividends
qualifying for the 70% dividends received deduction for corporations and 10.12%,
15.82% and 12.74% respectively, as qualified dividend income for individuals
under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
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 (also known as Dividend Yield or Current Yield): An investment's
current annualized dividend divided by its current market price.
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
Boston, MA
Transfer Agent and Shareholder Services
State Street Bank & Trust
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
Legal Counsel
Chapman and Cutler LLP
Chicago, IL
Independent Registered Public Accounting Firm
Ernst & Young LLP
Chicago, IL
Each Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the period covered by this report. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
59
Nuveen Investments:
SERVING Investors
For GENERATIONS
Photo of: 2 women looking at a photo album.
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 $115 billion in assets, Nuveen Investments offers access to a
number of different asset classes and investing solutions through a variety of
products. Nuveen Investments markets its capabilities under four distinct
brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in
value-style equities; Rittenhouse, a leader in growth-style equities; and
Symphony, a leading institutional manager of market-neutral alternative
investment portfolios.
Find out how we can help you reach your financial goals.
To learn more about the products and services Nuveen Investments offers, talk to
your financial advisor, or call us at (800) 257-8787. Please read the
information 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.
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EAN-E-1204D
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. There were no amendments to or waivers
from the Code during the period covered by this report. The registrant has
posted the code of ethics on its website at www.nuveen.com/etf. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then click on Code of Conduct.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors or Trustees determined that the registrant
has at least one "audit committee financial expert" (as defined in Item 3 of
Form N-CSR) serving on its Audit Committee. The registrant's audit committee
financial expert is Jack B. Evans, Chairman of the Audit Committee, who is
"independent" for purposes of Item 3 of Form N-CSR. Mr. Evans has served as the
registrant's audit committee financial expert from July 26, 2004 to the end of
the reporting period on December 31, 2004.
Prior to July 26, 2004, William E. Bennett, who was "independent" for purposes
of Item 3 of Form N-CSR, served as the audit committee financial expert. Mr.
Bennett unexpectedly resigned from the Board effective April 30, 2004.
Accordingly for this reporting period, the registrant did not have a designated
"audit committee financial expert" from July 1, 2004 to July 26, 2004.
Mr. Evans was formerly President and Chief Operating Officer of SCI Financial
Group, Inc., a full service registered broker-dealer and registered investment
adviser ("SCI"). As part of his role as President and Chief Operating Officer,
Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and
actively supervised the CFO's preparation of financial statements and other
filings with various regulatory authorities. In such capacity, Mr. Evans was
actively involved in the preparation of SCI's financial statements and the
resolution of issues raised in connection therewith. Mr. Evans has also served
on the audit committee of various reporting companies. At such companies, Mr.
Evans was involved in the oversight of audits, audit plans, and the preparation
of financial statements. Mr. Evans also formerly chaired the audit committee of
the Federal Reserve Bank of Chicago.
Mr. Bennett was formerly Executive Vice President and Chief Credit Officer of
First Chicago Corporation and its principal subsidiary, The First National Bank
of Chicago. As part of his role as Chief Credit Officer, Mr. Bennett set policy
as to accrual of assets/loans; designated performing/non-performing assets; set
the level of reserves against the credit portfolio; and determined the carrying
value of credit related assets and exposure. Among other things, Mr. Bennett was
also responsible for the oversight of the internal analysis function including
setting ground rules for the review and preparation of financial analysis and
financial statements for use in making credit and risk decisions for clients.
Mr. Bennett has significant experience reviewing, analyzing and evaluating
financial statements of domestic and international companies in a variety of
industries with complex accounting issues.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Nuveen Quality Preferred Income Fund 2
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP entered into on or after May 6, 2003, the
Audit Committee approved in advance all audit services and non-audit services
that Ernst & Young LLP provided to the Fund, except for those non-audit services
that were subject to the pre-approval exception under Rule 2-01 of Regulation
S-X (the "pre-approval exception"). The pre-approval exception for services
provided directly to the Fund waives the pre-approval requirement for services
other than audit, review or attest services if: (A) the aggregate amount of all
such services provided constitutes no more than 5% of the total amount of
revenues paid by the Fund to its accountant during the fiscal year in which the
services are provided; (B) the Fund did not recognize the services as non-audit
services at the time of the engagement; and (C) the services are promptly
brought to the Audit Committee's attention, and the Committee (or its delegate)
approves the services before the audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND BILLED TO FUND BILLED TO FUND BILLED TO FUND
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 * $ 26,088 $ 0 $ 3,676 $ 1,800
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND BILLED TO FUND BILLED TO FUND BILLED TO FUND
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2004 $ 26,088 $ 0 $ 9,098 $ 3,450
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2003 $ 30,050 $ 0 $ 4,475 $ 2,013
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
*Nuveen Quality Preferred Income Fund 2 changed its fiscal year end from July 31
to December 31, therefore, these numbers represent the period 08/01/04 -
12/31/04.
The above "All Other Fees" are fees paid to audit firms to perform agreed
upon procedures required by the rating agencies to rate fund preferred shares.
The above "Tax Fees" were billed for professional services for tax advice, tax
compliance and tax planning.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Institutional Advisory Corp. ("NIAC" or the "Adviser"), and any entity
controlling, controlled by or under common control with NIAC ("Control
Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service
Provider"), for engagements directly related to the Fund's operations and
financial reporting, during the Fund's last two full fiscal years.
The table also shows the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES
BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER
AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND
SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 * $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2004 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2003 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A N/A N/A
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
*Nuveen Quality Preferred Income Fund 2 changed its fiscal year end from July 31
to December 31, therefore, these numbers represent the period 08/01/04 -
12/31/04.
NON-AUDIT SERVICES
The following table shows the amount of fees that Ernst & Young LLP billed
during the Fund's last two full fiscal years for non-audit services. For
engagements entered into on or after May 6, 2003, the Audit Committee is
required to pre-approve non-audit services that Ernst & Young LLP provides to
the Adviser and any Affiliated Fund Services Provider, if the engagement related
directly to the Fund's operations and financial reporting (except for those
subject to the de minimis exception described above). The Audit Committee
requested and received information from Ernst & Young LLP about any non-audit
services that Ernst & Young LLP rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating Ernst & Young LLP's independence.
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES
BILLED TO ADVISER AND
AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES
PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND
RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE
TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER
BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 * $ 5,476 $ 0 $ 0 $ 5,476
July 31, 2004 $ 12,548 $ 0 $ 0 $ 12,548
July 31, 2003 $ 6,488 $ 0 $ 0 $ 6,488
*Nuveen Quality Preferred Income Fund 2 changed its fiscal year end from July 31
to December 31, therefore, these numbers represent the period 08/01/04 -
12/31/04.
Audit Committee Pre-Approval Policies and Procedures. Generally, the audit
committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the audit committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the audit committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the audit committee at
the next audit committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant's Board of Directors or Trustees has a separately designated
audit committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (15 U.S.C.
78c(a)(58)(A)). The members of the audit committee are Robert P. Bremner,
Lawrence H. Brown, Jack B. Evans and William J. Schneider.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Schedule I in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
In the rare event that a municipal issuer held by the Fund were to issue a proxy
or that the Fund were to receive a proxy issued by a cash management security,
the Adviser would either engage an independent third party to determine how the
proxy should be voted or vote the proxy with the consent, or based on the
instructions, of the Fund's Board of Directors or Trustees or its
representative. In the case of a conflict of interest, the proxy would be
submitted to the applicable Fund's Board to determine how the proxy should be
voted. A member of the Adviser's legal department would oversee the
administration of the voting, and ensure that records were maintained in
accordance with Rule 204-2(c)(2) under the Investment Advisers Act of 1940 (17
CFR 275.204-2(c)(2)), reports were filed with the SEC on Form N-PX, and the
results were provided to the Board of Directors or Trustees and made available
to shareholders as required by applicable rules.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In the event of a vacancy on the Board, the nominating and governance committee
receives suggestions from various sources, including shareholders, as to
suitable candidates. Suggestions should be sent in writing to Lorna Ferguson,
Vice President for Board Relations, Nuveen Investments, 333 West Wacker Drive,
Chicago, IL 60606. The nominating and governance committee sets appropriate
standards and requirements for nominations for new directors or trustees and
reserves the right to interview all candidates and to make the final selection
of any new directors or trustees.
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. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because the code is posted on registrant's website at www.nuveen.com/etf. and
there were no amendments during the period covered by this report (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then Code of Conduct.).
(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: March 9, 2005
-------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
----------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: March 9, 2005
-------------------------------------------------------------------
By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: March 9, 2005
-------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.