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 811-21333
-----------------------
NUVEEN PREFERRED AND CONVERTIBLE 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
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Date of fiscal year end: December 31
-------------------
Date of reporting period: June 30, 2006
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. SS. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMIANNUAL REPORT JUNE 30, 2006
NUVEEN INVESTMENTS
EXCHANGE-TRADED
CLOSED-END
FUNDS
NUVEEN PREFERRED
AND CONVERTIBLE
INCOME FUND
JPC
NUVEEN PREFERRED
AND CONVERTIBLE
INCOME FUND 2
JQC
HIGH CURRENT INCOME FROM
A BALANCED PORTFOLIO OF
PREFERRED, CONVERTIBLE AND OTHER
INCOME-PRODUCING SECURITIES
AND EQUITIES
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NUVEEN LOGO
(TIMOTHY SCHWERTFEGER PHOTO)
Timothy R. Schwertfeger
Chairman of the Board
CHAIRMAN'S
LETTER TO SHAREHOLDERS
Dear Shareholder:
I am very pleased to report that over the six-month period covered by this
report, your Fund continued to provide you with attractive monthly income
from a diversified portfolio of quality preferred securities, convertible
securities and high yield debt. For more information on your Fund's
performance, please read the Portfolio Managers' Comments, the
Distribution and Share Price Information, and the Performance Overview
sections of this report.
Portfolio diversification is a recognized way to try to reduce some of the
risk that comes with investing. Since one part of your portfolio may be
going up when another is going down, portfolio diversification may help
smooth your investment returns over time. In addition to providing regular
monthly income, an investment like your Fund may help you achieve and
benefit from greater portfolio diversification. Your financial advisor can
explain these potential advantages in more detail. I urge you to contact
him or her soon for more information on this important investment
strategy.
"IN ADDITION TO PROVIDING REGULAR MONTHLY INCOME, AN INVESTMENT LIKE YOUR FUND
MAY HELP YOU ACHIEVE AND BENEFIT FROM GREATER PORTFOLIO DIVERSIFICATION."
At Nuveen Investments, our mission continues to be to assist you and your
financial advisor by offering investment services and products that can
help you to secure your financial objectives. We are grateful that you
have chosen us as a partner as you pursue your financial goals, and we
look forward to continuing to earn your trust in the months and years
ahead.
Sincerely,
(TIMOTHY SCHWERFEGER SIG)
Timothy R. Schwertfeger
Chairman of the Board
August 11, 2006
Nuveen Investments Exchange-Traded Closed-End Funds (JPC and JQC)
PORTFOLIO MANAGERS'
COMMENTS
These Funds are subadvised by a team of specialists from Spectrum Asset
Management, Inc. (Spectrum), Froley, Revy Investment Co., Inc. (Froley, Revy),
and Symphony Asset Management LLC (Symphony), an affiliate of Nuveen
Investments.
Spectrum, an affiliate of Principal Capital(SM), manages the preferred
securities portion of each Fund's portfolio. Mark Lieb, Bernie Sussman and Phil
Jacoby, who have more than 50 years of combined experience in the preferred
securities markets, lead the team.
Froley, Revy, one of the oldest firms specializing in convertible securities,
manages that portion of each Fund's portfolio. Their investment team is led by
Andrea Revy O'Connell and Michael Revy, who each have more than 10 years
experience in convertible securities investing.
The Symphony team managing the high yield securities and other debt and equity
instruments in both Funds is led by Gunther Stein, Lenny Mason and Igor Lotsvin.
Gunther, Lenny, and Igor have more than 35 years of combined investment
management experience, much of it in evaluating and purchasing senior corporate
loans and other high-yield debt.
Here representatives from Spectrum, Froley, Revy and Symphony talk about their
management strategies and the performance of both Funds for the six-month period
ended June 30, 2006.
WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE SIX-MONTH PERIOD ENDED JUNE
30, 2006?
On April 28, 2006, the Funds received authorization from their Board of Trustees
to expand the range of permissible investments and implement a managed
distribution policy. Going forward, Symphony, which acts as sub-advisor for
approximately 20% of each Fund's portfolio, will be able to diversify its debt
investments across high-yield bonds, senior loans and convertible securities, as
well as invest up to 10% of each Fund's portfolio in equity securities. These
changes are intended to better enable the Funds to meet their investment
objectives and provide for increased capital appreciation potential over time.
The investment parameters for the Fund's other sub-advisors, Spectrum and
Froley, Revy, did not change. Additionally, the Fund's new managed distribution
policy gives the Fund the flexibility to draw upon net investment income as well
as realized and unrealized portfolio gains and non-taxable returns of principal
when making their monthly distributions to common shareholders. See the
Distribution and Share Price Information section of this report immediately
following this question and answer section for more details about this managed
distribution policy.
In the preferred sleeves of JPC and JQC we generally maintained the 60/40
portfolio mix between the $25 Par Preferred Securities (retail driven) asset
type and the Capital Preferred Securities (institutionally driven) asset type.
Dividends Received Deduction (DRD) tax advantaged securities were sold and the
proceeds were reinvested roughly equally in fully taxable $25 Par Preferred
Securities and in shares of competitor closed end funds (CEFs, also retail
driven). The closed end funds were purchased over the first
4
half of 2006 at prices that were a discount to the net asset value of the funds.
Positions in closed end funds were 0.7% and 0.8% of total investments,
respectively, at June 30, 2006.
In the Capital Preferred Securities asset type, we decreased concentrations in
"Euro-listed" securities and purchased Yankee Tier 1 and Enhanced Capital
Advantaged Preferred Securities, "ECAPS," that offered more return potential
with less duration risk. We also sold some high coupon, callable Capital
Securities that had little potential upside to purchase some new issues that
were priced attractively. These actions were part of an ongoing effort to
increase book yield while maintaining credit quality and diversity.
The overall management strategy for the convertible sleeves of JPC and JQC
remained consistent with our mandate. We continued to focus on the "balanced"
portion of the convertible universe, where we find an attractive risk/reward
trade off between equity sensitivity and downside risk. The mandate changes
during the first half of the year allowed for a lower weighting in investment
grade securities from a 50% minimum to 40%. In both JPC and JQC, the weighting
at June 30, 2006, was 46%. The Funds continue to be focused on the balanced
sector of the convertible universe, making it more equity sensitive than the
Merrill Lynch All Convertibles Index (VXA0).
For the high yield debt portion of both Funds, we continued to employ a
value-oriented strategy, focusing on relatively higher-quality credits with
stronger fundamental business models, more diversified revenue streams, and
relatively low earnings volatility. We maintained our investments across a
variety of industry sectors and rating tiers. We continued to eliminate
positions that we believed had escalating credit issues, limited upside
potential or significant downside risk.
HOW DID THE FUNDS PERFORM OVER THE SIX-MONTHS ENDED JUNE 30, 2006?
The performance of each Fund, as well as the performance of several widely
followed market indexes, is shown in the nearby chart.
5
TOTAL RETURN ON NET ASSET VALUE
For the 6-month period ended June 30, 2006
----------------------------------------------------------------------------------------------------
JPC -0.13%
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JQC 0.42%
----------------------------------------------------------------------------------------------------
Comparative benchmark(1) 0.78%
----------------------------------------------------------------------------------------------------
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1 Comparative benchmark performance is a blended return consisting of: 1) 33% of
the Merrill Lynch Preferred Stock Hybrid Securities Index, an unmanaged index
of investment-grade, exchange traded preferred issues with outstanding market
values of at least $30 million and at least one year to maturity; 2) 27% of
the Lehman Tier 1 Capital Securities Index, an unmanaged index that includes
securities that can generally be viewed as hybrid fixed-income securities that
either receive regulatory capital treatment or a degree of "equity credit"
from a rating agency; 3) 30% of the Merrill Lynch All U.S. Convertibles Index,
consisting of approximately 575 securities with par value greater than $50
million that were issued by U.S. companies or non-U.S. based issuers that have
a significant business presence in the U.S.; and 4) 10% of the CSFB High Yield
Index, which includes approximately $375 billion of $US-denominated high yield
debt with a minimum of $75 million in par value and at least one rating below
investment-grade. Index returns do not include the effects of any management
fees or fund expenses. It is not possible to invest directly in an index.
--------------------------------------------------------------------------------
Past performance does not guarantee future results. Current performance may be
higher or lower than the data shown. Returns do not reflect the deduction of
taxes that a shareholder may have to pay on Fund distributions or upon the sale
of Fund shares.
For more information, please see the individual Performance Overview pages in
this report.
Early in the year, in the preferred sleeve, we continued to opportunistically
increase the Fund's concentration in DRD securities due to the relative
attractiveness of the sector. We had purchased Agency DRD securities at yield
spreads relative to U.S. Treasuries of comparable maturity ranging between
+140-160 basis points in 2005 and sold out the positions in the first half of
2006 at spreads of between +90-100 basis points. Other DRD securities, largely
Financial and Banking names, were also sold at yield spreads approximately 85
basis points tighter than our purchase spreads in 2005. We have also benefited
from the capital performance of the IPO market for floating rate DRD paper.
In the convertible sleeves of JPC and JQC the sectors that benefited the
portfolio relative to the Merrill Lynch All Convertibles Index were Financials,
Media, Transportation and Utilities.
Financial services companies represent the largest sector in the convertible
universe at just under 20%. Over the past months, exposure to financials in the
Funds has increased. There are several reasons for this. We believe that the
Federal Reserve is close to ending its rate increases and the issues themselves
tend to be of higher credit quality and lower equity sensitivity. In particular,
we bought Affiliated Managers, Prudential and Wells Fargo bonds, all three of
which have floating rate coupons, giving them very high bond floors. Blackrock
Inc, a diversified investment manager, added strongly to returns in the first
half due to strong underlying business trends and a merger with Merrill Lynch
Investment Management. Media, Transportation and Utilities, combined, make up
just over 10% of the convertible universe, but added value against the benchmark
due to higher weights in the portfolio, combined with higher performance of the
holdings themselves against the Merrill Lynch All Convertibles Index (VXA0)
holdings. The real standout name of these was CSX Corp., a freight
transportation company.
In the high yield and other securities sleeve Primedia and Cienna Corp performed
well in JPC, while solid performers in JQC included OM Group and Primedia.
6
Sectors that negatively impacted the convertible portfolio relative to the
convertibles index were Health Care, Technology, Consumer Discretionary,
Industrials, Energy and Materials.
The Funds' convertibles Consumer Discretionary Sector performance lagged the
index due to a relative underweight in General Motors. In the Materials sector,
the Funds did not own (owned very little) Titanium Metals. The security is
nearly impossible to invest in; its highly illiquid and 65+% is held by the
Chairman of the company. However, Titanium Metals has added 40bps to the
performance of the Index year to date. Additionally, it would have benefited the
Funds to own more of the equity sensitive mining companies represented in this
sector.
Energy and oil prices continued to be volatile. The Funds' convertibles
portfolios were not positioned with as much equity sensitivity as the Index and,
as a result, their weighted performance was lower, albeit nicely positive for
the six month period. Devon Energy exchangeable into Chevron Corp. is one of the
Fund's larger relative overweight positions because we considered the
fundamentals on Chevron to be tremendously attractive, even though it trades at
a discount to the group and has a lower beta.
The Capital Preferred Securities asset type experienced some indigestion when
the Securities Valuation Office of the NAIC classified certain preferred
securities as common equity for the insurance industry, which forced some
insurance companies to sell those securities. We were able to take advantage of
the widening yield spreads (relative to U.S. Treasuries) in ECAPS and certain
Yankee issues to pick up yield. For example, we sold a Barclays Bank $25 par
issue and bought a similar Barclays Capital Security for a yield pick up of 48
bps. We were also able to trade some of the higher beta issues for short term
capital gains amidst the market uncertainty.
The NAIC's classification of the Lehman Brothers ECAPS and then of a Royal Bank
of Scotland Yankee Tier 1 issue as common equity surprised the market and caused
the Lehman Brothers Tier 1 Capital Security index yield spread relative to
Treasuries to widen by 24 bps over the six month period. The Lehman Brothers
Tier 1 Capital Security index returned -2.25% for the 1st half, underperforming
the Lehman Aggregate Bond Index (a broad index of long-term government and
investment grade corporate bonds) by 1.53%. The added volatility in the ECAPS
and Tier 1 spaces provided some trading opportunities for the Funds; but, it
caused the whole Capital Preferred Securities asset type to weaken. Weakness in
global corporate debt was also a factor contributing to the relatively weaker
performance of Capital Preferred Securities.
Several high yield bonds had a negative impact on Fund performance during the
period. Our holdings in Dole Foods and Fairfax Financial negatively contributed
to the overall performance of both JPC and JQC.
7
DISTRIBUTION AND SHARE PRICE
INFORMATION
DISTRIBUTION INFORMATION
Each of these Funds uses financial leverage in an effort to enhance its
dividend-paying capabilities. While this strategy adds volatility to a Fund's
net asset value and share price, it generally enhances the amount of income the
Fund has to distribute to its common shareholders. The extent of this benefit is
tied in part to the short-term rates these Funds pay their FundPreferred(TM)
shareholders. As short-term rates rose through this reporting period, the Funds
paid higher dividends to their FundPreferred shareholders.
Effective with the distribution payable June 1, 2006, the Funds are also
implementing a Managed Distribution Policy, as described in the prospectuses for
their respective common share initial public offerings in 2003. Under this
policy, the Funds will make monthly distributions of a stated dollar amount per
common share, comprised of net investment income, realized capital gains and/or,
if necessary, non-taxable distributions (which generally are expected to
represent unrealized capital appreciation).
Over this six month reporting period, both JPC and JQC announced increases in
their monthly distribution to shareholders. JPC increased its monthly
distribution to $0.095 from $0.085 a share. JQC increased its monthly
distribution to $0.095 from $0.084 per share.
We are providing shareholders with an estimate of the source of each Fund's
monthly distribution as of June 30, 2006. These estimates may, and likely will,
vary over time based on the investment activities of each Fund and changes in
the value of portfolio investments. The final determination of the source and
tax characteristics of all distributions will be made after December 31, 2006
and reported to you on Form 1099-DIV early in 2007. More details about each
Fund's distributions are available monthly on www.nuveen.com/cef.
8
Each Fund estimates that its monthly distribution is comprised of 75% net
investment income and, pursuant to the Fund's managed distribution policy, 25%
capital appreciation consisting of either net realized capital gains and/or a
return of capital. A portion of each Fund's net investment income represents
distribution payments received from securities of real estate investment trusts
(REITs) which may be re-characterized by the REITs for tax purposes after
calendar year-end.
The foregoing presents information about the expected tax characteristics of the
named Funds' distributions, to conform to a federal securities law requirement
that any fund paying distributions from any sources other than net income
disclose to shareholders the distribution portions attributable to such other
sources. The funds provide this type of information on a tax basis, instead of
on a generally accepted accounting principles (GAAP) basis, because experience
has shown that fund shareholders are most concerned about the tax character of
their distributions (and might well be confused by information about
distribution characteristics that differed from the tax-based characteristics),
and because the funds also believe that the distributions' tax characteristics
fairly represent the economic basis of the Funds' distributions and returns. The
breakdown of distribution characteristics according to GAAP likely would differ
from the expected tax characteristics shown above.
SHARE REPURCHASE AND SHARE PRICE INFORMATION
On February 3, 2006, the Funds' Board of Trustees approved an open market share
repurchase program, as part of a broad, ongoing effort designed to support the
market prices of the Funds' common shares. Under the terms of the program, each
Fund may repurchase up to 10% of its outstanding common shares. As of June 30,
2006, JPC had repurchased 432,200 common shares and JQC had repurchased 511,200
common shares.
As of June 30, 2006, the Funds' common shares were trading at discounts to their
NAVs as shown in the accompanying chart:
AS OF 6/30/06 6-MONTH AVERAGE
DISCOUNT DISCOUNT
------------------------------------------------------------------------------
JPC -9.90% -11.75%
------------------------------------------------------------------------------
JQC -10.43% -12.42%
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9
Nuveen Preferred and Convertible Income Fund
JPC
Performance
OVERVIEW As of June 30, 2006
PORTFOLIO APPLICATION
(as a % of total investments)
-------------------------------------------------------------------------------------
$25 par (or Similar) Preferred Securities 33.4%
-------------------------------------------------------------------------------------
Convertible Bonds 24.2%
-------------------------------------------------------------------------------------
Capital Preferred Securities 19.4%
-------------------------------------------------------------------------------------
Corporate Bonds 9.4%
-------------------------------------------------------------------------------------
Convertible Preferred Securities 7.1%
-------------------------------------------------------------------------------------
Short-Term Investments 3.0%
-------------------------------------------------------------------------------------
Common Stocks 2.7%
-------------------------------------------------------------------------------------
Investment Companies 0.7%
-------------------------------------------------------------------------------------
Variable Rate Senior Loan Interests 0.1%
-------------------------------------------------------------------------------------
Bar Chart:
2005-2006 MONTHLY DISTRIBUTIONS PER SHARE
Jul 0.090
Aug 0.090
Sep 0.085
Oct 0.085
Nov 0.085
Dec 0.085
Jan 0.085
Feb 0.085
Mar 0.085
Apr 0.085
May 0.095
Jun 0.095
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
7/01/05 13.34
13.46
13.52
13.38
13.72
13.46
13.18
13.13
13.20
13.31
13.21
12.81
12.49
12.63
12.37
11.99
12.05
11.99
12.09
12.03
12.12
12.16
11.98
11.88
11.97
12.37
12.47
12.51
12.53
12.71
12.76
12.70
12.71
12.75
12.53
12.53
12.62
12.38
12.27
11.98
12.03
12.12
12.45
12.45
12.43
12.36
12.51
12.41
12.22
12.28
6/30/06 12.29
FUND SNAPSHOT
-------------------------------------------------------------------------
Common Share Price $12.29
-------------------------------------------------------------------------
Common Share Net Asset Value $13.64
-------------------------------------------------------------------------
Premium/(Discount) to NAV -9.90%
-------------------------------------------------------------------------
Current Distribution Rate(1) 9.28%
-------------------------------------------------------------------------
Net Assets Applicable to Common Shares ($000) $1,359,421
-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 3/26/03)
-------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
-------------------------------------------------------------------------------------
6-Month
(Cumulative) 7.13% -0.13%
-------------------------------------------------------------------------------------
1-Year 1.80% 1.89%
-------------------------------------------------------------------------------------
Since
Inception 3.13% 7.32%
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INDUSTRIES
(as a % of total investments)
-------------------------------------------------------------------
Commercial Banks 20.2%
-------------------------------------------------------------------
Insurance 13.0%
-------------------------------------------------------------------
Real Estate 9.4%
-------------------------------------------------------------------
Capital Markets 6.9%
-------------------------------------------------------------------
Diversified Financial Services 4.7%
-------------------------------------------------------------------
Media 4.5%
-------------------------------------------------------------------
Hotels Restaurants & Leisure 2.8%
-------------------------------------------------------------------
Thrifts & Mortgage Finance 2.6%
-------------------------------------------------------------------
Oil, Gas, & Consumable Fuels 2.6%
-------------------------------------------------------------------
Specialty Retail 2.2%
-------------------------------------------------------------------
Communications Equipment 2.2%
-------------------------------------------------------------------
Pharmaceuticals 1.6%
-------------------------------------------------------------------
Diversified Telecommunication Services 1.6%
-------------------------------------------------------------------
Biotechnology 1.4%
-------------------------------------------------------------------
Aerospace & Defense 1.2%
-------------------------------------------------------------------
Software 1.2%
-------------------------------------------------------------------
Electric Utilities 1.2%
-------------------------------------------------------------------
Energy Equipment & Services 1.2%
-------------------------------------------------------------------
Semiconductors & Equipment 1.2%
-------------------------------------------------------------------
Health Care Providers & Services 1.1%
-------------------------------------------------------------------
Short-Term Investments 3.0%
-------------------------------------------------------------------
Other 14.2%
-------------------------------------------------------------------
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
------------------------------------------------------------------
Wachovia Corporation 1.9%
------------------------------------------------------------------
ING Group NV 1.7%
------------------------------------------------------------------
Union Planters Corporation 1.5%
------------------------------------------------------------------
Delphi Financial Group Inc. 1.5%
------------------------------------------------------------------
Countryside Financial Corporation 1.5%
------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a return of capital for tax purposes.
10
Nuveen Preferred and Convertible Income Fund 2
JQC
Performance
OVERVIEW As of June 30, 2006
PORTFOLIO APPLICATION
(as a % of total investments)
-------------------------------------------------------------------------------------
$25 Par (or similar) Preferred Securities 31.4%
-------------------------------------------------------------------------------------
Convertible Bonds 24.2%
-------------------------------------------------------------------------------------
Capital Preferred Securities 21.0%
-------------------------------------------------------------------------------------
Corporate Bonds 9.6%
-------------------------------------------------------------------------------------
Convertible Preferred Securities 7.1%
-------------------------------------------------------------------------------------
Common Stocks 3.0%
-------------------------------------------------------------------------------------
Short-Term Investments 2.8%
-------------------------------------------------------------------------------------
Investment Companies 0.8%
-------------------------------------------------------------------------------------
Variable Rate Senior Loan Interests 0.1%
-------------------------------------------------------------------------------------
Bar Chart:
2005-2006 MONTHLY DISTRIBUTIONS PER SHARE
Jul 0.0885
Aug 0.0885
Sep 0.0840
Oct 0.0840
Nov 0.0840
Dec 0.0840
Jan 0.0840
Feb 0.0840
Mar 0.0840
Apr 0.0840
May 0.0950
Jun 0.0950
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
7/01/05 13.10
13.32
13.35
13.28
13.48
13.24
13.02
12.98
13.05
13.17
13.04
12.76
12.37
12.54
12.29
11.86
11.89
11.84
11.91
11.87
12.02
12.04
11.85
11.70
12.11
12.43
12.49
12.50
12.44
12.49
12.64
12.55
12.57
12.58
12.30
12.38
12.43
12.34
12.26
11.97
12.02
12.10
12.38
12.35
12.32
12.37
12.52
12.47
12.27
12.26
6/30/06 12.28
FUND SNAPSHOT
-------------------------------------------------------------------------
Common Share Price $12.28
-------------------------------------------------------------------------
Common Share Net Asset Value $13.71
-------------------------------------------------------------------------
Premium/(Discount) to NAV -10.43%
-------------------------------------------------------------------------
Current Distribution Rate(1) 9.28%
-------------------------------------------------------------------------
Net Assets Applicable to Common Shares ($000) $1,925,851
-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 6/25/03)
-------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
-------------------------------------------------------------------------------------
6-Month
(Cumulative) 5.79% 0.42%
-------------------------------------------------------------------------------------
1-Year 2.97% 2.67%
-------------------------------------------------------------------------------------
Since
Inception 1.72% 6.50%
-------------------------------------------------------------------------------------
INDUSTRIES
(as a % of total investments)
-------------------------------------------------------------------
Commercial Banks 20.3%
-------------------------------------------------------------------
Insurance 13.5%
-------------------------------------------------------------------
Real Estate 7.9%
-------------------------------------------------------------------
Capital Markets 7.4%
-------------------------------------------------------------------
Media 5.4%
-------------------------------------------------------------------
Diversified Financial Services 5.4%
-------------------------------------------------------------------
Hotels, Restaurants & Leisure 2.9%
-------------------------------------------------------------------
Oil, Gas & Consumable Fuels 2.6%
-------------------------------------------------------------------
Specialty Retail 2.2%
-------------------------------------------------------------------
Communications Equipment 2.2%
-------------------------------------------------------------------
Diversified Telecommunication Services 1.8%
-------------------------------------------------------------------
Pharmaceuticals 1.6%
-------------------------------------------------------------------
Biotechnology 1.4%
-------------------------------------------------------------------
Thrifts & Mortgage Finance 1.4%
-------------------------------------------------------------------
Semiconductors & Equipment 1.3%
-------------------------------------------------------------------
Energy Equipment & Services 1.2%
-------------------------------------------------------------------
Aerospace & Defense 1.2%
-------------------------------------------------------------------
Short-Term Investments 2.8%
-------------------------------------------------------------------
Other 17.5%
-------------------------------------------------------------------
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
------------------------------------------------------------------
Wachovia Corporation 2.0%
------------------------------------------------------------------
JPMorgan Chase & Company 1.9%
------------------------------------------------------------------
Washington Mutual 1.8%
------------------------------------------------------------------
AgFirst Farm Credit Bank 1.5%
------------------------------------------------------------------
Banco Santander 1.4%
------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a return of capital for tax purposes.
11
Shareholder
MEETING REPORT
The shareholder meeting was held in the offices of Nuveen Investments on March
29, 2006.
JPC JQC
------------------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
Common and Common and
Preferred Preferred Preferred Preferred
shares voting shares voting shares voting shares voting
together together together together
as a class as a class as a class as a class
------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner
For 92,225,342 -- 130,477,986 --
Withhold 1,694,956 -- 2,328,749 --
------------------------------------------------------------------------------------------------------------------------------
Total 93,920,298 -- 132,806,735 --
------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown
For 92,433,983 -- 130,523,271 --
Withhold 1,486,315 -- 2,283,464 --
------------------------------------------------------------------------------------------------------------------------------
Total 93,920,298 -- 132,806,735 --
------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans
For 92,485,474 -- 130,592,203 --
Withhold 1,434,824 -- 2,214,532 --
------------------------------------------------------------------------------------------------------------------------------
Total 93,920,298 -- 132,806,735 --
------------------------------------------------------------------------------------------------------------------------------
William C. Hunter
For 92,377,688 -- 130,508,167 --
Withhold 1,542,610 -- 2,298,568 --
------------------------------------------------------------------------------------------------------------------------------
Total 93,920,298 -- 132,806,735 --
------------------------------------------------------------------------------------------------------------------------------
David J. Kundert
For 92,372,431 -- 130,487,045 --
Withhold 1,547,867 -- 2,319,690 --
------------------------------------------------------------------------------------------------------------------------------
Total 93,920,298 -- 132,806,735 --
------------------------------------------------------------------------------------------------------------------------------
William J. Schneider
For -- 25,032 -- 34,363
Withhold -- 129 -- 230
------------------------------------------------------------------------------------------------------------------------------
Total -- 25,161 -- 34,593
------------------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger
For -- 25,036 -- 34,358
Withhold -- 125 -- 235
------------------------------------------------------------------------------------------------------------------------------
Total -- 25,161 -- 34,593
------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale
For 92,429,685 -- 130,605,309 --
Withhold 1,490,613 -- 2,201,426 --
------------------------------------------------------------------------------------------------------------------------------
Total 93,920,298 -- 132,806,735 --
------------------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine
For 92,484,421 -- 130,572,910 --
Withhold 1,435,877 -- 2,233,825 --
------------------------------------------------------------------------------------------------------------------------------
Total 93,920,298 -- 132,806,735 --
------------------------------------------------------------------------------------------------------------------------------
12
Nuveen Preferred and Convertible Income Fund (JPC)
Portfolio of
INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 4.2% (2.7% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.1%
3,547 Hexcel Corporation, (2) $ 55,723
7,816 Lockheed Martin Corporation 560,720
2,470 Precision Castparts Corporation 147,607
---------------------------------------------------------------------------------------------------------------------------
Total Aerospace & Defense 764,050
--------------------------------------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS - 0.1%
9,682 FedEx Corporation 1,131,439
4,970 Ryder System Inc. 290,397
---------------------------------------------------------------------------------------------------------------------------
Total Air Freight & Logistics 1,421,836
--------------------------------------------------------------------------------------------------------------
AIRLINES - 0.0%
8,064 Southwest Airlines Co. 132,008
---------------------------------------------------------------------------------------------------------------------------
BEVERAGES - 0.1%
11,660 Coca-Cola Company 501,613
9,436 Pepsi Bottling Group Inc. 303,367
3,436 PepsiCo, Inc. 206,297
---------------------------------------------------------------------------------------------------------------------------
Total Beverages 1,011,277
--------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 0.1%
5,533 Genentech, Inc., (2) 452,599
9,188 Gilead Sciences, Inc., (2) 543,562
---------------------------------------------------------------------------------------------------------------------------
Total Biotechnology 996,161
--------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 0.1%
3,875 Calamos Asset Management, Inc. Class A 112,336
2,631 Greenhill & Co Inc. 159,860
7,110 Lehman Brothers Holdings Inc. 463,217
1,493 OptionsXpress Holdings Inc. 34,802
---------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 770,215
--------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.0%
7,600 Airgas, Inc. 283,100
---------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 0.3%
9,230 Bank of Hawaii Corporation 457,808
2,361 Boston Private Financial Holdings Inc. 65,872
6,050 Colonial BancGroup Inc. 155,364
3,064 Greater Bay Bancorp 88,090
4,450 Marshall and Ilsley Corporation 203,543
4,000 Northern Trust Corporation 221,200
13,140 PNC Financial Services Group, Inc. 922,034
8,007 Washington Mutual, Inc. 364,959
7,270 Whitney Holding Corporation 257,140
4,980 Zions Bancorporation 388,141
---------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 3,124,151
--------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.3%
2,560 Administaff, Inc. 91,674
1,803 American Ecology Corporation 47,780
3,146 Consolidated Graphics Inc., (2) 163,781
8,739 Corporate Executive Board Company 875,648
5,780 Equifax Inc. 198,485
10,869 Global Payments Inc. 527,690
15,808 R.R. Donnelley & Sons Company 505,066
13
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES (continued)
12,560 Republic Services, Inc. $ 506,670
2,640 SEI Investments Company 129,043
---------------------------------------------------------------------------------------------------------------------------
Total Commercial Services & Supplies 3,045,837
--------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.2%
15,270 Comverse Technology, Inc., (2) 301,888
34,990 Corning Incorporated, (2) 846,408
1,463 Harris Corporation 60,729
21,340 QUALCOMM Inc. 855,094
---------------------------------------------------------------------------------------------------------------------------
Total Communications Equipment 2,064,119
--------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.1%
11,321 Apple Computer, Inc., (2) 646,656
16,010 Hewlett-Packard Company 507,197
1,050 Komag Inc., (2) 48,489
4,973 Network Appliance Inc., (2) 175,547
---------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 1,377,889
--------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 0.0%
953 Shaw Group Inc., (2) 26,493
---------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.1%
51,105 Americredit Corp., (2) 1,426,852
5,510 Capital One Financial Corporation 470,830
---------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 1,897,682
--------------------------------------------------------------------------------------------------------------
DISTRIBUTORS - 0.0%
944 Keystone Automotive Industries Inc., (2) 39,856
---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES - 0.0%
4,279 Jackson Hewitt Tax Services Inc. 134,147
---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.0%
4,230 CBOT Holdings, Inc. Class A, (2) 505,866
2,743 Moody's Corporation 149,384
---------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 655,250
--------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.1%
39,410 Sprint Nextel Corporation 787,806
---------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.2%
14,670 PG&E Corporation 576,238
25,414 TXU Corporation 1,519,503
---------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 2,095,741
--------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.1%
8,760 Emerson Electric Co. 734,176
1,744 Ormat Technologies Inc. 66,534
2,543 Smith AO Corporation 117,893
---------------------------------------------------------------------------------------------------------------------------
Total Electrical Equipment 918,603
--------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.1%
1,944 Itron Inc., (2) 115,201
3,848 Millipore Corporation, (2) 242,386
4,497 Parker Hannifin Corporation 348,967
4,224 Plexus Corporation, (2) 144,503
4,247 Teledyne Technologies Inc., (2) 139,132
6,664 Waters Corporation, (2) 295,882
---------------------------------------------------------------------------------------------------------------------------
Total Electronic Equipment & Instruments 1,286,071
--------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.0%
2,915 Helix Energy Solutions Group, (2) 117,649
3,249 Unit Corporation, (2) 184,836
3,050 Veritas DGC Inc., (2) 157,319
---------------------------------------------------------------------------------------------------------------------------
Total Energy Equipment & Services 459,804
--------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.0%
6,240 Whole Foods Market, Inc. 403,354
---------------------------------------------------------------------------------------------------------------------------
14
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.2%
15,842 Archer-Daniels-Midland Company $ 653,958
24,040 Monsanto Company 2,023,928
---------------------------------------------------------------------------------------------------------------------------
Total Food Products 2,677,886
--------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.1%
32,280 Energen Corporation 1,239,875
---------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.2%
4,896 American Medical Systems Holdings, Inc., (2) 81,518
12,760 Baxter International Inc. 469,058
6,810 Dade Behring Holdings Inc. 283,568
2,962 Express Scripts, Inc., (2) 212,494
21,250 Hospira Inc., (2) 912,475
6,573 Kinetic Concepts Inc., (2) 290,198
---------------------------------------------------------------------------------------------------------------------------
Total Health Care Equipment & Supplies 2,249,311
--------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.2%
4,206 Healthways Inc., (2) 221,404
6,220 Humana Inc., (2) 334,014
14,187 Quest Diagnostics Incorporated 850,085
16,240 Sierra Health Services Inc., (2) 731,287
4,272 Surmodics Inc., (2) 154,262
1,753 Wellcare Health Plans Inc., (2) 85,985
---------------------------------------------------------------------------------------------------------------------------
Total Health Care Providers & Services 2,377,037
--------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 0.1%
14,546 Choice Hotels International, Inc. 881,488
2,657 Panera Bread Company, (2) 178,657
4,754 Starbucks Corporation, (2) 179,511
4,967 Station Casinos Inc. 338,153
---------------------------------------------------------------------------------------------------------------------------
Total Hotels, Restaurants & Leisure 1,577,809
--------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.1%
43,271 Newell Rubbermaid Inc. 1,117,690
1,960 Stanley Works 92,551
---------------------------------------------------------------------------------------------------------------------------
Total Household Durables 1,210,241
--------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.1%
12,510 Colgate-Palmolive Company 749,349
5,577 Kimberly-Clark Corporation 344,101
---------------------------------------------------------------------------------------------------------------------------
Total Household Products 1,093,450
--------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.1%
6,740 3M Co. 544,390
8,870 General Electric Company 292,355
---------------------------------------------------------------------------------------------------------------------------
Total Industrial Conglomerates 836,745
--------------------------------------------------------------------------------------------------------------
INSURANCE - 0.2%
15,295 AFLAC Incorporated 708,923
1,021 First American Corporation 43,158
14,553 HCC Insurance Holdings Inc. 428,440
2,387 Philadelphia Consolidated Holding Corporation, (2) 72,469
2,104 Tower Group Inc. 63,646
53,510 W.R. Berkley Corporation 1,826,296
---------------------------------------------------------------------------------------------------------------------------
Total Insurance 3,142,932
--------------------------------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL - 0.0%
5,536 Coldwater Creek Inc., (2) 148,143
3,631 MSC Industrial Direct Inc., Class A 172,727
---------------------------------------------------------------------------------------------------------------------------
Total Internet & Catalog Retail 320,870
--------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES - 0.0%
516 Google Inc., Class A, (2) 216,374
2,128 j2 Global Communications, Inc., (2) 66,436
---------------------------------------------------------------------------------------------------------------------------
Total Internet Software & Services 282,810
--------------------------------------------------------------------------------------------------------------
15
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.0%
3,582 Websense Inc., (2) $ 73,574
---------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.0%
887 Freightcar America Inc. 49,237
4,123 Harsco Corporation 321,429
2,990 Joy Global Inc. 155,749
1,600 Paccar Inc. 131,808
---------------------------------------------------------------------------------------------------------------------------
Total Machinery 658,223
--------------------------------------------------------------------------------------------------------------
MEDIA - 0.2%
8,010 Cablevision Systems Corporation, (2) 171,815
3,984 Comcast Corporation, Class A, (2) 130,436
21,340 DIRECTV Group, Inc., (2) 352,110
7,967 John Wiley and Sons Inc., Class A 264,504
6,356 Liberty Global Inc, A Shares, (2) 136,654
6,360 Liberty Global Inc., Class C, (2) 130,825
1,391 Lodgenet Entertainment Corporation, (2) 25,942
8,510 McGraw-Hill Companies, Inc. 427,457
36,390 Time Warner Inc. 629,547
---------------------------------------------------------------------------------------------------------------------------
Total Media 2,269,290
--------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.0%
921 Phelps Dodge Corporation 75,669
2,748 Quanex Corporation 118,356
---------------------------------------------------------------------------------------------------------------------------
Total Metals & Mining 194,025
--------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL - 0.1%
3,992 Casey's General Stores, Inc. 99,840
8,620 Dollar Tree Stores Inc., (2) 228,430
14,600 Kohl's Corporation, (2) 863,152
---------------------------------------------------------------------------------------------------------------------------
Total Multiline Retail 1,191,422
--------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.1%
10,290 EOG Resources, Inc. 713,509
1,550 Frontier Oil Corporation 50,220
1,860 Houston Exploration Company, (2) 113,813
2,046 Parallel Petroleum Corporation, (2) 50,557
3,086 Pioneer Drilling Company, (2) 47,648
8,495 Sunoco, Inc. 588,619
4,802 Valero Energy Corporation 319,429
3,252 W&T Offshore Inc. 126,470
---------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 2,010,265
--------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.0%
7,800 Plum Creek Timber Company 276,900
---------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
4,170 Allergan Inc. 447,274
4,261 Alpharma Inc. 102,434
39,230 King Pharmaceuticals Inc., (2) 666,910
---------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 1,216,618
--------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.1%
1,250 American Home Mortgage Investment Corp. 46,075
2,450 Camden Property Trust 180,198
3,771 Equity Inns Inc. 62,448
3,390 Health Care Property Investors Inc. 90,649
2,606 LaSalle Hotel Properties 120,658
3,436 Public Storage, Inc. 260,792
2,481 SL Green Realty Corporation 271,595
5,621 Tanger Factory Outlet Centers 181,952
793 Taubman Centers Inc. 32,434
4,073 United Dominion Realty Trust 114,085
---------------------------------------------------------------------------------------------------------------------------
Total Real Estate 1,360,886
--------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.0%
5,172 Burlington Northern Santa Fe Corporation 409,881
---------------------------------------------------------------------------------------------------------------------------
16
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 0.1%
9,378 Advanced Micro Devices, Inc., (2) $ 229,011
9,149 Entegris Inc., (2) 87,190
13,629 Freescale Semiconductor, Inc., Class B, (2) 400,693
16,560 Micron Technology, Inc., (2) 249,394
2,128 Microsemi Corporation, (2) 51,881
28,780 National Semiconductor Corporation 686,403
1,168 Netlogic Microsystems Inc., (2) 37,668
12,600 QLogic Corporation, (2) 217,224
1,079 Silicon Laboratories Inc., (2) 37,927
---------------------------------------------------------------------------------------------------------------------------
Total Semiconductors & Equipment 1,997,391
--------------------------------------------------------------------------------------------------------------
SOFTWARE - 0.1%
3,315 Aspen Technology Inc., (2) 43,493
14,199 Autodesk, Inc., (2) 489,298
2,338 Blackbaud, Inc. 53,073
27,980 BMC Software Inc., (2) 668,722
7,350 Intuit Inc., (2) 443,867
6,690 Reynolds and Reynolds Company 205,182
4,313 Salesforce.com, Inc., (2) 114,985
---------------------------------------------------------------------------------------------------------------------------
Total Software 2,018,620
--------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.1%
18,680 Ann Taylor Stores Corporation, (2) 810,338
2,156 Build-A-Bear-Workshop, Inc., (2) 46,376
2,776 Childrens Place Retail Stores Inc., (2) 166,699
11,140 Circuit City Stores, Inc. 303,231
5,226 Claire's Stores, Inc. 133,315
7,490 Select Comfort Corporation, (2) 172,057
10,594 Staples, Inc. 257,646
---------------------------------------------------------------------------------------------------------------------------
Total Specialty Retail 1,889,662
--------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS - 0.0%
4,309 Guess Inc., (2) 179,901
2,239 Nike Inc., Class B 181,359
1,601 Skechers USA Inc., (2) 38,600
---------------------------------------------------------------------------------------------------------------------------
Total Textiles, Apparel & Luxury Goods 399,860
--------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.0%
6,020 Washington Federal Inc. 139,604
---------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.0%
2,164 GATX Corporation 91,970
---------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $56,545,344) 56,902,607
--------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 10.8% (7.1% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.6%
174,725 Ford Motor Company Capital Trust II 6.500% CCC+ $ 4,857,355
General Motors Corporation, Convertible Notes,
180,820 Senior Debentures, Series B 5.250% B- 3,345,170
-----------------------------------------------------------------------------------------------------------------------------
Total Automobiles 8,202,525
----------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 1.2%
97,750 Affiliated Managers Group Inc. 5.100% BB 4,594,250
212,750 E*Trade Financial Corporation 6.125% Ba3 6,369,735
130,005 Lazard Limited 6.625% Ba1 4,680,180
-----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 15,644,165
----------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.7%
223,800 Celanese Corporation 4.250% N/R 6,671,478
85,255 Huntsman Corporation 5.000% N/R 3,312,157
-----------------------------------------------------------------------------------------------------------------------------
Total Chemicals 9,983,635
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 1.7%
3,900,000 Fortis Insurance NV, 144A 7.750% A+ 5,061,342
257,400 Marshall and Ilsley Corporation 6.500% A2 6,916,338
17
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
126,000 National Australia Bank Limited 7.875% N/R $ 5,353,740
105,800 Washington Mutual, Inc., Unit 1 Trust 5.375% Baa1 6,017,904
-----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 23,349,324
----------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.7%
9,800,000 SLM Corporation 5.050% A 9,938,278
-----------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.4%
66,200 Entergy Corporation 7.625% BBB 3,324,564
56,800 PNM Resources Inc. 6.750% Baa3 2,788,880
-----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 6,113,444
----------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.2%
38,110 Omnicare Capital Trust II, Series B 4.000% BB 2,403,217
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.6%
138,190 Aspen Insurance Holdings Limited 5.625% BBB- 6,857,679
202,250 Chubb Corporation 7.000% A 7,125,267
368,765 Genworth Financial Inc. 6.000% A 13,884,002
61,200 Hartford Financial Services Group, Inc. 7.000% A 4,593,060
154,345 IPC Holdings Limited 7.250% BBB- 3,839,332
418,700 MetLife Inc., Convertible, Series B 6.375% BBB+ 11,543,559
-----------------------------------------------------------------------------------------------------------------------------
Total Insurance 47,842,899
----------------------------------------------------------------------------------------------------------------
MEDIA - 0.2%
96,750 Interpublic Group Companies Inc., Series A 5.375% N/R 3,096,000
-----------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.2%
1,755 Freeport McMoran Copper & Gold, Inc. 5.500% B- 2,199,234
-----------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.6%
35,460 Chesapeake Energy Corporation, 144A 5.000% B 3,630,218
37,000 Chesapeake Energy Corporation 4.500% B+ 3,468,750
12,965 Hess Corporation 7.000% BB 1,720,455
-----------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 8,819,423
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.7%
63,350 New York Community Bancorp Inc Capital Trust V 6.000% Baa2 2,974,283
239,350 PMI Group Inc. 5.875% A1 6,086,670
-----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 9,060,953
----------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED SECURITIES (COST
$140,507,095) 146,653,097
----------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 50.7% (33.4% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 4.8%
270,987 BNY Capital Trust V, Series F 5.950% A1 $ 6,118,886
148,200 Compass Capital Trust III 7.350% A3 3,675,360
11,300 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 279,110
41,500 First Union Institutional Capital II (CORTS) 8.200% A1 1,109,918
4,000 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 87,480
3,800 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 83,106
39,600 Goldman Sachs Group Inc., Series 2004-4 (CORTS) 6.000% A1 859,716
5,000 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 109,500
3,000 Goldman Sachs Group Incorporated (SATURNS) 5.750% Aa3 63,930
Lehman Brothers Holdings Capital Trust III, Series
528,988 K 6.375% A2 12,219,623
Lehman Brothers Holdings Capital Trust IV, Series
2,400 L 6.375% A2 55,800
29,900 Merrill Lynch Capital Trust II 8.000% A1 758,264
149,500 Merrill Lynch Preferred Capital Trust III 7.000% A1 3,718,065
124,400 Merrill Lynch Preferred Capital Trust IV 7.120% A1 3,123,684
242,500 Merrill Lynch Preferred Capital Trust V 7.280% A1 6,159,500
29,000 Merrill Lynch Preferred Capital Trust 7.750% A1 738,050
71,100 Morgan Stanley Capital Trust II 7.250% A1 1,794,564
333,722 Morgan Stanley Capital Trust III 6.250% A1 7,542,117
18
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS (continued)
717,800 Morgan Stanley Capital Trust IV 6.250% A1 $ 16,200,746
18,200 Morgan Stanley Capital Trust V 5.750% A+ 382,018
-----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 65,079,437
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 9.2%
20,700 Abbey National PLC, Series B 7.375% A 541,512
63,400 Abbey National PLC, Series B 7.250% A1 1,592,608
173,100 Abbey National PLC, Series C 7.375% A2 4,431,360
35,700 ABN AMRO Capital Fund Trust V 5.900% A 776,832
10,000 ABN AMRO Capital Trust Fund VII 6.080% A 226,400
73,500 ASBC Capital I 7.625% Baa1 1,865,430
68,785 BAC Capital Trust I 7.000% Aa3 1,698,990
136,755 BAC Capital Trust II 7.000% Aa3 3,417,507
284,700 BAC Capital Trust III 7.000% Aa3 7,148,817
52,569 Banco Santander 6.410% A2 1,261,656
63,400 Banco Totta & Acores Finance, Series A 8.875% A3 1,618,684
9,100 BancorpSouth Capital Trust I 8.150% Baa2 228,683
231,600 Banesto Holdings, Series A, 144A 10.500% A2 7,005,900
81,700 Bank One Capital Trust VI 7.200% A1 2,058,840
35,700 BankNorth Capital Trust II 8.000% A3 902,139
6,600,000 BOI Capital Funding 3, 144A 6.107% A2 6,157,199
62,300 Chittenden Capital Trust I 8.000% Baa1 1,596,749
107,000 Cobank ABC, 144A, (6) 7.000% N/R 5,446,407
85,900 Comerica Capital Trust I 7.600% A3 2,148,359
306,079 Fleet Capital Trust VII 1.800% Aa3 7,636,671
338,700 Fleet Capital Trust VIII 7.200% Aa3 8,555,562
775,520 HSBC Finance Corporation 6.875% Aa3 19,341,469
164,700 National Commerce Capital Trust II 7.700% A1 4,150,440
43,550 PNC Capital Trust 6.125% A3 962,455
117,538 Royal Bank of Scotland Group PLC, Series L 5.750% A1 2,529,418
91,395 Royal Bank of Scotland Group PLC, Series N 6.350% A1 2,161,492
87,500 SunTrust Capital Trust IV 7.125% A1 2,163,875
74,300 SunTrust Capital Trust V 7.050% A1 1,834,467
199,300 USB Capital Trust IV 7.350% Aa3 5,034,318
81,200 USB Capital Trust V 7.250% Aa3 2,036,496
400,700 USB Capital Trust VI 5.750% Aa3 8,462,784
36,050 USB Capital Trust VII 5.875% Aa3 776,878
33,400 VNB Capital Trust I 7.750% Baa1 841,012
47,100 Well Fargo Capital Trust IX 5.625% Aa2 996,636
10,400 Wells Fargo Capital Trust IV 7.000% Aa2 258,960
80,735 Wells Fargo Capital Trust V 7.000% Aa2 2,004,650
15,100 Wells Fargo Capital Trust VI 6.950% Aa2 372,064
127,369 Wells Fargo Capital Trust VII 5.850% Aa2 2,802,118
80,700 Zions Capital Trust B 8.000% Baa1 2,088,516
-----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 125,134,353
----------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.1%
22,200 IBM Inc., Series 2001-1 (SATURNS) 7.125% A+ 550,338
4,600 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 114,057
2,400 IBM Trust II (CORTS) 7.125% A+ 59,448
9,400 IBM Trust III (CORTS) 7.200% A+ 234,812
2,900 IBM Trust IV (CORTS) 7.000% A+ 71,920
-----------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 1,030,575
----------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.1%
39,600 Household Capital Trust VII 7.500% A1 999,108
39,700 SLM Corporation 6.000% A 860,696
-----------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 1,859,804
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.2%
15,100 BBVA Preferred Capital Ltd., Series B 7.750% A1 377,953
110,100 CIT Group Inc., Series A, (6) 6.350% BBB+ 2,698,551
16,500 CIT Group Incorporated (CORTS) 7.750% A3 437,415
63,960 Citigroup Capital Trust IX 6.000% Aa2 1,428,866
86,500 Citigroup Capital Trust VII 7.125% Aa2 2,167,690
307,064 Citigroup Capital Trust VIII 6.950% Aa2 7,572,198
66,300 Citigroup Inc., Series G, (6) 6.213% Aa3 3,315,000
19
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
63,600 Citigroup Inc., Series M, (6) 5.864% Aa3 $ 3,136,116
13,000 Citigroup, Series CIT (CORTS) 6.750% A3 318,110
4,100 General Electric Capital Corporation (CORTS) 6.000% AAA 94,505
33,100 General Electric Capital Corporation 6.625% AAA 816,246
575,518 ING Group N.V. 7.200% A 14,681,464
786,475 ING Group N.V. 7.050% A 19,842,764
16,800 ING Group N.V. 6.200% A 385,896
32,700 JPM Capital Trust (CORTS) 7.200% A1 828,618
54,000 JPMorgan Chase & Company (PCARS) 7.125% A2 1,331,100
395,367 JPMorgan Chase Capital Trust X 7.000% A1 9,824,870
22,800 JPMorgan Chase Capital Trust XVI 6.350% A1 528,732
JPMorgan Chase Trust, Series 2002-6, Class A
48,200 (SATURNS) 7.125% A1 1,232,956
-----------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 71,019,050
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.5%
21,400 BellSouth Capital Funding (CORTS) 7.100% A 535,000
17,400 BellSouth Corporation (CORTS) 7.000% Aa3 424,038
33,200 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 796,800
11,900 BellSouth Corporation 7.125% A 285,124
10,000 BellSouth Inc. (CORTS) 7.000% A 248,000
18,300 BellSouth Telecommunications (PPLUS) 7.300% A 448,533
Deutsche Telekom International Finance B.V.,
45,050 Series 2001-24, Class A-1 (CORTS) 7.875% A- 1,138,864
17,500 Verizon Communications (CORTS) 7.625% A 444,675
22,200 Verizon Communications (CORTS) 7.375% A 560,994
4,700 Verizon Communications, Series 2004-1 (SATURNS) 6.125% A+ 102,507
Verizon Global Funding Corporation Trust III,
1,300 Series III (CORTS) 6.250% A 28,470
13,900 Verizon New England Inc., Series B 7.000% A3 344,164
45,155 Verizon South Inc., Series F 7.000% A 1,100,427
-----------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 6,457,596
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.8%
7,000 Consolidated Edison Company of New York Inc. 7.500% A1 175,070
10,000 Consolidated Edison, Inc. 7.250% A2 250,900
22,200 DTE Energy Trust I 7.800% Baa3 562,548
40,670 Entergy Louisiana LLC 7.600% A- 1,016,750
44,570 Georgia Power Capital Trust V 7.125% A3 1,116,479
153,100 Georgia Power Company 5.900% A 3,466,184
3,700 Georgia Power Company 5.750% A 78,958
National Rural Utilities Cooperative Finance
1,100 Corporation 7.400% A3 27,786
National Rural Utilities Cooperative Finance
6,600 Corporation 6.100% A3 147,840
National Rural Utilities Cooperative Finance
4,900 Corporation 5.950% A3 106,918
2,100 Southern Company Capital Trust I (CORTS) 7.375% BBB+ 53,949
2,800 Southern Company Capital Trust VI 7.125% BBB+ 70,280
134,400 Virginia Power Capital Trust 7.375% Baa2 3,373,440
-----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 10,447,102
----------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
58,000 Dairy Farmers of America Inc., 144A, (6) 7.875% BBB- 5,607,875
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 11.4%
556,210 Ace Ltd., Series C 7.800% Baa2 14,378,029
50,080 Aegon N.V. 6.500% A- 1,192,906
982,000 Aegon N.V. 6.375% A- 23,018,080
18,000 Allstate Insurance Company (CORTS) 8.000% A2 472,500
26,600 AMBAC Financial Group Inc. 5.950% AA 578,816
252,200 Arch Capital Group Limited 8.000% Baa3 6,415,968
1,221,100 Delphi Financial Group, Inc. 8.000% BBB 31,357,848
322,955 EverestRe Capital Trust II 6.200% Baa1 6,888,630
110,400 EverestRe Group Limited 7.850% Baa1 2,798,640
82,200 Financial Security Assurance Holdings 6.250% AA 1,865,118
225,500 Hartford Capital Trust III, Series C 7.450% BBB+ 5,621,715
38,400 Lincoln National Capital Trust V, Series E 7.650% A- 961,920
7,100 Lincoln National Capital Trust VI 6.750% A- 173,098
122,400 MetLife Inc., Series B, (6) 6.500% Baa1 3,014,712
860,950 PartnerRe Limited, Series C 6.750% BBB+ 20,593,924
4,300 PartnerRe Limited 7.900% A3 108,145
82,200 PLC Capital Trust III 7.500% BBB+ 2,061,576
20
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
39,700 PLC Capital Trust IV 7.250% BBB+ $ 977,414
8,300 PLC Capital Trust V 6.125% BBB+ 186,750
37,400 Prudential PLC 6.750% A 915,178
325,410 RenaissanceRe Holdings Limited, Series B 7.300% BBB 7,972,545
12,000 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 262,320
96,100 RenaissanceRe Holdings Ltd., Series A 8.100% BBB+ 2,414,032
26,300 Safeco Capital Trust I (CORTS) 8.750% Baa2 773,746
39,100 Safeco Capital Trust III (CORTS) 8.072% Baa2 1,021,488
14,700 Safeco Capital Trust IV (CORTS) 8.375% Baa2 388,080
47,400 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 1,202,538
44,900 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 1,137,542
75,500 Saint Paul Capital Trust I 7.600% Baa1 1,913,170
34,100 Torchmark Capital Trust I 7.750% A- 865,799
1,300 Torchmark Capital Trust II 7.750% A- 33,020
74,000 W.R. Berkley Capital Trust, Series 2002-1 (CBTCS) 8.125% BBB- 746,660
15,000 W.R. Berkley Corporation 6.750% BBB- 352,050
151,100 XL Capital Ltd, Series A 8.000% Baa1 3,830,385
340,500 XL Capital Ltd, Series B 7.625% Baa1 8,614,650
-----------------------------------------------------------------------------------------------------------------------------
Total Insurance 155,108,992
----------------------------------------------------------------------------------------------------------------
MEDIA - 0.1%
43,700 CBS Corporation 7.250% BBB+ 1,075,020
3,700 Walt Disney Company 7.000% A- 92,574
-----------------------------------------------------------------------------------------------------------------------------
Total Media 1,167,594
----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.2%
55,600 Dominion CNG Capital Trust I 7.800% Baa2 1,410,016
57,400 Energy East Capital Trust I 8.250% BBB- 1,456,238
-----------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 2,866,254
----------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
477,200 Nexen Inc. 7.350% Baa3 11,944,316
-----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 14.0%
10,700 AvalonBay Communities, Inc., Series H 8.700% BBB 286,653
3,000 BRE Properties, Series B 8.080% BBB- 75,660
22,500 BRE Properties, Series C 6.750% BBB- 525,375
327,949 CarrAmerica Realty Corporation, Series E 7.500% BBB- 8,280,712
Developers Diversified Realty Corporation, Series
20,600 F 8.600% BBB- 523,240
Developers Diversified Realty Corporation, Series
658,185 G 8.000% BBB- 16,915,355
Developers Diversified Realty Corporation, Series
74,900 H 7.375% BBB- 1,827,560
81,100 Duke Realty Corporation, Series L 6.600% BBB 1,896,929
15,700 Duke-Weeks Realty Corporation 6.950% BBB 385,435
208,656 Equity Office Properties Trust, Series G 7.750% BBB- 5,331,161
19,200 Equity Residential Properties Trust, Series C 9.125% BBB 481,920
11,800 Equity Residential Properties Trust, Series D 8.600% BBB 300,664
424,173 Equity Residential Properties Trust, Series N 6.480% BBB 9,688,111
268,200 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 6,611,130
311,700 HRPT Properties Trust, Series B 8.750% BBB- 8,104,200
652,100 HRPT Properties Trust, Series C 7.125% BBB- 16,009,055
465,187 Kimco Realty Corporation, Series F 6.650% BBB+ 11,127,273
13,693 New Plan Excel Realty Trust, Series D 7.800% BBB- 678,659
904,075 New Plan Excel Realty Trust, Series E 7.625% BBB- 23,053,913
32,982 Prologis Trust, Series C 8.540% BBB 1,751,140
13,600 Prologis Trust, Series G 6.750% BBB 320,824
13,000 PS Business Parks, Inc., Series F 8.750% BBB- 329,550
2,000 PS Business Parks, Inc., Series K 7.950% BBB- 51,600
900 Public Storage Inc, Series G 7.000% BBB+ 22,032
149,000 Public Storage Inc., Series I 7.250% BBB+ 3,695,200
51,900 Public Storage, Inc., Series E 6.750% BBB+ 1,213,941
15,000 Public Storage, Inc., Series F 6.450% BBB+ 336,750
97,600 Public Storage, Inc., Series H 6.950% BBB+ 2,366,800
159,800 Public Storage, Inc., Series R 8.000% BBB+ 4,010,980
34,900 Public Storage, Inc., Series S 7.875% BBB+ 877,386
28,200 Public Storage, Inc., Series T 7.625% BBB+ 705,846
30,200 Public Storage, Inc., Series U 7.625% BBB+ 758,020
32,300 Public Storage, Inc., Series V 7.500% BBB+ 826,880
3,000 Public Storage, Inc., Series X 6.450% BBB+ 67,980
21
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
186,500 Regency Centers Corporation 7.450% BBB- $ 4,802,375
9,100 Regency Centers Corporation 7.250% BBB- 228,911
32,000 Regency Centers Corporation 6.700% BBB- 749,440
7,000 Simon Property Group, Inc., Series G 7.890% BBB 357,000
2,800 Vornado Realty Trust, Series F 6.750% BBB- 66,220
16,800 Vornado Realty Trust, Series G 6.625% BBB- 386,400
3,400 Vornado Realty Trust, Series H 6.750% BBB- 79,560
54,200 Vornado Realty Trust, Series I 6.625% BBB- 1,248,226
1,462,445 Wachovia Preferred Funding Corporation 7.250% A2 38,506,177
636,930 Weingarten Realty Trust, Preferred Securities 6.750% A- 15,923,250
-----------------------------------------------------------------------------------------------------------------------------
Total Real Estate 191,785,493
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.3%
4,300 Countrywide Capital Trust II, Series II (CORTS) 8.000% BBB+ 108,360
99,500 Countrywide Capital Trust III (PPLUS) 8.050% BBB+ 2,562,125
1,201,200 Countrywide Capital Trust IV 6.750% BBB+ 28,312,284
-----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 30,982,769
----------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.7%
34,100 AT&T Wireless (CORTS) 8.000% A 876,370
18,300 AT&T Wireless, Series 2002-B (SATURNS) 9.250% A 488,610
33,900 United States Cellular Corporation 8.750% A- 883,095
272,100 United States Cellular Corporation 7.500% A- 6,851,478
-----------------------------------------------------------------------------------------------------------------------------
Total Wireless Telecommunication Services 9,099,553
----------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES
(COST $717,889,379) 689,590,763
----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (4) RATINGS (3) VALUE
----------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS - 0.2% (0.1% OF TOTAL INVESTMENTS) (5)
MEDIA - 0.1%
$ 1,000 Philadelphia Newspapers, Term Loan B, WI/DD TBD TBD B $ 1,000,000
----------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.1%
Bluegrass Container Company, LLC, Term Loan B,
1,155 WI/DD TBD TBD BB- 1,507,500
----------------------------------------------------------------------------------------------------------------------------------
TOTAL VARIABLE RATE SENIOR LOAN INTERESTS (COST
2,155 $2,500,000) 2,507,500
----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
----------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 36.8% (24.2% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 1.6%
$ 4,500 AAR Corporation, 144A, (7) 1.750% 2/01/26 BB- $ 4,336,875
5,205 Armor Holdings Inc. 2.000% 11/01/24 B+ 6,219,975
3,410 L-3 Communications Corporation, Series 144A 3.000% 8/01/35 BB+ 3,341,800
6,460 Lockheed Martin Corporation 4.920% 8/15/33 BBB+ 7,374,478
----------------------------------------------------------------------------------------------------------------------------------
19,575 Total Aerospace & Defense 21,273,128
----------------------------------------------------------------------------------------------------------------------------------
AIRLINES - 0.4%
1,225 AMR Corporation, Convertible Bonds 4.500% 2/15/24 CCC+ 1,643,031
1,000 Continental Airlines, Inc. 5.000% 6/15/23 CCC+ 1,701,250
1,650 JetBlue Airways Corporation 3.750% 3/15/35 B- 1,612,875
----------------------------------------------------------------------------------------------------------------------------------
3,875 Total Airlines 4,957,156
----------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.5%
6,695 ArvinMeritor Inc., 144A 4.625% 3/01/26 BB- 7,105,069
----------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES - 0.1%
785 Fleetwood Enterprises Inc., 144A 5.000% 12/15/23 B2 758,506
----------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 2.1%
7,760 Amgen Inc., 144A 0.125% 2/01/11 A+ 7,294,400
4,000 Cephalon, Inc. 0.000% 6/15/33 B- 4,675,000
7,855 Genzyme Corporation 1.250% 12/01/23 BBB 8,198,656
22
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY (continued)
$ 5,470 Gilead Sciences Inc., 144A 0.625% 5/01/13 N/R $ 5,237,525
2,680 Medimmune Inc. 1.000% 7/15/23 BBB 2,686,700
-------------------------------------------------------------------------------------------------------------------------------
27,765 Total Biotechnology 28,092,281
-------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 0.5%
6,600 Goldman Sachs Group Inc. 0.125% 6/28/11 Aa3 6,946,302
-------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 0.2%
2,510 Wells Fargo & Company, Convertible Bond 5.396% 5/01/33 Aa1 2,519,413
-------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 3.2%
2,560 ADC Telecommunications Inc. 1.000% 6/15/08 N/R 2,419,200
4,475 ADC Telecommunications Inc. 5.795% 6/15/13 N/R 4,296,000
7,057 Cienna Corporation 3.750% 2/01/08 B 6,783,541
3,675 CommScope Inc. 1.000% 3/15/24 B+ 5,475,750
5,565 Comverse Technology, Inc. 0.000% 5/15/23 BB- 6,740,606
2,500 Finisar Corporation, Series 144A 2.500% 10/15/10 N/R 2,918,750
1,820 JDS Uniphase Corporation 0.000% 11/15/10 N/R 1,667,575
Juniper Networks Inc., Convertible Subordinated
2,520 Notes 0.000% 6/15/08 BB 2,529,450
5,325 Lucent Technologies Inc. 2.750% 6/15/23 B1 5,225,156
2,985 Nortel Networks Corp. 4.250% 9/01/08 B- 2,828,288
1,240 Powerwave Technologies Inc. 1.875% 11/15/24 N/R 1,298,900
1,055 Powerwave Technologies Inc. 1.825% 11/15/24 N/R 1,105,113
-------------------------------------------------------------------------------------------------------------------------------
40,777 Total Communications Equipment 43,288,329
-------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 0.2%
3,250 Quanta Services Inc., Series 144A 3.750% 4/30/26 N/R 3,396,250
-------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.2%
3,225 American Express Company, Convertible Bond 1.850% 12/01/33 A+ 3,317,719
-------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.9%
7,500 CapitalSource Inc. 3.500% 7/15/34 BBB- 7,415,625
4,545 Merrill Lynch & Co. Inc., Convertible Bond 0.000% 3/13/32 Aa3 4,976,775
-------------------------------------------------------------------------------------------------------------------------------
12,045 Total Diversified Financial Services 12,392,400
-------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8%
4,100 Broadwing Corporation, 144A 3.125% 5/15/26 N/R 3,813,000
2,425 CenturyTel Inc. 4.750% 8/01/32 BBB 2,518,969
4,345 Time Warner Telecom Inc. 2.375% 4/01/26 CCC+ 4,513,369
-------------------------------------------------------------------------------------------------------------------------------
10,870 Total Diversified Telecommunication Services 10,845,338
-------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.9%
4,250 Coherent Inc., 144A 2.750% 3/01/11 N/R 4,611,250
13,125 Roper Industries Inc. 1.481% 1/15/34 BB- 8,039,063
-------------------------------------------------------------------------------------------------------------------------------
17,375 Total Electronic Equipment & Instruments 12,650,313
-------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 1.6%
830 Cal Dive International Inc. 3.250% 12/15/25 N/R 1,237,738
4,375 Cooper Cameron Corporation 1.500% 5/15/24 BBB+ 6,480,469
3,125 Hanover Compressor Company 4.750% 1/15/14 B 4,468,750
3,100 Nabors Industries Inc. 0.000% 6/15/23 N/R 3,410,000
1,785 Oil States International Inc., Series 144A 2.375% 7/01/25 N/R 2,313,806
2,440 Schlumberger Limited 2.125% 6/01/23 A+ 4,114,450
-------------------------------------------------------------------------------------------------------------------------------
15,655 Total Energy Equipment & Services 22,025,213
-------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.2%
40 Southern Union Company, Series B 5.750% 8/16/06 Baa3 3,197,888
-------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.1%
8,835 Fisher Scientific International Inc. 3.250% 3/01/24 BB+ 9,873,113
5,450 Lincare Holdings Inc. 3.000% 6/15/33 N/R 5,334,188
-------------------------------------------------------------------------------------------------------------------------------
14,285 Total Health Care Equipment & Supplies 15,207,301
-------------------------------------------------------------------------------------------------------------------------------
23
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 1.0%
$ 6,600 Laboratory Corporation of America Holdings 0.000% 9/11/21 BBB- $ 5,593,500
2,165 Manor Care, Inc. 2.125% 8/01/35 BBB 2,435,625
6,210 Roche Holdings Inc., 144A 0.000% 7/25/21 N/R 5,527,707
-------------------------------------------------------------------------------------------------------------------------------
14,975 Total Health Care Providers & Services 13,556,832
-------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.4%
5,770 Caesars Entertainment Inc. 5.028% 4/15/24 BBB- 7,285,779
14,850 Carnival Corporation 1.132% 4/29/33 A- 9,745,313
1,560 Four Seasons Hotel Inc. 1.875% 7/30/24 BBB- 1,647,750
5,800 Hilton Hotels Corporation 3.375% 4/15/23 BB 7,641,500
2,955 Kerzner International Limited, 144A 2.375% 4/15/24 B 4,029,881
2,150 Scientific Games Corporation 0.750% 12/01/24 B+ 2,803,063
-------------------------------------------------------------------------------------------------------------------------------
33,085 Total Hotels, Restaurants & Leisure 33,153,286
-------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.5%
6,980 3M Company 0.000% 11/21/32 Aa1 6,334,350
-------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 1.5%
24 Alleghany Corporation, Convertible Bond 5.750% 6/15/09 BBB- 6,515,541
4,840 American Equity Investment Life Holding Company 5.250% 12/06/24 BB+ 5,075,950
9,000 American Financial Group Inc. 1.486% 6/02/33 BBB 4,623,750
4,730 Prudential Financial Inc. 2.411% 11/15/35 A 4,746,319
-------------------------------------------------------------------------------------------------------------------------------
18,594 Total Insurance 20,961,560
-------------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES - 0.6%
5,845 Open Solutions Inc., 144A 1.467% 2/02/35 N/R 3,441,244
7,100 Open Solutions Inc. 1.467% 2/02/35 N/R 4,180,125
-------------------------------------------------------------------------------------------------------------------------------
12,945 Total Internet Software & Services 7,621,369
-------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.1%
1,515 Digital River Inc. 1.250% 1/01/24 N/R 1,717,631
-------------------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS - 0.5%
6,195 K2 Corporation, Convertible Notes, 144A 5.000% 6/15/10 N/R 6,481,519
-------------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.8%
215 Comcast Corporation 2.000% 10/15/29 BBB 8,553,803
3,700 Grey Global Group Inc. 5.000% 10/15/33 N/R 4,601,875
Liberty Media Corporation, Senior Debentures
10,850 Exchangeable for Motorola Common Stock 3.500% 1/15/31 BB+ 10,348,188
8,400 Liberty Media Corporation 0.750% 3/30/23 BB+ 8,956,500
1,775 Lions Gate Entertainment Corporation, 144A 2.938% 10/15/24 N/R 1,657,406
2,500 Lions Gate Entertainment Corporation, 144A 3.625% 3/15/25 N/R 2,137,500
3,340 Omnicom Group Inc. 0.000% 6/15/33 A- 3,356,700
3,240 Sirius Satellite Radio Inc. 3.250% 10/15/11 CCC 3,730,050
6,425 Walt Disney Company, Convertible Senior Notes 2.125% 4/15/23 A- 7,107,656
-------------------------------------------------------------------------------------------------------------------------------
40,445 Total Media 50,449,678
-------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.4%
2,875 Century Aluminum Company 1.750% 8/01/24 BB- 3,892,031
1,475 Placer Dome Inc. 2.750% 10/15/23 A- 1,961,750
-------------------------------------------------------------------------------------------------------------------------------
4,350 Total Metals & Mining 5,853,781
-------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.5%
6,325 Dominion Resources Inc., Series C 2.125% 12/15/23 BBB 6,704,500
-------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.0%
900 Cheniere Energy Inc. 2.250% 8/01/12 N/R 1,093,500
1,600 Chesapeake Energy Corporation, 144A 2.750% 11/15/35 BB 1,646,000
8,775 Devon Energy Corporation 4.900% 8/15/08 BBB 10,694,531
-------------------------------------------------------------------------------------------------------------------------------
11,275 Total Oil, Gas & Consumable Fuels 13,434,031
-------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 2.4%
3,390 Alexion Pharmaceuticals Inc., 144A 1.375% 2/01/12 N/R 4,449,375
3,250 Alexion Pharmaceuticals Inc. 1.375% 2/01/12 N/R 4,265,625
3,925 BioMarin Pharmaceutical Inc. 2.500% 3/29/13 CCC 4,346,938
4,225 Cubist Pharmaceuticals Inc. 2.250% 6/15/13 N/R 4,425,688
24
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (continued)
$ 4,525 First Horizon Pharmaceutical Corporation 1.750% 3/08/24 N/R $ 5,079,313
3,415 Teva Pharmaceutical Finance, Series A 0.500% 2/01/24 BBB 3,491,838
6,400 Wyeth, 144A 1.000% 1/15/24 A 6,694,400
-------------------------------------------------------------------------------------------------------------------------------
29,130 Total Pharmaceuticals 32,753,177
-------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.7%
7,700 CSX Corporation 0.000% 10/30/21 BBB 9,721,250
-------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 1.5%
3,100 Agere Systems Inc. 6.500% 12/15/09 B 3,080,625
2,295 ASM International NV 4.250% 12/06/11 B- 2,229,019
4,000 Intel Corporation, 144A 2.950% 12/15/35 A- 3,385,000
3,240 LSI Logic Corporation 4.000% 5/15/10 Ba3 3,308,850
2,825 Photronics Inc., Convertible Notes 2.250% 4/15/08 B 3,160,469
5,775 RF Micro Devices, Inc. 1.500% 7/01/10 B- 5,746,125
-------------------------------------------------------------------------------------------------------------------------------
21,235 Total Semiconductors & Equipment 20,910,088
-------------------------------------------------------------------------------------------------------------------------------
SOFTWARE - 1.7%
7,200 Amdocs Limited 0.500% 3/15/24 BBB- 7,326,000
3,045 Cadence Design Systems, Inc. 0.000% 8/15/23 N/R 3,494,138
3,375 Informatica Corporation, 144A 3.000% 3/15/26 N/R 3,328,594
2,850 Red Hat Inc., Convertible Bond 0.500% 1/15/24 B 3,102,938
3,350 Sybase, Inc., 144A 1.750% 2/22/25 N/R 3,241,125
3,005 Sybase, Inc. 1.750% 2/22/25 N/R 2,907,338
-------------------------------------------------------------------------------------------------------------------------------
22,825 Total Software 23,400,133
-------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 2.4%
2,880 Best Buy Co., Inc. 2.250% 1/15/22 BBB- 3,567,600
2,200 Charming Shoppes Inc. 4.750% 6/01/12 BB- 2,714,250
4,510 Dick's Sporting Goods Inc. 1.606% 2/18/24 B 3,455,788
4,600 Lowes Companies, Inc. 0.861% 10/19/21 A+ 4,864,500
Sonic Automotive Inc., Convertible Senior
3,545 Subordinated Notes 5.250% 5/07/09 B 3,487,394
8,775 TJX Companies, Inc. 0.000% 2/13/21 A- 6,998,063
6,750 United Auto Group Inc., Series 144A 3.500% 4/01/26 B 7,290,000
-------------------------------------------------------------------------------------------------------------------------------
33,260 Total Specialty Retail 32,377,595
-------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.4%
4,300 GATX Corporation 7.500% 2/01/07 BBB 5,439,500
-------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.9%
1,790 American Tower Corporation 3.000% 8/15/12 BB- 2,928,888
6,500 NII Holdings Inc., 144A 2.750% 8/15/25 N/R 8,645,000
-------------------------------------------------------------------------------------------------------------------------------
8,290 Total Wireless Telecommunication Services 11,573,888
-------------------------------------------------------------------------------------------------------------------------------
468,751 TOTAL CONVERTIBLE BONDS (COST $478,955,222) 500,416,774
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 14.4% (9.4% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.3%
$ 1,000 Hexcel Corporation, Term Loan 6.750% 2/01/15 B $ 940,000
2,500 K&F Acquisition Inc. 7.750% 11/15/14 B- 2,475,000
-------------------------------------------------------------------------------------------------------------------------
3,500 Total Aerospace & Defense 3,415,000
-------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.5%
1,600 Affinia Group Inc. 9.000% 11/30/14 CCC+ 1,460,000
Keystone Automotive Operations
2,575 Inc. 9.750% 11/01/13 B- 2,446,250
2,500 Tenneco Auto, Inc. 10.250% 7/15/13 B 2,753,125
-------------------------------------------------------------------------------------------------------------------------
6,675 Total Auto Components 6,659,375
-------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.6%
2,000 Freeport-McMoran Resources 7.000% 2/15/08 Ba3 2,015,000
2,000 Ineos Group Holdings PLC, 144A 8.500% 2/15/16 B2 1,882,500
1,000 Nell AF Sarl 8.375% 8/15/15 B2 966,250
25
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------
CHEMICALS (continued)
$ 1,335 OM Group Inc. 9.250% 12/15/11 B- $ 1,381,725
Rockwood Specialties Group
1,500 Inc., Series WI 7.500% 11/15/14 B- 1,477,500
-------------------------------------------------------------------------------------------------------------------------
7,835 Total Chemicals 7,722,975
-------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 0.3%
4,500 HBOS PLC, Series 144A 6.413% 9/29/49 A1 4,043,367
-------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.4%
Allied Waste North America,
667 Series B 9.250% 9/01/12 BB- 710,355
1,000 Allied Waste North America 7.875% 4/15/13 BB- 1,005,000
2,740 DST Systems Inc. 4.125% 8/15/23 N/R 3,637,350
600 Williams Scotsman Inc., 144A 8.500% 10/01/15 B+ 595,500
-------------------------------------------------------------------------------------------------------------------------
Total Commercial Services &
5,007 Supplies 5,948,205
-------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.1%
1,000 GSC Holdings Corporation, 144A 8.000% 10/01/12 Ba3 1,005,000
-------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.6%
1,520 Berry Plastics Corporation 10.750% 7/15/12 B- 1,653,000
MDP Acquisitions PLC, Senior
2,000 Notes 9.625% 10/01/12 B- 2,070,000
Owens-Brockway Glass
Containers, Guaranteed Senior
2,000 Note 8.250% 5/15/13 B 2,015,000
2,000 Owens-Illinois Inc. 7.800% 5/15/18 B 1,890,000
-------------------------------------------------------------------------------------------------------------------------
7,520 Total Containers & Packaging 7,628,000
-------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.3%
Intelsat Subsidiary Holding
2,000 Company Limited 8.500% 1/15/13 B+ 1,995,000
Valor Telecommunications
1,500 Enterprises LLC 7.750% 2/15/15 Ba2 1,556,250
-------------------------------------------------------------------------------------------------------------------------
Total Diversified
3,500 Telecommunication Services 3,551,250
-------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.5%
3,000 Midwest Generation LLC 8.750% 5/01/34 Ba3 3,195,000
Mirant North America LLC.,
500 144A 7.375% 12/31/13 B2 485,000
Sierra Pacific Resources,
3,000 Series 2006 6.750% 8/15/17 B1 2,849,463
-------------------------------------------------------------------------------------------------------------------------
6,500 Total Electric Utilities 6,529,463
-------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.2%
1,200 Hanover Compressor Company 7.500% 4/15/13 B 1,182,000
1,500 Pride International Inc. 7.375% 7/15/14 Ba2 1,515,000
-------------------------------------------------------------------------------------------------------------------------
Total Energy Equipment &
2,700 Services 2,697,000
-------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.1%
2,000 Stater Brothers Holdings Inc. 8.125% 6/15/12 B+ 1,985,000
-------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
356 Dole Foods Company 8.875% 3/15/11 B 335,530
5,943 Dole Foods Company 7.875% 7/15/13 B 5,378,415
-------------------------------------------------------------------------------------------------------------------------
6,299 Total Food Products 5,713,945
-------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.1%
1,300 Select Medical Corporation 7.625% 2/01/15 B- 1,137,500
-------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.3%
1,000 US Oncology Inc. 9.000% 8/15/12 B1 1,045,000
2,500 US Oncology Inc. 10.750% 8/15/14 B- 2,725,000
-------------------------------------------------------------------------------------------------------------------------
Total Health Care Providers &
3,500 Services 3,770,000
-------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 1.7%
2,000 Boyd Gaming Corporation 8.750% 4/15/12 B+ 2,105,000
2,000 Boyd Gaming Corporation 7.750% 12/15/12 B+ 2,027,500
1,500 Herbst Gaming Inc. 7.000% 11/15/14 B- 1,432,500
2,900 Intrawest Corporation 7.500% 10/15/13 B+ 2,900,000
Jacob's Entertainment Inc.,
700 144A 9.750% 6/15/14 B- 707,000
Landry's Restaurants Inc.,
2,000 Series B 7.500% 12/15/14 B 1,845,000
1,600 Park Place Entertainment 8.125% 5/15/11 BB+ 1,694,000
2,500 Park Place Entertainment 7.000% 4/15/13 BBB- 2,548,000
2,000 Pinnacle Entertainment Inc. 8.250% 3/15/12 B- 2,015,000
750 Pinnacle Entertainment Inc. 8.750% 10/01/13 B- 785,625
26
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE (continued)
$ 1,283 Town Sports International Inc. 9.625% 4/15/11 B2 $ 1,331,113
Universal City Development
4,000 Partners 11.750% 4/01/10 B2 4,375,000
-------------------------------------------------------------------------------------------------------------------------
Total Hotels, Restaurants &
23,233 Leisure 23,765,738
-------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.7%
K. Hovnanian Enterprises Inc.,
2,000 Senior Subordinated Notes 8.875% 4/01/12 Ba2 2,000,000
3,000 KB Home 8.625% 12/15/08 Ba2 3,123,756
Technical Olympic USA Inc.,
4,675 Senior Subordinated Notes 10.375% 7/01/12 B2 4,511,375
-------------------------------------------------------------------------------------------------------------------------
9,675 Total Household Durables 9,635,131
-------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.1%
1,650 Central Garden & Pet Company 9.125% 2/01/13 B 1,707,750
-------------------------------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.1%
400 NRG Energy Inc. 7.250% 2/01/14 B1 391,000
400 NRG Energy Inc. 7.375% 2/01/16 B1 391,000
-------------------------------------------------------------------------------------------------------------------------
Total Independent Power
800 Producers & Energy Traders 782,000
-------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.5%
1,625 Global Cash Access LLC 8.750% 3/15/12 B- 1,720,469
SunGard Data Systems Inc.,
4,750 Series 144A 9.125% 8/15/13 B- 4,951,875
-------------------------------------------------------------------------------------------------------------------------
6,375 Total IT Services 6,672,344
-------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.7%
2,000 Greenbrier Companies, Inc. 8.375% 5/15/15 B+ 2,052,500
Terex Corporation, Senior
813 Subordinated Notes 10.375% 4/01/11 B+ 863,813
Terex Corporation, Senior
6,095 Subordinated Notes 9.250% 7/15/11 B+ 6,506,413
-------------------------------------------------------------------------------------------------------------------------
8,908 Total Machinery 9,422,726
-------------------------------------------------------------------------------------------------------------------------
MEDIA - 2.4%
Allbritton Communications
4,000 Company, Series B 7.750% 12/15/12 B- 3,980,000
American Media Operations
2,880 Inc., Series B 10.250% 5/01/09 Caa1 2,700,000
2,000 American Media Operations Inc. 8.875% 1/15/11 Caa1 1,780,000
Cablevision Systems
1,000 Corporation, Series B 8.125% 8/15/09 B+ 1,022,500
Cablevision Systems
5,000 Corporation 7.250% 7/15/08 B+ 5,031,250
Charter Communications
2,000 Operating LLC, 144A 8.000% 4/30/12 B2 2,000,000
1,975 Medianews Group Inc. 6.375% 4/01/14 B 1,738,000
2,950 Panamsat Corporation 9.000% 8/15/14 B 1,989,000
7,000 Primedia Inc., Senior Notes 8.875% 5/15/11 B 5,790,000
4,550 Vertis Inc. 9.750% 4/01/09 B3 4,652,375
Young Broadcasting Inc.,
4,000 Senior Subordinated Note 10.000% 3/01/11 Caa2 3,580,000
-------------------------------------------------------------------------------------------------------------------------
37,355 Total Media 34,263,125
-------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.2%
2,000 Chaparral Steel Company 10.000% 7/15/13 B1 2,190,000
-------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL - 0.2%
Bon-Ton Department Stores
2,400 Inc., 144A 10.250% 3/15/14 B2 2,238,000
-------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.1%
1,600 Dynegy Holdings Inc., 144A 8.375% 5/01/16 B2 1,584,000
-------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.8%
2,400 Baytex Energy Ltd 9.625% 7/15/10 B- 2,490,000
400 Chaparral Energy Inc., 144A 8.500% 12/01/15 B 400,000
2,345 Chesapeake Energy Corporation 7.750% 1/15/15 BB 2,362,588
200 Copano Energy LLC, 144A 8.125% 3/01/16 B 200,000
Hilcorp Energy I LP/Hilcorp
2,000 Finance Company, Series 144A 7.750% 11/01/15 B 1,920,000
2,000 SemGroup LP, 144A 8.750% 11/15/15 B1 2,000,000
1,000 Whiting Petroleum Corporation 7.000% 2/01/14 B 950,000
-------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable
10,345 Fuels 10,322,588
-------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.5%
Georgia Pacific Corporation,
2,000 Debentures 7.700% 6/15/15 B 1,920,000
Georgia Pacific Corporation,
5,000 Notes 8.125% 5/15/11 B 5,000,000
-------------------------------------------------------------------------------------------------------------------------
7,000 Total Paper & Forest Products 6,920,000
-------------------------------------------------------------------------------------------------------------------------
27
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS - 0.1%
$ 1,500 Prestige Brands Inc. 9.250% 4/15/12 B- $ 1,477,500
-------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.2%
600 Saxon Capital Inc., 144A 12.000% 5/01/14 B 607,500
1,000 Trustreet Properties, Inc. 7.500% 4/01/15 B+ 990,000
500 Ventas Realty LP, Series WI 7.125% 6/01/15 BB+ 502,500
-------------------------------------------------------------------------------------------------------------------------
2,100 Total Real Estate 2,100,000
-------------------------------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.1%
1,625 CB Richard Ellis Services Inc. 9.750% 5/15/10 BB+ 1,746,875
-------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 0.1%
Avago Technologies Finance
Pte. Ltd., Floating Rate
Note, 5.500% plus three-month
2,600 LIBOR, 144A 10.125% 12/01/13 B 1,692,000
-------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.8%
5,100 Asbury Automotive Group Inc. 9.000% 6/15/12 B 4,079,500
Stripes Acquisition/Susser
Finance Corporation, Series
2,000 144A 10.625% 12/15/13 B 2,120,000
5,000 Warnaco Inc., Senior Notes 8.875% 6/15/13 B+ 5,100,000
-------------------------------------------------------------------------------------------------------------------------
12,100 Total Specialty Retail 11,299,500
-------------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS - 0.2%
3,000 Jostens IH Corporation 7.625% 10/01/12 B- 2,925,000
-------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.1%
Caisse Nationale Des Caisses
1,000 d'Epargne et de Prevoyance 6.750% 1/27/49 A+ 949,955
-------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.1%
United Rentals North America
2,000 Inc. 6.500% 2/15/12 B+ 1,900,000
-------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST
199,102 $200,831,982) 195,400,312
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 29.5% (19.4% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 3.8%
1,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 $ 1,042,817
4,850 BT Institutional Capital Trust A, 144A 8.090% 12/01/26 A2 5,081,704
3,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 3,134,352
1,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 1,223,634
27,500 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 26,921,290
3,000 First Security Capital I 8.410% 12/15/26 Aa2 3,151,293
8,000 UBS Preferred Funding Trust I 8.622% 10/29/49 AA- 8,759,152
3,800 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 4,016,505
--------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 53,330,747
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 19.0%
3,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 2,952,747
9,500 Abbey National Capital Trust I 8.963% 6/30/50 A 11,557,700
6,500 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 6,589,564
3,000 Bank One Capital III 8.750% 9/01/30 A1 3,712,083
1,000 BankAmerica Capital II, Series 2 8.000% 12/15/26 Aa3 1,047,417
6,000 BankBoston Capital Trust I, Series B 8.250% 12/15/26 Aa3 6,299,784
2,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 2,098,472
13,030 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 14,382,788
200 Barclays Bank PLC 6.278% 12/15/55 Aa3 176,500
3,000 Centura Capital Trust I, 144A 8.845% 6/01/27 A2 3,196,623
1,500 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 1,599,426
6,200 First Empire Capital Trust I 8.234% 2/01/27 Baa1 6,511,544
2,000 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 1,974,736
23,500 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 22,621,711
2,400 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 2,691,773
5,750 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 7,879,823
11,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A2 12,224,432
6,300 KeyCorp Institutional Capital Trust A+ 7.826% 12/01/26 A3 6,581,994
18,600 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 18,231,664
28
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
--------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
20,000 M&I Capital Trust A 7.650% 12/01/26 A2 $ 20,839,720
5,000 NB Capital Trust IV 8.250% 4/15/27 Aa3 5,260,020
1,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 A3 1,050,969
8,000 North Fork Capital Trust II 8.000% 12/15/27 A3 8,480,064
1,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 913,059
15,500 RBS Capital Trust B 6.800% 12/31/49 A1 14,941,225
100 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 106,666
8,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 7,719,032
10,500 St. George Funding Company LLC 8.485% 6/30/17 Baa1 11,088,021
1,650 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 1,841,888
2,000 Unicredito Italiano Capital Trust, 144A 9.200% 4/05/51 A- 2,226,618
300 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 31,715,625
Washington Mutual Preferred Funding Cayman, Series
12,800 A-1, 144A 7.250% 3/15/49 BBB 12,194,202
Washington Mutual Preferred Funding Delaware,
3,000 Series A-1, 144A 6.534% 3/15/49 BBB 2,884,221
5,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 5,253,175
--------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 258,845,286
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 1.0%
4,000 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 4,001,556
5,000 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 5,216,475
14,500 Citigroup Capital X 6.100% 9/30/33 Aa2 328,570
1,700 Fulton Capital Trust I 6.290% 2/01/36 A3 1,545,310
2,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 2,878,282
--------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 13,970,193
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.9%
9,957 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 11,696,363
--------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.3%
4,000 Stanley Works Capital Trust I, 144A 5.902% 12/01/45 Baa1 3,734,636
--------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.1%
2,300 American General Capital II 8.500% 7/01/30 Aa3 2,863,601
4,000 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 3,826,148
3,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 2,995,950
7,250 Prudential PLC 6.500% 6/29/49 A 6,685,051
Sun Life Canada Capital Trust, Capital Securities,
9,500 144A 8.526% 5/06/47 A+ 10,057,783
11,000 ZFS FINANCE USA TRUST II 144A 6.450% 12/15/65 Baa2 10,081,852
4,750 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 5,022,422
--------------------------------------------------------------------------------------------------------------------------------
Total Insurance 41,532,807
----------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.5%
1,200 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 1,126,598
6,110 KN Capital Trust III 7.630% 4/15/28 Baa3 5,126,577
--------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 6,253,175
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.9%
10,000 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 10,704,370
1,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 1,051,061
--------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 11,755,431
----------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST
$425,940,756) 401,118,638
----------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) VALUE
--------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES -- 1.0% (0.7% OF TOTAL
INVESTMENTS)
Flaherty and Crumrine/Claymore Preferred
133,517 Securities Income Fund Inc. 2,603,582
Flaherty and Crumrine/Claymore Total Return Fund
100,204 Inc. 1,915,900
5,894 John Hancock Preferred Income Fund 132,556
10,867 John Hancock Preferred Income Fund II 240,704
191,204 John Hancock Preferred Income Fund III 3,774,367
50,155 Preferred and Corporate Strategies Fund Inc. 1,000,091
211,094 Preferred Income Strategies Fund Inc. 4,002,342
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $13,887,936) 13,669,542
----------------------------------------------------------------------------------------------------------------
29
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 4.6% (3.0% OF TOTAL INVESTMENTS)
Repurchase Agreement with State Street Bank, dated
$ 63,089 6/30/06, repurchase price 4.130% 7/03/06 $ 63,088,906
$63,110,619, collateralized by: $85,000 U.S.
Treasury Notes, 4.000%, due 2/15/14, value
$79,900, $19,085,000 U.S. Treasury Notes, 3.875%,
due 5/15/09, value $18,521,401, $45,750,000 U.S.
Treasury Notes, 4.625%, due 3/31/08, value
$45,750,000
-----------
-----------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $63,088,906) 63,088,906
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $2,100,146,620) - 152.2% 2,069,348,139
--------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - (0.1)% (1,926,851)
--------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, AT LIQUIDATION VALUE - (52.1)% (708,000,000)
--------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $1,359,421,288
--------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS OUTSTANDING AT JUNE 30, 2006:
FIXED RATE
PAID FIXED RATE FLOATING RATE FLOATING RATE UNREALIZED
NOTIONAL BY THE FUND PAYMENT RECEIVED PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT (ANNUALIZED) FREQUENCY BY THE FUND (8) FREQUENCY DATE (DEPRECIATION)
------------------------------------------------------------------------------------------------------------------
JPMorgan Chase $71,000,000 3.395% Monthly 5.138% Monthly 7/06/06 $ 89,706
JPMorgan Chase 71,000,000 2.994 Monthly 5.294 Monthly 1/22/08 2,764,623
Morgan Stanley 71,000,000 2.567 Monthly 5.294 Monthly 1/22/07 1,221,001
Morgan Stanley 71,000,000 3.406 Monthly 5.294 Monthly 1/22/09 3,662,422
------------------------------------------------------------------------------------------------------------------
$ 7,737,752
------------------------------------------------------------------------------------------------------------------
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Non-income producing.
(3) Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by
Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be
below investment grade.
(4) Senior Loans in the Fund's portfolio generally are subject to mandatory and/or optional
prepayment. Because of these mandatory prepayment conditions and because there may be
significant economic incentives for a Borrower to prepay, prepayments of Senior Loans in
the Fund's portfolio may occur. As a result, the actual remaining maturity of Senior Loans
held in the Fund's portfolio may be substantially less than the stated maturities shown.
(5) Senior Loans in which the Fund invests generally pay interest at rates which are
periodically adjusted by reference to a base short-term, floating lending rate plus an
assigned fixed rate. These floating lending rates are generally (i) the lending rate
referenced by the London Inter-Bank Offered Rate ('LIBOR'), or (ii) the prime rate offered
by one or more major United States banks. Senior Loans may be considered restricted in
that the Fund ordinarily is contractually obligated to receive approval from the Agent
Bank and/or Borrower prior to the disposition of a Senior Loan.
(6) Investment is eligible for the Dividends Received Deduction.
(7) Non-income producing security, in the case of a bond, generally denotes that the issuer
has defaulted on the payment of principal or interest or has filed for bankruptcy.
(8) Based on USD-LIBOR (United States Dollar-London Interbank Offered Rate).
N/R Not rated.
WI/DD Purchased on a when-issued or delayed delivery basis.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CBTCS Corporate Backed Trust Certificates.
CORTS Corporate Backed Trust Securities.
PCARS Public Credit and Repackaged Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
TBD Senior Loan purchased on a when-issued or delayed-delivery basis. Certain details
associated with this purchase are not known prior to the settlement date of the
transaction. In addition, Senior Loans typically trade without accrued interest and
therefore a weighted average coupon rate is not available prior to settlement. At
settlement, if still unknown, the borrower or counterparty will provide the Fund with the
final weighted average coupon rate and maturity date.
See accompanying notes to financial statements.
30
Nuveen Preferred and Convertible Income Fund 2 (JQC)
Portfolio of
INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 4.5% (3.0% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.1%
5,423 Hexcel Corporation, (2) $ 85,195
11,982 Lockheed Martin Corporation 859,589
3,792 Precision Castparts Corporation 226,610
---------------------------------------------------------------------------------------------------------------------------
Total Aerospace & Defense 1,171,394
--------------------------------------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS - 0.1%
14,832 FedEx Corporation 1,733,268
7,617 Ryder System Inc. 445,061
---------------------------------------------------------------------------------------------------------------------------
Total Air Freight & Logistics 2,178,329
--------------------------------------------------------------------------------------------------------------
AIRLINES - 0.0%
12,351 Southwest Airlines Co. 202,186
---------------------------------------------------------------------------------------------------------------------------
BEVERAGES - 0.1%
17,860 Coca-Cola Company 768,337
14,451 Pepsi Bottling Group Inc. 464,600
5,271 PepsiCo, Inc. 316,471
---------------------------------------------------------------------------------------------------------------------------
Total Beverages 1,549,408
--------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 0.1%
8,478 Genentech, Inc., (2) 693,500
14,067 Gilead Sciences, Inc., (2) 832,204
---------------------------------------------------------------------------------------------------------------------------
Total Biotechnology 1,525,704
--------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 0.1%
5,934 Calamos Asset Management, Inc. Class A 172,027
4,037 Greenhill & Co Inc. 245,288
10,890 Lehman Brothers Holdings Inc. 709,484
2,287 OptionsXpress Holdings Inc. 53,310
---------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 1,180,109
--------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.0%
11,658 Airgas, Inc. 434,261
---------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 0.1%
14,130 Bank of Hawaii Corporation 700,848
3,608 Boston Private Financial Holdings Inc. 100,663
9,270 Colonial BancGroup Inc. 238,054
4,685 Greater Bay Bancorp 134,694
6,810 Marshall and Ilsley Corporation 311,489
6,130 Northern Trust Corporation 338,989
20,120 PNC Financial Services Group, Inc. 1,411,820
12,256 Washington Mutual, Inc. 558,628
11,132 Whitney Holding Corporation 393,739
7,627 Zions Bancorporation 594,448
---------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 4,783,372
--------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.1%
3,920 Administaff, Inc. 140,375
2,752 American Ecology Corporation 72,928
4,818 Consolidated Graphics Inc., (2) 250,825
13,382 Corporate Executive Board Company 1,340,876
8,850 Equifax Inc. 303,909
16,633 Global Payments Inc. 807,532
24,209 R.R. Donnelley & Sons Company 773,478
19,240 Republic Services, Inc. 776,142
31
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES (continued)
4,040 SEI Investments Company $ 197,475
---------------------------------------------------------------------------------------------------------------------------
Total Commercial Services & Supplies 4,663,540
--------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.2%
23,390 Comverse Technology, Inc., (2) 462,420
53,600 Corning Incorporated, (2) 1,296,584
2,249 Harris Corporation 93,356
32,690 QUALCOMM Inc. 1,309,888
---------------------------------------------------------------------------------------------------------------------------
Total Communications Equipment 3,162,248
--------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.1%
17,330 Apple Computer, Inc., (2) 989,890
24,510 Hewlett-Packard Company 776,477
1,611 Komag Inc., (2) 74,396
7,614 Network Appliance Inc., (2) 268,774
---------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 2,109,537
--------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 0.0%
1,471 Shaw Group Inc., (2) 40,894
---------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.2%
78,276 Americredit Corp., (2) 2,185,466
8,440 Capital One Financial Corporation 721,198
---------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 2,906,664
--------------------------------------------------------------------------------------------------------------
DISTRIBUTORS - 0.0%
1,456 Keystone Automotive Industries Inc., (2) 61,472
---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES - 0.0%
6,544 Jackson Hewitt Tax Services Inc. 205,154
---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.1%
6,490 CBOT Holdings, Inc. Class A, (2) 776,139
4,215 Moody's Corporation 229,549
---------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 1,005,688
--------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.1%
60,360 Sprint Nextel Corporation 1,206,596
---------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.2%
22,470 PG&E Corporation 882,622
38,902 TXU Corporation 2,325,951
---------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 3,208,573
--------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.1%
13,422 Emerson Electric Co. 1,124,898
2,666 Ormat Technologies Inc. 101,708
3,888 Smith AO Corporation 180,248
---------------------------------------------------------------------------------------------------------------------------
Total Electrical Equipment 1,406,854
--------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.1%
2,984 Itron Inc., (2) 176,832
5,897 Millipore Corporation, (2) 371,452
6,875 Parker Hannifin Corporation 533,500
6,461 Plexus Corporation, (2) 221,031
6,511 Teledyne Technologies Inc., (2) 213,300
10,215 Waters Corporation, (2) 453,546
---------------------------------------------------------------------------------------------------------------------------
Total Electronic Equipment & Instruments 1,969,661
--------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.0%
4,461 Helix Energy Solutions Group, (2) 180,046
4,984 Unit Corporation, (2) 283,540
4,671 Veritas DGC Inc., (2) 240,930
---------------------------------------------------------------------------------------------------------------------------
Total Energy Equipment & Services 704,516
--------------------------------------------------------------------------------------------------------------
32
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.0%
9,550 Whole Foods Market, Inc. $ 617,312
---------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS -- 0.2%
24,268 Archer-Daniels-Midland Company 1,001,783
36,820 Monsanto Company 3,099,876
---------------------------------------------------------------------------------------------------------------------------
Total Food Products 4,101,659
--------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.1%
49,463 Energen Corporation 1,899,874
---------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.2%
7,500 American Medical Systems Holdings, Inc., (2) 124,875
19,560 Baxter International Inc. 719,026
10,414 Dade Behring Holdings Inc. 433,639
4,544 Express Scripts, Inc., (2) 325,987
32,530 Hospira Inc., (2) 1,396,838
10,062 Kinetic Concepts Inc., (2) 444,237
---------------------------------------------------------------------------------------------------------------------------
Total Health Care Equipment & Supplies 3,444,602
--------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.2%
6,449 Healthways Inc., (2) 339,475
9,530 Humana Inc., (2) 511,761
21,734 Quest Diagnostics Incorporated 1,302,301
24,886 Sierra Health Services Inc., (2) 1,120,617
6,539 Surmodics Inc., (2) 236,123
2,693 Wellcare Health Plans Inc., (2) 132,092
---------------------------------------------------------------------------------------------------------------------------
Total Health Care Providers & Services 3,642,369
--------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 0.1%
22,266 Choice Hotels International, Inc. 1,349,320
4,080 Panera Bread Company, (2) 274,339
7,287 Starbucks Corporation, (2) 275,157
7,615 Station Casinos Inc. 518,429
---------------------------------------------------------------------------------------------------------------------------
Total Hotels, Restaurants & Leisure 2,417,245
--------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.1%
66,302 Newell Rubbermaid Inc. 1,712,581
3,000 Stanley Works 141,660
---------------------------------------------------------------------------------------------------------------------------
Total Household Durables 1,854,241
--------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.1%
19,160 Colgate-Palmolive Company 1,147,684
8,547 Kimberly-Clark Corporation 527,350
---------------------------------------------------------------------------------------------------------------------------
Total Household Products 1,675,034
--------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.1%
10,320 3M Co. 833,546
13,580 General Electric Company 447,597
---------------------------------------------------------------------------------------------------------------------------
Total Industrial Conglomerates 1,281,143
--------------------------------------------------------------------------------------------------------------
INSURANCE - 0.2%
23,438 AFLAC Incorporated 1,086,351
1,566 First American Corporation 66,195
22,284 HCC Insurance Holdings Inc. 656,041
3,654 Philadelphia Consolidated Holding Corporation, (2) 110,935
3,210 Tower Group Inc. 97,103
81,960 W.R. Berkley Corporation 2,797,295
---------------------------------------------------------------------------------------------------------------------------
Total Insurance 4,813,920
--------------------------------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL - 0.0%
8,486 Coldwater Creek Inc., (2) 227,085
5,559 MSC Industrial Direct Inc., Class A 264,442
---------------------------------------------------------------------------------------------------------------------------
Total Internet & Catalog Retail 491,527
--------------------------------------------------------------------------------------------------------------
33
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES - 0.0%
794 Google Inc., Class A, (2) $ 332,948
3,248 j2 Global Communications, Inc., (2) 101,403
---------------------------------------------------------------------------------------------------------------------------
Total Internet Software & Services 434,351
--------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.0%
5,486 Websense Inc., (2) 112,682
---------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.1%
1,366 Freightcar America Inc. 75,827
6,324 Harsco Corporation 493,019
4,585 Joy Global Inc. 238,833
2,450 Paccar Inc. 201,831
---------------------------------------------------------------------------------------------------------------------------
Total Machinery 1,009,510
--------------------------------------------------------------------------------------------------------------
MEDIA - 0.2%
12,270 Cablevision Systems Corporation, (2) 263,192
6,095 Comcast Corporation, Class A, (2) 199,550
32,680 DIRECTV Group, Inc., (2) 539,220
12,214 John Wiley and Sons Inc., Class A 405,505
9,740 Liberty Global Inc, A Shares, (2) 209,410
9,738 Liberty Global Inc., Class C, (2) 200,311
2,124 Lodgenet Entertainment Corporation, (2) 39,613
13,040 McGraw-Hill Companies, Inc. 654,999
55,730 Time Warner Inc. 964,129
---------------------------------------------------------------------------------------------------------------------------
Total Media 3,475,929
--------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.0%
1,398 Phelps Dodge Corporation 114,860
4,202 Quanex Corporation 180,980
---------------------------------------------------------------------------------------------------------------------------
Total Metals & Mining 295,840
--------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL - 0.1%
6,117 Casey's General Stores, Inc. 152,986
13,210 Dollar Tree Stores Inc., (2) 350,065
22,370 Kohl's Corporation, (2) 1,322,514
---------------------------------------------------------------------------------------------------------------------------
Total Multiline Retail 1,825,565
--------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.2%
15,760 EOG Resources, Inc. 1,092,798
2,378 Frontier Oil Corporation 77,047
2,852 Houston Exploration Company, (2) 174,514
3,126 Parallel Petroleum Corporation, (2) 77,243
4,717 Pioneer Drilling Company, (2) 72,830
13,011 Sunoco, Inc. 901,532
7,352 Valero Energy Corporation 489,055
4,972 W&T Offshore Inc. 193,361
---------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 3,078,380
--------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.0%
11,950 Plum Creek Timber Company 424,225
---------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
6,387 Allergan Inc. 685,070
6,524 Alpharma Inc. 156,837
60,110 King Pharmaceuticals Inc., (2) 1,021,870
---------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 1,863,777
--------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.1%
1,913 American Home Mortgage Investment Corp. 70,513
3,750 Camden Property Trust 275,813
5,763 Equity Inns Inc. 95,435
5,190 Health Care Property Investors Inc. 138,781
3,987 LaSalle Hotel Properties 184,598
5,271 Public Storage, Inc. 400,069
3,794 SL Green Realty Corporation 415,329
8,597 Tanger Factory Outlet Centers 278,285
1,214 Taubman Centers Inc. 49,653
34
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
6,244 United Dominion Realty Trust $ 174,894
---------------------------------------------------------------------------------------------------------------------------
Total Real Estate 2,083,370
--------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.0%
7,913 Burlington Northern Santa Fe Corporation 627,105
---------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 0.2%
14,370 Advanced Micro Devices, Inc., (2) 350,915
14,017 Entegris Inc., (2) 133,582
20,885 Freescale Semiconductor, Inc., Class B, (2) 614,019
25,370 Micron Technology, Inc., (2) 382,072
3,248 Microsemi Corporation, (2) 79,186
44,090 National Semiconductor Corporation 1,051,547
1,796 Netlogic Microsystems Inc., (2) 57,921
19,300 QLogic Corporation, (2) 332,732
1,656 Silicon Laboratories Inc., (2) 58,208
---------------------------------------------------------------------------------------------------------------------------
Total Semiconductors & Equipment 3,060,182
--------------------------------------------------------------------------------------------------------------
SOFTWARE - 0.2%
5,075 Aspen Technology Inc., (2) 66,584
21,751 Autodesk, Inc., (2) 749,539
3,584 Blackbaud, Inc. 81,357
42,850 BMC Software Inc., (2) 1,024,115
11,260 Intuit Inc., (2) 679,991
10,250 Reynolds and Reynolds Company 314,368
6,601 Salesforce.com, Inc., (2) 175,983
---------------------------------------------------------------------------------------------------------------------------
Total Software 3,091,937
--------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.2%
28,606 Ann Taylor Stores Corporation, (2) 1,240,928
3,294 Build-A-Bear-Workshop, Inc., (2) 70,854
4,253 Childrens Place Retail Stores Inc., (2) 255,393
17,067 Circuit City Stores, Inc. 464,564
8,011 Claire's Stores, Inc. 204,361
11,468 Select Comfort Corporation, (2) 263,420
16,241 Staples, Inc. 394,981
---------------------------------------------------------------------------------------------------------------------------
Total Specialty Retail 2,894,501
--------------------------------------------------------------------------------------------------------------
TEXTILES APPAREL & LUXURY GOODS - 0.0%
6,599 Guess Inc., (2) 275,508
3,425 Nike Inc., Class B 277,425
2,456 Skechers USA Inc., (2) 59,214
---------------------------------------------------------------------------------------------------------------------------
Total Textiles Apparel & Luxury Goods 612,147
--------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.0%
9,230 Washington Federal Inc. 214,044
---------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.0%
3,314 GATX Corporation 140,845
---------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $86,609,968) 87,159,476
--------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 10.6% (7.1% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.6%
244,850 Ford Motor Company Capital Trust II 6.500% CCC+ $ 6,806,830
General Motors Corporation, Convertible Notes,
252,740 Senior Debentures, Series B 5.250% B- 4,675,690
-----------------------------------------------------------------------------------------------------------------------------
Total Automobiles 11,482,520
----------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 1.1%
137,000 Affiliated Managers Group Inc. 5.100% B 6,439,000
298,000 E*Trade Financial Corporation 6.125% Ba3 8,922,120
182,435 Lazard Limited 6.625% Ba1 6,567,660
-----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 21,928,780
----------------------------------------------------------------------------------------------------------------
35
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.7%
313,585 Celanese Corporation 4.250% N/R $ 9,347,969
89,905 Huntsman Corporation 5.000% N/R 3,492,809
-----------------------------------------------------------------------------------------------------------------------------
Total Chemicals 12,840,778
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 1.8%
5,475,000 Fortis Insurance NV, 144A 7.750% A+ 7,105,345
351,450 Marshall and Ilsley Corporation 6.500% A2 9,443,462
211,500 National Australia Bank Limited 7.875% N/R 8,986,635
150,000 Washington Mutual, Inc., Unit 1 Trust 5.375% Baa1 8,532,000
-----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 34,067,442
----------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.7%
13,400,000 SLM Corporation 5.050% A 13,589,074
-----------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.4%
90,550 Entergy Corporation 7.625% BBB 4,547,421
76,430 PNM Resources Inc. 6.750% Baa3 3,752,713
-----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 8,300,134
----------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.1%
37,500 Southern Union Company 5.000% BBB 1,991,250
-----------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.2%
53,570 Omnicare Capital Trust II, Series B 4.000% BB 3,378,124
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.3%
193,015 Aspen Insurance Holdings Limited 5.625% BBB- 9,578,369
276,200 Chubb Corporation 7.000% A 9,730,526
503,775 Genworth Financial Inc. 6.000% A 18,967,129
85,000 Hartford Financial Services Group, Inc. 6.000% A- 6,323,150
188,920 IPC Holdings Limited 7.250% BBB- 4,699,385
570,475 MetLife Inc., Convertible, Series B 6.375% BBB+ 15,727,996
-----------------------------------------------------------------------------------------------------------------------------
Total Insurance 65,026,555
----------------------------------------------------------------------------------------------------------------
MEDIA - 0.2%
135,700 Interpublic Group Companies Inc., Series A 5.375% N/R 4,342,400
-----------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.2%
2,400 Freeport McMoran Copper & Gold, Inc. 5.500% B- 3,007,500
-----------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.6%
48,335 Chesapeake Energy Corporation, 144A 5.000% B 4,948,296
51,000 Chesapeake Energy Corporation 4.500% B+ 4,781,250
17,370 Hess Corporation 7.000% BB 2,304,999
-----------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 12,034,545
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.7%
86,650 New York Community Bancorp Inc Capital Trust V 6.000% Baa2 4,068,218
337,845 PMI Group Inc. 5.875% A1 8,591,398
-----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 12,659,616
----------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED SECURITIES (COST
$197,580,088) 204,648,718
----------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 47.5% (31.4% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.0%
3,000 DaimlerChrysler AG (CORTS) 7.875% A3 $ 74,070
2,200 DaimlerChrysler Corp. (PPLUS) 7.250% A3 54,142
-----------------------------------------------------------------------------------------------------------------------------
Total Automobiles 128,212
----------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 4.0%
269,511 BNY Capital Trust V, Series F 5.950% A1 6,085,558
219,600 Compass Capital Trust III 7.350% A3 5,446,080
31,600 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 780,520
22,600 First Union Institutional Capital II (CORTS) 8.200% A1 604,437
5,300 Goldman Sachs Capital I (CORTS) 6.000% A1 115,805
36
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS (continued)
4,400 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 $ 96,228
4,800 Goldman Sachs Group Inc., Series 2004-04 (SATURNS) 6.000% A1 105,120
2,100 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 45,927
11,800 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 258,420
198,350 Lehman Brothers Holdings Inc., Series C, (6) 5.940% BBB+ 9,470,221
82,300 Lehman Brothers Holdings Inc., Series D, (6) 5.670% A3 3,783,743
71,500 Merrill Lynch Capital Trust II 8.000% A1 1,813,240
267,200 Merrill Lynch Preferred Capital Trust III 7.000% A1 6,645,264
189,600 Merrill Lynch Preferred Capital Trust IV 7.120% A1 4,760,856
283,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 7,198,360
48,400 Merrill Lynch Preferred Capital Trust 7.750% A1 1,231,780
211,850 Morgan Stanley Capital Trust II 7.250% A1 5,347,094
185,370 Morgan Stanley Capital Trust III 6.250% A1 4,189,362
138,400 Morgan Stanley Capital Trust IV 6.250% A1 3,123,688
14,100 Morgan Stanley Capital Trust V 5.750% A+ 295,959
327,800 Morgan Stanley Capital Trust VI 6.600% A1 7,814,752
315,200 Morgan Stanley, Series 2006A, WI/DD 5.777% A2 7,968,666
-----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 77,181,080
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 10.1%
36,200 Abbey National PLC, Series B 7.375% A 946,992
40,000 Abbey National PLC, Series B 7.250% A1 1,004,800
303,200 Abbey National PLC, Series C 7.375% A2 7,761,920
715,800 ABN AMRO Capital Fund Trust V 5.900% A 15,575,808
79,579 ABN AMRO Capital Fund Trust VI 6.250% A 1,866,128
17,021 ABN AMRO Capital Trust Fund VII 6.080% A 385,355
115,200 ASBC Capital I 7.625% Baa1 2,923,776
203,410 BAC Capital Trust I 7.000% Aa3 5,024,227
560,200 BAC Capital Trust II 7.000% Aa3 13,999,398
153,900 BAC Capital Trust III 7.000% Aa3 3,864,429
888,611 Banco Santander 6.410% A2 21,326,664
71,750 Banco Totta & Acores Finance, Series A 8.875% A3 1,831,871
6,700 BancorpSouth Capital Trust I 8.150% Baa2 168,371
28,800 Banesto Holdings, Series A, 144A 10.500% A2 871,200
167,700 Bank One Capital Trust VI 7.200% A1 4,226,040
51,900 BankNorth Capital Trust II 8.000% A3 1,311,513
91,042 Barclays Bank PLC 6.625% Aa3 2,278,781
9,900,000 BOI Capital Funding 3, 144A 6.107% A2 9,235,799
146,100 Chittenden Capital Trust I 8.000% Baa1 3,744,543
146,500 Cobank ABC, 144A, (6) 7.000% N/R 7,456,997
119,100 Comerica Capital Trust I 7.600% A3 2,978,691
512,200 Fleet Capital Trust VII 1.800% Aa3 12,779,390
430,300 Fleet Capital Trust VIII 7.200% Aa3 10,869,378
62,400 HSBC Finance Corporation 6.875% Aa3 1,556,256
38,200 KeyCorp (PCARS) 7.500% A3 963,595
90,467 KeyCorp Capital Trust V 5.875% A3 1,960,420
92,600 National Commerce Capital Trust II 7.700% A1 2,333,520
21,700 ONB Capital Trust II 8.000% Baa2 555,520
27,500 PNC Capital Trust 6.125% A3 607,750
180,674 Royal Bank of Scotland Group PLC, Series L 5.750% A1 3,888,104
124,740 Royal Bank of Scotland Group PLC, Series N 6.350% A1 2,950,101
160,600 SunTrust Capital Trust IV 7.125% A1 3,971,638
110,300 SunTrust Capital Trust V 7.050% A1 2,723,307
356,700 USB Capital Trust IV 7.350% Aa3 9,010,242
301,200 USB Capital Trust V 7.250% Aa3 7,554,096
31,800 USB Capital Trust VI 5.750% Aa3 671,616
40,100 USB Capital Trust VII 5.875% Aa3 864,155
39,300 VNB Capital Trust I 7.750% Baa1 989,574
11,000 Wells Fargo Capital Trust IX 5.625% Aa2 232,760
40,000 Wells Fargo Capital Trust IV 7.000% Aa2 996,000
483,400 Wells Fargo Capital Trust V 7.000% Aa2 12,002,822
115,100 Wells Fargo Capital Trust VI 6.950% Aa2 2,836,064
129,309 Wells Fargo Capital Trust VII 5.850% Aa2 2,844,798
117,800 Zions Capital Trust B 8.000% Baa1 3,048,664
-----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 194,993,073
----------------------------------------------------------------------------------------------------------------
37
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.1%
29,900 IBM Inc., Series 2001-1 (SATURNS) 7.125% A+ $ 741,221
14,000 IBM Trust II (CORTS) 7.125% A+ 346,780
8,000 IBM Trust III (CORTS) 7.200% A+ 199,840
24,800 IBM Trust IV (CORTS) 7.000% A+ 615,040
-----------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 1,902,881
----------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.6%
99,400 Household Capital Trust VII 7.500% A1 2,507,862
168,600 SLM Corporation, Series A, (6) 6.970% BBB+ 8,986,380
14,200 SLM Corporation 6.000% A 307,856
-----------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 11,802,098
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.0%
13,800 BBVA Preferred Capital Ltd., Series B 7.750% A1 345,414
168,100 CIT Group Inc., Series A, (6) 6.350% BBB+ 4,120,131
27,700 CIT Group Incorporated (CORTS) 7.750% A3 734,327
108,880 Citigroup Capital Trust IX 6.000% Aa2 2,432,379
197,400 Citigroup Capital Trust VII 7.125% Aa2 4,946,844
949,572 Citigroup Capital Trust VIII 6.950% Aa2 23,416,446
5,700 Citigroup, Series CIT (CORTS) 6.750% A3 139,479
1,400 General Electric Capital Corporation (CORTS) 6.000% AAA 32,270
40,500 General Electric Capital Corporation 6.625% AAA 998,730
592,320 ING Group N.V. 7.200% A 15,110,083
755,475 ING Group N.V. 7.050% A 19,060,634
43,200 JPM Capital Trust (CORTS) 7.200% A1 1,094,688
71,965 JPMorgan Chase & Company (PCARS) 7.125% A2 1,773,937
712,420 JPMorgan Chase Capital Trust X 7.000% A1 17,703,637
32,200 JPMorgan Chase Capital Trust XVI 6.350% A1 746,718
JPMorgan Chase Trust, Series 2002-6, Class A
73,600 (SATURNS) 7.125% A1 1,882,688
Royal Bank of Scotland Public Limited Company,
60,000 Series 2006Q 6.750% A1 1,516,800
-----------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 96,055,205
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.6%
38,500 BellSouth Capital Funding (CORTS) 7.100% A 962,500
29,900 BellSouth Corporation (CORTS) 7.000% Aa3 728,663
50,600 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 1,214,400
32,600 BellSouth Inc. (CORTS) 7.000% A 808,480
71,100 BellSouth Telecommunications (PPLUS) 7.300% A 1,742,661
Deutsche Telekom International Finance B.V.,
60,600 Series 2001-24, Class A-1 (CORTS) 7.875% A- 1,531,968
27,300 Verizon Communications (CORTS) 7.625% A 693,693
48,100 Verizon Communications (CORTS) 7.375% A 1,215,487
50,700 Verizon New England Inc., Series B 7.000% A3 1,255,332
30,400 Verizon South Inc., Series F 7.000% A 740,848
-----------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 10,894,032
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.4%
16,300 Consolidated Edison Company of New York Inc. 7.500% A1 407,663
6,000 Consolidated Edison, Inc. 7.250% A2 150,540
21,100 DTE Energy Trust I 7.800% Baa3 534,674
28,900 Entergy Louisiana LLC 7.600% A- 722,500
8,300 Entergy Mississippi Inc. 7.250% A- 208,745
3,000 Georgia Power Capital Trust V 7.125% A3 75,150
11,700 Mississippi Power Capital Trust II 7.200% A2 292,676
National Rural Utilities Cooperative Finance
5,200 Corporation 7.400% A3 131,352
National Rural Utilities Cooperative Finance
1,500 Corporation 6.100% A3 33,600
National Rural Utilities Cooperative Finance
1,900 Corporation 5.950% A3 41,458
33,600 Northern States Power Company 8.000% A3 853,440
15,400 Southern Company Capital Trust I (CORTS) 8.190% BBB+ 415,569
35,700 Southern Company Capital Trust I (CORTS) 7.375% BBB+ 917,133
13,100 Southern Company Capital Trust VI 7.125% BBB+ 328,810
122,500 Virginia Power Capital Trust 7.375% Baa2 3,074,750
-----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 8,188,060
----------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
75,000 Dairy Farmers of America Inc., 144A, (6) 7.875% BBB- 7,251,563
-----------------------------------------------------------------------------------------------------------------------------
38
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.1%
72,700 Pulte Homes Inc. 7.375% BBB $ 1,819,776
-----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.0%
5,000 General Electric Company, Series GE (CORTS) 6.800% AAA 126,500
-----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 11.4%
1,211,633 Ace Ltd., Series C 7.800% Baa2 31,320,713
1,398,400 Aegon N.V. 6.375% A- 32,778,496
6,500 Allstate Corporation (PCARS) 7.150% A2 164,060
37,600 AMBAC Financial Group Inc. 5.950% A 818,176
324,173 Arch Capital Group Limited 8.000% Baa3 8,246,961
236,713 Arch Capital Group Limited, Series B 7.875% Baa3 5,846,811
676,401 Delphi Financial Group, Inc. 8.000% BBB 17,369,978
200,456 EverestRe Capital Trust II 6.200% Baa1 4,275,726
97,100 EverestRe Group Limited 7.850% Baa1 2,461,485
339,100 Hartford Capital Trust III, Series C 7.450% BBB+ 8,453,763
56,500 Lincoln National Capital Trust V, Series E 7.650% A- 1,415,325
1,404,200 Lincoln National Capital Trust VI 6.750% A- 34,234,396
175,200 MetLife Inc., Series B, (6) 6.500% Baa1 4,315,176
903,702 PartnerRe Limited, Series C 6.750% BBB+ 21,616,552
82,700 PartnerRe Limited 7.900% A3 2,079,905
80,900 PLC Capital Trust III 7.500% BBB+ 2,028,972
70,500 PLC Capital Trust IV 7.250% BBB+ 1,735,710
23,900 PLC Capital Trust V 6.125% BBB+ 537,750
38,800 Prudential PLC 6.750% A 949,436
124,700 RenaissanceRe Holdings Limited, Series B 7.300% BBB 3,055,150
3,400 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 74,324
115,800 RenaissanceRe Holdings Ltd., Series A 8.100% BBB+ 2,908,896
23,700 Safeco Capital Trust I (CORTS) 8.750% Baa2 697,254
47,500 Safeco Capital Trust III (CORTS) 8.072% Baa2 1,240,938
17,400 Safeco Capital Trust IV (CORTS) 8.375% Baa2 459,360
40,200 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 1,019,874
38,800 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 982,998
97,100 Saint Paul Capital Trust I 7.600% Baa1 2,460,514
61,600 Torchmark Capital Trust I 7.750% A- 1,564,024
121,900 W.R. Berkley Capital Trust, Series 2002-1 (CBTCS) 8.125% BBB- 1,229,971
709,600 W.R. Berkley Corporation 6.750% BBB- 16,654,312
68,800 XL Capital Ltd, Series A 8.000% Baa1 1,744,080
215,640 XL Capital Ltd, Series B 7.625% Baa1 5,455,692
-----------------------------------------------------------------------------------------------------------------------------
Total Insurance 220,196,778
----------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.0%
2,500 Vertex Industries Inc. (PPLUS) 7.625% A 63,150
-----------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.1%
52,700 CBS Corporation 7.250% BBB+ 1,296,420
4,200 Walt Disney Company (CORTS) 6.875% A- 105,252
6,300 Walt Disney Company 7.000% A- 157,626
-----------------------------------------------------------------------------------------------------------------------------
Total Media 1,559,298
----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.2%
52,400 Dominion CNG Capital Trust I 7.800% Baa2 1,328,864
30,700 Dominion Resources Capital Trust II 8.400% Baa3 780,701
88,100 Energy East Capital Trust I 8.250% BBB- 2,235,097
-----------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 4,344,662
----------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
678,700 Nexen Inc. 7.350% Baa3 16,987,861
-----------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
50,800 Bristol Myers Squibb Company (CORTS) 6.250% A+ 1,180,592
-----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 11.8%
77,100 AvalonBay Communities, Inc., Series H 8.700% BBB 2,065,509
166,283 BRE Properties, Series B 8.080% BBB- 4,193,657
111,466 BRE Properties, Series D 6.750% BBB- 2,614,435
480,908 CarrAmerica Realty Corporation, Series E 7.500% BBB- 12,142,927
39
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (3) VALUE
-----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
Developers Diversified Realty Corporation, Series
104,300 G 8.000% BBB- $ 2,680,510
Developers Diversified Realty Corporation, Series
1,264,845 H 7.375% BBB- 30,862,218
125,600 Duke Realty Corporation, Series L 6.600% BBB 2,937,784
25,000 Duke-Weeks Realty Corporation, Series B 7.990% BBB 1,267,970
82,800 Duke-Weeks Realty Corporation 6.950% BBB 2,032,740
98,000 Duke-Weeks Realty Corporation 6.625% BBB 2,267,720
193,200 Equity Office Properties Trust, Series G 7.750% BBB- 4,936,260
3,200 Equity Residential Properties Trust, Series C 9.125% BBB 80,320
15,400 Equity Residential Properties Trust, Series D 8.600% BBB 392,392
348,522 Equity Residential Properties Trust, Series N 6.480% BBB 7,960,242
140,000 Federal Realty Investment Trust 8.500% BBB- 3,565,800
10,400 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 282,880
744,100 HRPT Properties Trust, Series B 8.750% BBB- 19,346,600
532,700 HRPT Properties Trust, Series C 7.125% BBB- 13,077,785
99,800 New Plan Excel Realty Trust, Series E 7.625% BBB- 2,544,900
3,997 Prologis Trust, Series C 8.540% BBB 212,216
96,275 Prologis Trust, Series G 6.750% BBB 2,271,127
125,700 PS Business Park Inc., Series O 7.375% BBB- 3,162,147
2,000 PS Business Parks, Inc., Series F 8.750% BBB- 50,700
700 PS Business Parks, Inc., Series K 7.950% BBB- 18,060
243,000 PS Business Parks, Inc., Series L 7.600% BBB- 6,075,000
299,600 PS Business Parks, Inc. 7.000% BBB- 7,250,320
149,000 Public Storage, Inc., Series E 6.750% BBB+ 3,485,110
18,400 Public Storage, Inc., Series F 6.450% BBB+ 413,080
195,600 Public Storage, Inc., Series H 6.950% BBB+ 4,743,300
158,950 Public Storage, Inc., Series R 8.000% BBB+ 3,989,645
55,860 Public Storage, Inc., Series S 7.875% BBB+ 1,404,320
45,000 Public Storage, Inc., Series T 7.625% BBB+ 1,126,350
174,500 Public Storage, Inc., Series U 7.625% BBB+ 4,379,950
31,500 Public Storage, Inc., Series V 7.500% BBB+ 806,400
166,100 Regency Centers Corporation 7.450% BBB- 4,277,075
20,500 Simon Property Group, Inc., Series F 8.750% Baa2 517,215
20,650 Simon Property Group, Inc., Series G 7.890% BBB 1,053,150
2,600 United Dominion Realty Trust 8.600% BBB- 66,300
30,000 Vornado Realty Trust, Series E 7.000% BBB- 732,900
1,200 Vornado Realty Trust, Series F 6.750% BBB- 28,380
165,000 Vornado Realty Trust, Series G 6.625% BBB- 3,795,000
183,000 Vornado Realty Trust, Series H 6.750% BBB- 4,282,200
1,987,734 Wachovia Preferred Funding Corporation 7.250% A2 52,337,036
130,300 Weingarten Realty Trust, Series E 6.950% A- 3,231,440
-----------------------------------------------------------------------------------------------------------------------------
Total Real Estate 224,961,070
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.1%
81,500 Countrywide Capital Trust II, Series II (CORTS) 8.000% BBB+ 2,053,800
70,800 Countrywide Capital Trust III (PPLUS) 8.050% BBB+ 1,823,100
733,343 Countrywide Capital Trust IV 6.750% BBB+ 17,284,895
Countrywide Financial Corporation Capital Trust I
8,400 (CORTS) 8.000% BBB+ 210,924
-----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 21,372,719
----------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.6%
60,100 AT&T Wireless (CORTS) 8.000% A 1,544,570
28,000 AT&T Wireless, Series 2002-B (SATURNS) 9.250% A 747,600
50,600 United States Cellular Corporation 8.750% A- 1,318,130
344,100 United States Cellular Corporation 7.500% A- 8,664,438
-----------------------------------------------------------------------------------------------------------------------------
Total Wireless Telecommunication Services 12,274,738
----------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES
(COST $953,509,053) 913,283,348
----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (4) RATINGS (3) VALUE
----------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS - 0.1% (0.1% OF TOTAL INVESTMENTS) (5)
MEDIA - 0.0%
$ 1,000 Philadelphia Newspapers, Term Loan B, WI/DD TBD TBD B $ 1,000,000
----------------------------------------------------------------------------------------------------------------------------------
40
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (4) RATINGS (3) VALUE
----------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.1%
Bluegrass Container Company, LLC, Term Loan B,
$ 1,155 WI/DD TBD TBD BB- $ 1,507,500
----------------------------------------------------------------------------------------------------------------------------------
TOTAL VARIABLE RATE SENIOR LOAN INTERESTS (COST
2,155 $2,500,000) 2,507,500
----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
----------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 36.4% (24.2% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 1.5%
$ 6,275 AAR Corporation, 144A, (7) 1.750% 2/01/26 BB- $ 6,047,531
7,250 Armor Holdings Inc. 2.000% 11/01/24 B+ 8,663,750
4,670 L-3 Communications Corporation, Series 144A 3.000% 8/01/35 BB+ 4,576,600
8,815 Lockheed Martin Corporation 4.920% 8/15/33 BBB+ 10,062,851
----------------------------------------------------------------------------------------------------------------------------------
27,010 Total Aerospace & Defense 29,350,732
----------------------------------------------------------------------------------------------------------------------------------
AIRLINES - 0.4%
1,700 AMR Corporation, Convertible Bonds 4.500% 2/15/24 CCC+ 2,280,125
1,400 Continental Airlines, Inc. 5.000% 6/15/23 CCC+ 2,381,750
2,320 JetBlue Airways Corporation 3.750% 3/15/35 B- 2,267,800
----------------------------------------------------------------------------------------------------------------------------------
5,420 Total Airlines 6,929,675
----------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.5%
9,305 ArvinMeritor Inc., 144A 4.625% 3/01/26 BB- 9,874,931
----------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES - 0.1%
1,025 Fleetwood Enterprises Inc., 144A 5.000% 12/15/23 B2 990,406
----------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 2.0%
10,850 Amgen Inc., 144A 0.125% 2/01/11 A+ 10,199,000
5,000 Cephalon, Inc. 0.000% 6/15/33 B- 5,843,750
10,700 Genzyme Corporation 1.250% 12/01/23 BBB 11,168,125
7,700 Gilead Sciences Inc., 144A 0.625% 5/01/13 N/R 7,372,750
3,670 Medimmune Inc. 1.000% 7/15/23 BBB 3,679,175
----------------------------------------------------------------------------------------------------------------------------------
37,920 Total Biotechnology 38,262,800
----------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 0.5%
9,300 Goldman Sachs Group Inc. 0.125% 6/28/11 Aa3 9,787,971
----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 0.2%
3,515 Wells Fargo & Company, Convertible Bond 5.396% 5/01/33 Aa1 3,528,181
----------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 3.1%
3,570 ADC Telecommunications Inc. 1.000% 6/15/08 N/R 3,373,650
6,265 ADC Telecommunications Inc. 5.795% 6/15/13 N/R 6,014,400
9,200 Cienna Corporation 3.750% 2/01/08 B 8,843,500
5,150 CommScope Inc. 1.000% 3/15/24 B+ 7,673,500
7,800 Comverse Technology, Inc. 0.000% 5/15/23 BB- 9,447,750
3,500 Finisar Corporation, Series 144A 2.500% 10/15/10 N/R 4,086,250
2,535 JDS Uniphase Corporation 0.000% 11/15/10 N/R 2,322,694
Juniper Networks Inc., Convertible Subordinated
3,515 Notes 0.000% 6/15/08 BB 3,528,181
7,450 Lucent Technologies Inc. 2.750% 6/15/23 B1 7,310,313
3,905 Nortel Networks Corp. 4.250% 9/01/08 B- 3,699,988
1,700 Powerwave Technologies Inc. 1.875% 11/15/24 N/R 1,780,750
1,390 Powerwave Technologies Inc. 1.825% 11/15/24 N/R 1,456,025
----------------------------------------------------------------------------------------------------------------------------------
55,980 Total Communications Equipment 59,537,001
----------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 0.4%
4,545 Quanta Services Inc., Series 144A 3.750% 4/30/26 N/R 4,749,525
3,500 Quanta Services Incorporated 4.000% 7/01/07 B 3,456,250
----------------------------------------------------------------------------------------------------------------------------------
8,045 Total Construction & Engineering 8,205,775
----------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.2%
4,550 American Express Company, Convertible Bond 1.850% 12/01/33 A+ 4,680,813
----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 1.0%
10,325 CapitalSource Inc. 3.500% 7/15/34 BBB- 10,208,844
41
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
$ 2,650 JMH Finance Limited 4.750% 9/06/07 N/R $ 2,658,782
6,375 Merrill Lynch & Co. Inc., Convertible Bond 0.000% 3/13/32 Aa3 6,980,625
-------------------------------------------------------------------------------------------------------------------------------
19,350 Total Diversified Financial Services 19,848,251
-------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8%
5,750 Broadwing Corporation, 144A 3.125% 5/15/26 N/R 5,347,500
3,325 CenturyTel Inc. 4.750% 8/01/32 BBB 3,453,844
6,075 Time Warner Telecom Inc. 2.375% 4/01/26 CCC+ 6,310,406
-------------------------------------------------------------------------------------------------------------------------------
15,150 Total Diversified Telecommunication Services 15,111,750
-------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.9%
5,925 Coherent Inc., 144A 2.750% 3/01/11 N/R 6,428,625
17,940 Roper Industries Inc. 1.481% 1/15/34 BB- 10,988,250
-------------------------------------------------------------------------------------------------------------------------------
23,865 Total Electronic Equipment & Instruments 17,416,875
-------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 1.6%
1,115 Cal Dive International Inc. 3.250% 12/15/25 N/R 1,662,744
6,150 Cooper Cameron Corporation 1.500% 5/15/24 BBB+ 9,109,688
4,375 Hanover Compressor Company 4.750% 1/15/14 B 6,256,250
4,350 Nabors Industries Inc. 0.000% 6/15/23 N/R 4,785,000
2,445 Oil States International Inc., Series 144A 2.375% 7/01/25 N/R 3,169,331
3,325 Schlumberger Limited 2.125% 6/01/23 A+ 5,606,781
-------------------------------------------------------------------------------------------------------------------------------
21,760 Total Energy Equipment & Services 30,589,794
-------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.1%
30 Southern Union Company, Series B 5.750% 8/16/06 Baa3 2,425,568
-------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.1%
12,300 Fisher Scientific International Inc. 3.250% 3/01/24 BB+ 13,745,250
7,650 Lincare Holdings Inc. 3.000% 6/15/33 N/R 7,487,438
-------------------------------------------------------------------------------------------------------------------------------
19,950 Total Health Care Equipment & Supplies 21,232,688
-------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 1.0%
9,200 Laboratory Corporation of America Holdings 0.000% 9/11/21 BBB- 7,797,000
3,045 Manor Care, Inc. 2.125% 8/01/35 BBB 3,425,625
8,510 Roche Holdings Inc., 144A 0.000% 7/25/21 N/R 7,575,006
-------------------------------------------------------------------------------------------------------------------------------
20,755 Total Health Care Providers & Services 18,797,631
-------------------------------------------------------------------------------------------------------------------------------
HOTELS RESTAURANTS & LEISURE - 2.4%
7,875 Caesars Entertainment Inc. 5.028% 4/15/24 BBB- 9,943,763
20,750 Carnival Corporation 1.132% 4/29/33 A- 13,617,188
2,170 Four Seasons Hotel Inc. 1.875% 7/30/24 BBB- 2,292,063
8,535 Hilton Hotels Corporation 3.375% 4/15/23 BB 11,244,863
3,895 Kerzner International Limited, 144A 2.375% 4/15/24 B 5,311,806
3,000 Scientific Games Corporation 0.750% 12/01/24 B+ 3,911,250
-------------------------------------------------------------------------------------------------------------------------------
46,225 Total Hotels Restaurants & Leisure 46,320,933
-------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.7%
14,250 3M Company 0.000% 11/21/32 Aa1 12,931,875
-------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 1.4%
33 Alleghany Corporation, Convertible Bond 5.750% 6/15/09 BBB- 9,120,375
6,725 American Equity Investment Life Holding Company 5.250% 12/06/24 BB+ 7,052,844
12,640 American Financial Group Inc. 1.486% 6/02/33 BBB 6,493,800
3,840 Prudential Financial Inc. 2.411% 11/15/35 A 3,853,248
-------------------------------------------------------------------------------------------------------------------------------
23,238 Total Insurance 26,520,267
-------------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES - 0.5%
7,885 Open Solutions Inc., 144A 1.467% 2/02/35 N/R 4,642,294
7,800 Open Solutions Inc. 1.467% 2/02/35 N/R 4,592,250
-------------------------------------------------------------------------------------------------------------------------------
15,685 Total Internet Software & Services 9,234,544
-------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.1%
2,090 Digital River Inc. 1.250% 1/01/24 N/R 2,369,538
-------------------------------------------------------------------------------------------------------------------------------
42
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS - 0.1%
$ 1,165 K2 Corporation, Convertible Notes, 144A 5.000% 6/15/10 N/R $ 1,218,881
-------------------------------------------------------------------------------------------------------------------------------
MEDIA - 4.2%
275 Comcast Corporation 2.000% 10/15/29 BBB 10,923,698
5,200 Grey Global Group Inc. 5.000% 10/15/33 N/R 6,467,500
Liberty Media Corporation, Senior Debentures
14,725 Exchangeable for Motorola Common Stock 3.500% 1/15/31 BB+ 14,043,969
Liberty Media Corporation, Senior Debentures,
21,800 Exchangeable for PCS Common Stock, Series 1 4.000% 11/15/29 BB+ 13,516,000
11,700 Liberty Media Corporation 0.750% 3/30/23 BB+ 12,475,125
2,395 Lions Gate Entertainment Corporation, 144A 2.938% 10/15/24 N/R 2,236,331
3,300 Lions Gate Entertainment Corporation, 144A 3.625% 3/15/25 N/R 2,821,500
4,660 Omnicom Group Inc. 0.000% 6/15/33 A- 4,683,300
4,505 Sirius Satellite Radio Inc. 3.250% 10/15/11 CCC 5,186,381
8,950 Walt Disney Company, Convertible Senior Notes 2.125% 4/15/23 A- 9,900,938
-------------------------------------------------------------------------------------------------------------------------------
77,510 Total Media 82,254,742
-------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.4%
4,025 Century Aluminum Company 1.750% 8/01/24 BB- 5,448,844
2,065 Placer Dome Inc. 2.750% 10/15/23 A- 2,746,450
-------------------------------------------------------------------------------------------------------------------------------
6,090 Total Metals & Mining 8,195,294
-------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.5%
8,625 Dominion Resources Inc., Series C 2.125% 12/15/23 BBB 9,142,500
-------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.0%
1,275 Cheniere Energy Inc. 2.250% 8/01/12 N/R 1,549,125
2,250 Chesapeake Energy Corporation, 144A 2.750% 11/15/35 BB 2,314,688
12,300 Devon Energy Corporation 4.900% 8/15/08 BBB 14,990,625
-------------------------------------------------------------------------------------------------------------------------------
15,825 Total Oil, Gas & Consumable Fuels 18,854,438
-------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 2.3%
4,580 Alexion Pharmaceuticals Inc., 144A 1.375% 2/01/12 N/R 6,011,250
4,150 Alexion Pharmaceuticals Inc. 1.375% 2/01/12 N/R 5,446,875
5,450 BioMarin Pharmaceutical Inc. 2.500% 3/29/13 CCC 6,035,875
5,945 Cubist Pharmaceuticals Inc. 2.250% 6/15/13 N/R 6,227,388
6,350 First Horizon Pharmaceutical Corporation 1.750% 3/08/24 N/R 7,127,875
4,780 Teva Pharmaceutical Finance, Series A 0.500% 2/01/24 BBB 4,887,550
8,500 Wyeth, 144A 1.000% 1/15/24 A 8,891,000
-------------------------------------------------------------------------------------------------------------------------------
39,755 Total Pharmaceuticals 44,627,813
-------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.7%
10,500 CSX Corporation 0.000% 10/30/21 BBB 13,256,250
-------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 1.7%
8,325 Agere Systems Inc. 6.500% 12/15/09 B 8,272,969
3,075 ASM International NV 4.250% 12/06/11 B- 2,986,594
5,650 Intel Corporation, 144A 2.950% 12/15/35 A- 4,781,313
4,610 LSI Logic Corporation 4.000% 5/15/10 Ba3 4,707,963
3,965 Photronics Inc., Convertible Notes 2.250% 4/15/08 B 4,435,844
7,370 RF Micro Devices, Inc. 1.500% 7/01/10 B- 7,333,150
-------------------------------------------------------------------------------------------------------------------------------
32,995 Total Semiconductors & Equipment 32,517,833
-------------------------------------------------------------------------------------------------------------------------------
SOFTWARE - 1.5%
10,025 Amdocs Limited 0.500% 3/15/24 BBB- 10,200,438
4,255 Cadence Design Systems, Inc. 0.000% 8/15/23 N/R 4,882,613
4,725 Informatica Corporation, 144A 3.000% 3/15/26 N/R 4,660,031
3,990 Red Hat Inc., Convertible Bond 0.500% 1/15/24 B 4,344,113
4,215 Sybase, Inc. 1.750% 2/22/25 N/R 4,078,013
-------------------------------------------------------------------------------------------------------------------------------
27,210 Total Software 28,165,208
-------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 2.3%
4,030 Best Buy Co., Inc. 2.250% 1/15/22 BBB- 4,992,163
3,100 Charming Shoppes Inc. 4.750% 6/01/12 BB- 3,824,625
6,130 Dick's Sporting Goods Inc. 1.606% 2/18/24 B 4,697,113
6,450 Lowes Companies, Inc. 0.861% 10/19/21 A+ 6,820,875
43
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL (continued)
Sonic Automotive Inc., Convertible Senior
$ 5,135 Subordinated Notes 5.250% 5/07/09 B $ 5,051,556
11,975 TJX Companies, Inc. 0.000% 2/13/21 A- 9,550,063
9,425 United Auto Group Inc., Series 144A 3.500% 4/01/26 B 10,179,000
-------------------------------------------------------------------------------------------------------------------------------
46,245 Total Specialty Retail 45,115,395
-------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.4%
5,925 GATX Corporation 7.500% 2/01/07 BBB 7,495,125
-------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.8%
2,435 American Tower Corporation 3.000% 8/15/12 BB- 3,984,269
9,000 NII Holdings Inc., 144A 2.750% 8/15/25 N/R 11,970,000
-------------------------------------------------------------------------------------------------------------------------------
11,435 Total Wireless Telecommunication Services 15,954,269
-------------------------------------------------------------------------------------------------------------------------------
667,698 TOTAL CONVERTIBLE BONDS (COST $674,999,637) 700,745,747
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 14.4% (9.6% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.2%
$ 1,000 Hexcel Corporation, Term Loan 6.750% 2/01/15 B $ 940,000
2,500 K&F Acquisition Inc. 7.750% 11/15/14 B- 2,475,000
-------------------------------------------------------------------------------------------------------------------------------
3,500 Total Aerospace & Defense 3,415,000
-------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.2%
1,950 Affinia Group Inc. 9.000% 11/30/14 CCC+ 1,779,375
1,300 Keystone Automotive Operations Inc. 9.750% 11/01/13 B- 1,235,000
-------------------------------------------------------------------------------------------------------------------------------
3,250 Total Auto Components 3,014,375
-------------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS - 0.2%
4,000 Jacuzzi Brands, Inc. 9.625% 7/01/10 B 4,245,000
-------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.7%
3,000 Ineos Group Holdings PLC, 144A 8.500% 2/15/16 B2 2,823,750
2,000 Nell AF Sarl 8.375% 8/15/15 B2 1,932,500
6,500 OM Group Inc. 9.250% 12/15/11 B- 6,727,500
3,000 Rockwood Specialties Group Inc., Series WI 7.500% 11/15/14 B- 2,955,000
-------------------------------------------------------------------------------------------------------------------------------
14,500 Total Chemicals 14,438,750
-------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 0.3%
6,000 HBOS PLC, Series 144A 6.413% 9/29/49 A1 5,391,156
-------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.4%
5,000 DST Systems Inc. 4.125% 8/15/23 N/R 6,637,500
900 Williams Scotsman Inc., 144A 8.500% 10/01/15 B+ 893,250
-------------------------------------------------------------------------------------------------------------------------------
5,900 Total Commercial Services & Supplies 7,530,750
-------------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.1%
1,000 GSC Holdings Corporation, 144A 8.000% 10/01/12 Ba3 1,005,000
-------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.6%
2,000 Berry Plastics Corporation 10.750% 7/15/12 B- 2,175,000
3,450 MDP Acquisitions PLC, Senior Notes 9.625% 10/01/12 B- 3,570,750
Owens-Brockway Glass Containers, Guaranteed Senior
3,000 Note 8.250% 5/15/13 B 3,022,500
3,000 Owens-Illinois Inc. 7.500% 5/15/10 B 2,947,500
-------------------------------------------------------------------------------------------------------------------------------
11,450 Total Containers & Packaging 11,715,750
-------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES - 0.1%
2,000 Service Corporation International 7.700% 4/15/09 BB 2,020,000
-------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.1%
2,000 Intelsat Subsidiary Holding Company Limited 8.500% 1/15/13 B+ 1,995,000
750 Syniverse Technologies Inc., Series B 7.750% 8/15/13 B 733,125
-------------------------------------------------------------------------------------------------------------------------------
2,750 Total Diversified Telecommunication Services 2,728,125
-------------------------------------------------------------------------------------------------------------------------------
44
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.2%
$ 2,000 Midwest Generation LLC 8.750% 5/01/34 Ba3 $ 2,130,000
500 Mirant North America LLC., 144A 7.375% 12/31/13 B2 485,000
1,000 Sierra Pacific Resources, Series 2006 6.750% 8/15/17 B1 949,821
-------------------------------------------------------------------------------------------------------------------------------
3,500 Total Electric Utilities 3,564,821
-------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.2%
1,800 Hanover Compressor Company 7.500% 4/15/13 B 1,773,000
2,500 Pride International Inc. 7.375% 7/15/14 Ba2 2,525,000
-------------------------------------------------------------------------------------------------------------------------------
4,300 Total Energy Equipment & Services 4,298,000
-------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.2%
3,000 Stater Brothers Holdings Inc. 8.125% 6/15/12 B+ 2,977,500
-------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.8%
7,610 Del Monte Corporation 8.625% 12/15/12 B 7,876,350
1,096 Dole Foods Company 8.625% 5/01/09 B 1,052,160
7,000 Dole Foods Company 7.875% 7/15/13 B 6,335,000
-------------------------------------------------------------------------------------------------------------------------------
15,706 Total Food Products 15,263,510
-------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.0%
700 Select Medical Corporation 7.625% 2/01/15 B- 612,500
-------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.2%
3,000 US Oncology Inc. 10.750% 8/15/14 B- 3,270,000
-------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 1.7%
5,190 Aztar Corporation 9.000% 8/15/11 Ba3 5,462,475
2,345 Boyd Gaming Corporation 8.750% 4/15/12 B+ 2,468,113
4,075 Boyd Gaming Corporation 7.750% 12/15/12 B+ 4,131,031
1,500 Herbst Gaming Inc. 7.000% 11/15/14 B- 1,432,500
4,100 Intrawest Corporation 7.500% 10/15/13 B- 4,100,000
800 Jacob's Entertainment Inc., 144A 9.750% 6/15/14 B- 808,000
2,000 Landry's Restaurants Inc., Series B 7.500% 12/15/14 B 1,845,000
2,000 MGM Mirage, Inc. 6.750% 8/01/07 BB 2,017,500
1,000 Park Place Entertainment 9.375% 2/15/07 BB+ 1,020,000
1,000 Park Place Entertainment 7.875% 3/15/10 BB+ 1,042,500
2,000 Pinnacle Entertainment Inc. 8.250% 3/15/12 B- 2,015,000
3,000 Pinnacle Entertainment Inc. 8.750% 10/01/13 B- 3,142,500
4,000 Universal City Development Partners 11.750% 4/01/10 B2 4,375,000
-------------------------------------------------------------------------------------------------------------------------------
33,010 Total Hotels, Restaurants & Leisure 33,859,619
-------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.5%
K. Hovnanian Enterprises Inc., Senior Subordinated
4,500 Notes 8.875% 4/01/12 Ba2 4,500,000
5,000 KB Home 8.625% 12/15/08 Ba2 5,206,260
-------------------------------------------------------------------------------------------------------------------------------
9,500 Total Household Durables 9,706,260
-------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.1%
600 NRG Energy Inc. 7.250% 2/01/14 B1 586,500
600 NRG Energy Inc. 7.375% 2/01/16 B1 586,500
-------------------------------------------------------------------------------------------------------------------------------
1,200 Total Independent Power Producers & Energy Traders 1,173,000
-------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.1%
1,000 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A- 978,430
-------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.4%
1,950 Global Cash Access LLC 8.750% 3/15/12 B- 2,064,563
4,750 SunGard Data Systems Inc., Series 144A 9.125% 8/15/13 B- 4,951,875
-------------------------------------------------------------------------------------------------------------------------------
6,700 Total IT Services 7,016,438
-------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.4%
3,000 Greenbrier Companies, Inc. 8.375% 5/15/15 B+ 3,078,750
2,000 Terex Corporation, Senior Subordinated Notes 10.375% 4/01/11 B+ 2,125,000
3,000 Terex Corporation, Senior Subordinated Notes 9.250% 7/15/11 B+ 3,202,500
-------------------------------------------------------------------------------------------------------------------------------
8,000 Total Machinery 8,406,250
-------------------------------------------------------------------------------------------------------------------------------
45
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.3%
$ 6,900 Allbritton Communications Company, Series B 7.750% 12/15/12 B- $ 6,865,500
2,000 AMC Entertainment Inc. 8.000% 3/01/14 B3 1,842,500
4,200 American Media Operations Inc., Series B 10.250% 5/01/09 Caa1 3,937,500
1,345 American Media Operations Inc. 8.875% 1/15/11 Caa1 1,197,050
5,000 Cablevision Systems Corporation, Series B 8.125% 8/15/09 B+ 5,112,500
3,000 Cablevision Systems Corporation 7.250% 7/15/08 B+ 3,018,750
2,000 Cablevision Systems Corporation 8.125% 7/15/09 B+ 2,045,000
2,000 Charter Communications Operating LLC, 144A 8.000% 4/30/12 B2 2,000,000
6,000 Cinemark USA Inc. 9.000% 2/01/13 B- 6,330,000
1,000 Dex Media West LLC 8.500% 8/15/10 B1 1,042,500
2,198 Dex Media West LLC 9.875% 8/15/13 B 2,393,062
4,000 Medianews Group Inc. 6.375% 4/01/14 B 3,520,000
2,950 Panamsat Corporation 9.000% 8/15/14 B 1,989,000
8,000 Primedia Inc., Senior Notes 8.875% 5/15/11 B 6,755,000
2,000 R. H. Donnelley Finance Corp 1 10.875% 12/15/12 B 2,205,000
2,000 Sun Media Corporation 7.625% 2/15/13 Ba3 2,022,500
6,200 Vertis Inc. 9.750% 4/01/09 B3 6,339,500
5,500 Young Broadcasting Inc., Senior Subordinated Note 10.000% 3/01/11 Caa2 4,922,500
2,000 Young Broadcasting Inc. 8.750% 1/15/14 Caa2 1,680,000
-------------------------------------------------------------------------------------------------------------------------------
68,293 Total Media 65,217,862
-------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.3%
3,000 Chaparral Steel Company 10.000% 7/15/13 B1 3,285,000
1,682 United States Steel Corporation 9.750% 5/15/10 Ba1 1,799,740
-------------------------------------------------------------------------------------------------------------------------------
4,682 Total Metals & Mining 5,084,740
-------------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL - 0.2%
3,600 Bon-Ton Department Stores Inc., 144A 10.250% 3/15/14 B2 3,357,000
-------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.1%
2,400 Dynegy Holdings Inc., 144A 8.375% 5/01/16 B2 2,376,000
500 Northwestern Corporation 5.875% 11/01/14 BBB- 492,359
-------------------------------------------------------------------------------------------------------------------------------
2,900 Total Multi-Utilities 2,868,359
-------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.7%
600 Chaparral Energy Inc., 144A 8.500% 12/01/15 B 600,000
4,345 Chesapeake Energy Corporation 7.750% 1/15/15 BB 4,377,588
300 Copano Energy LLC, 144A 8.125% 3/01/16 B 300,000
Hilcorp Energy I LP/Hilcorp Finance Company,
2,000 Series 144A 7.750% 11/01/15 B 1,920,000
2,000 Premcor Refining Group Inc. 7.500% 6/15/15 BBB- 2,067,684
3,000 SemGroup LP, 144A 8.750% 11/15/15 B1 3,000,000
1,500 Whiting Petroleum Corporation 7.000% 2/01/14 B 1,425,000
-------------------------------------------------------------------------------------------------------------------------------
13,745 Total Oil, Gas, & Consumable Fuels 13,690,272
-------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.4%
2,000 Georgia Pacific Corporation, Debentures 7.700% 6/15/15 B 1,920,000
5,000 Georgia Pacific Corporation, Notes 8.125% 5/15/11 B 5,000,000
-------------------------------------------------------------------------------------------------------------------------------
7,000 Total Paper & Forest Products 6,920,000
-------------------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS - 0.1%
1,600 Prestige Brands Inc. 9.250% 4/15/12 B- 1,576,000
-------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.1%
900 Saxon Capital Inc., 144A 12.000% 5/01/14 B 911,250
1,000 Trustreet Properties, Inc. 7.500% 4/01/15 B+ 990,000
500 Ventas Realty LP, Series WI 7.125% 6/01/15 BB+ 502,500
-------------------------------------------------------------------------------------------------------------------------------
2,400 Total Real Estate 2,403,750
-------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 0.1%
Avago Technologies Finance Pte. Ltd., Floating
3,400 Rate Note, 5.500% plus three-month LIBOR, 144A 10.125% 12/01/13 B 2,538,000
-------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.8%
7,000 Asbury Automotive Group Inc. 9.000% 6/15/12 B 5,970,000
1,000 Quiksilver Inc. 6.875% 4/15/15 BB- 935,000
46
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL (continued)
$ 8,000 Warnaco Inc., Senior Notes 8.875% 6/15/13 B+ $ 8,160,000
-------------------------------------------------------------------------------------------------------------------------------
16,000 Total Specialty Retail 15,065,000
-------------------------------------------------------------------------------------------------------------------------------
TEXTILES APPAREL & LUXURY GOODS - 0.2%
4,000 Jostens IH Corporation 7.625% 10/01/12 B- 3,900,000
-------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.1%
Caisse Nationale Des Caisses d'Epargne et de
2,000 Prevoyance 6.750% 1/27/49 A+ 1,899,910
-------------------------------------------------------------------------------------------------------------------------------
TRADING COS & DISTRIBUTORS - 0.1%
2,000 United Rentals North America Inc. 6.500% 2/15/12 B+ 1,900,000
-------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.2%
4,000 Nextel Communications, Inc., Series D 7.375% 8/01/15 A- 4,074,268
-------------------------------------------------------------------------------------------------------------------------------
279,586 TOTAL CORPORATE BONDS (COST $284,616,783) 277,125,395
-------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)/SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 31.5% (21.0% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 5.5%
6,273 BT Capital Trust, Series B1 7.900% 1/15/27 A2 $ 6,541,591
15,000 BT Institutional Capital Trust A, 144A 8.090% 12/01/26 A2 15,716,610
2,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 2,089,568
1,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 1,223,634
32,750 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 32,060,809
3,000 Compass Trust I, Series A+ 8.230% 1/15/27 A3 3,151,527
3,500 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 4,056,514
2,000 First Union Institutional Capital Securities I 8.040% 12/01/26 A1 2,092,348
15,500 Mellon Capital Trust I, Series A 7.720% 12/01/26 A2 16,190,711
9,000 State Street Institutional Capital Trust, 144A 8.035% 3/15/27 A1 9,463,329
12,419 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 13,126,573
-------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 105,713,214
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 17.8%
2,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 1,968,498
8,000 Abbey National Capital Trust I 8.963% 6/30/50 A 9,732,800
43,100 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 43,693,875
12,120 Bank One Capital III 8.750% 9/01/30 A1 14,996,815
1,974 BankAmerica Capital II, Series 2 8.000% 12/15/26 Aa3 2,067,601
BankAmerica Institutional Capital Trust, Series B,
2,600 144A 7.700% 12/31/26 Aa3 2,716,267
5,000 BankAmerica Institutional Trust, 144A 8.070% 12/31/26 Aa3 5,244,170
2,000 BankBoston Capital Trust I, Series B 8.250% 12/15/26 Aa3 2,099,928
1,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 1,049,236
4,000 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 4,415,284
700 Barclays Bank PLC 6.278% 12/15/55 Aa3 617,750
2,200 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 2,345,825
First Chicago NBD Institutional Capital Trust,
4,315 Series B, 144A 7.750% 12/01/26 A1 4,501,503
5,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 5,219,905
5,750 First Empire Capital Trust I 8.234% 2/01/27 Baa1 6,038,932
11,000 First Empire Capital Trust II 8.277% 6/01/27 Baa1 11,619,388
4,250 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 4,196,314
36,150 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 34,798,930
12,838 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 14,398,741
14,000 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 19,185,656
19,605 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A2 21,787,272
4,000 KeyCorp Capital III 7.750% 7/15/29 A3 4,426,884
15,000 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 15,671,415
17,000 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 16,663,349
1,000 Nordbanken AB, 144A 8.950% 11/29/49 A 1,087,171
12,500 North Fork Capital Trust II 8.000% 12/15/27 A3 13,250,100
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 1,826,118
14,750 RBS Capital Trust B 6.800% 12/31/49 A1 14,218,263
2,000 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 2,133,316
1,202 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 1,252,537
47
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
PRINCIPAL
AMOUNT
(000)/SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (3) VALUE
-------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
6,200 Royal Bank of Scotland Group PLC 9.118% 3/31/49 A1 $ 6,814,234
4,472 St. George Funding Company LLC, 144A 8.485% 12/31/47 A3 4,751,469
2,250 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 2,511,666
13,330 Unicredito Italiano Capital Trust, 144A 9.200% 4/05/51 A- 14,840,409
3,800 Union Planters Capital Trust A 8.200% 12/15/26 A2 3,975,351
Washington Mutual Preferred Funding Cayman, Series
21,300 A-1, 144A 7.250% 3/15/49 BBB 20,291,914
Washington Mutual Preferred Funding Delaware,
7,200 Series A-1, 144A 6.534% 3/15/49 BBB 6,922,130
2,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 2,101,270
-------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 345,432,286
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 2.1%
9,000 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 9,003,501
1,000 Citigroup Capital III 7.625% 12/01/36 Aa2 1,095,154
2,500 Fulton Capital Trust I 6.290% 2/01/36 A3 2,272,515
3,000 JPM Capital Trust II 7.950% 2/01/27 A1 3,145,767
23,600 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 24,259,809
-------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 39,776,746
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.2%
19,080 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 22,413,038
-------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.3%
5,700 Stanley Works Capital Trust I, 144A 5.902% 12/01/45 Baa1 5,321,856
-------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.9%
10,000 American General Capital II 8.500% 7/01/30 Aa3 12,450,440
4,980 American General Institutional Capital, 144A 8.125% 3/15/46 Aa3 5,886,021
14,250 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 13,630,652
5,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 4,993,250
3,750 Prudential PLC 6.500% 6/29/49 A+ 3,457,785
Sun Life Canada Capital Trust, Capital Securities,
13,500 144A 8.526% 5/06/47 A+ 14,292,639
18,859 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 19,940,601
-------------------------------------------------------------------------------------------------------------------------------
Total Insurance 74,651,388
----------------------------------------------------------------------------------------------------------------
OIL, GAS, & CONSUMABLE FUELS - 0.5%
12,355 KN Capital Trust III 7.630% 4/15/28 Baa3 10,366,426
-------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.2%
3,365 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 3,536,882
-------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST
$644,929,279) 607,211,836
----------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) VALUE
-------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES -- 1.2% (0.8% OF TOTAL
INVESTMENTS)
Flaherty and Crumrine/Claymore Preferred
268,582 Securities Income Fund Inc. $ 5,237,349
Flaherty and Crumrine/Claymore Total Return Fund
150,633 Inc. 2,880,103
6,495 John Hancock Preferred Income Fund 146,073
24,372 John Hancock Preferred Income Fund II 539,840
330,281 John Hancock Preferred Income Fund III 6,519,747
95,073 Preferred and Corporate Strategies Fund Inc. 1,895,756
353,379 Preferred Income Strategies Fund Inc. 6,700,066
-------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $24,205,922) 23,918,934
----------------------------------------------------------------------------------------------------------------
48
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 4.2% (2.8% OF TOTAL INVESTMENTS)
Repurchase Agreement with State Street Bank, dated
$ 80,684 6/30/06, repurchase price 4.130% 7/03/06 $ 80,684,441
$80,712,210, collateralized by $82,715,000, U.S.
Treasury Notes 4.875%, due 4/30/11, value
$82,301,425
-----------
-----------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $80,684,441) 80,684,441
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $2,949,635,171) - 150.4% 2,897,285,395
--------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - (0.3)% (6,434,070)
--------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, AT LIQUIDATION VALUE - (50.1)% (965,000,000)
--------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $1,925,851,325
--------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS OUTSTANDING AT JUNE 30, 2006:
FIXED RATE
PAID FIXED RATE FLOATING RATE FLOATING RATE UNREALIZED
NOTIONAL BY THE FUND PAYMENT RECEIVED PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT (ANNUALIZED) FREQUENCY BY THE FUND (8) FREQUENCY DATE (DEPRECIATION)
----------------------------------------------------------------------------------------------------------------------
JPMorgan Chase $97,000,000 3.395% Monthly 5.138% Monthly 7/06/06 $ (209,668)
JPMorgan Chase 97,000,000 3.360 Monthly 5.302 Monthly 1/23/09 5,111,266
Morgan Stanley 97,000,000 3.048 Monthly 5.302 Monthly 1/23/08 3,697,312
Royal Bank of
Canada 97,000,000 2.679 Monthly 5.302 Monthly 1/23/07 1,607,648
----------------------------------------------------------------------------------------------------------------------
$10,206,558
----------------------------------------------------------------------------------------------------------------------
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Non-income producing.
(3) Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by
Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be
below investment grade.
(4) Senior Loans in the Fund's portfolio generally are subject to mandatory and/or optional
prepayment. Because of these mandatory prepayment conditions and because there may be
significant economic incentives for a Borrower to prepay, prepayments of Senior Loans in
the Fund's portfolio may occur. As a result, the actual remaining maturity of Senior Loans
held in the Fund's portfolio may be substantially less than the stated maturities shown.
(5) Senior Loans in which the Fund invests generally pay interest at rates which are
periodically adjusted by reference to a base short-term, floating lending rate plus an
assigned fixed rate. These floating lending rates are generally (i) the lending rate
referenced by the London Inter-Bank Offered Rate ('LIBOR'), or (ii) the prime rate offered
by one or more major United States banks. Senior Loans may be considered restricted in
that the Fund ordinarily is contractually obligated to receive approval from the Agent
Bank and/or Borrower prior to the disposition of a Senior Loan.
(6) Investment is eligible for the Dividends Received Deduction.
(7) Non-income producing security, in the case of a bond, generally denotes that the issuer
has defaulted on the payment of principal or interest or has filed for bankruptcy.
(8) Based on USD-LIBOR (United States Dollar-London Interbank Offered Rate).
N/R Not rated.
WI/DD Purchased on a when-issued or delayed delivery basis.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CBTCS Corporate Backed Trust Certificates.
CORTS Corporate Backed Trust Securities.
PCARS Public Credit and Repackaged Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
TBD Senior Loan purchased on a when-issued or delayed-delivery basis. Certain details
associated with this purchase are not known prior to the settlement date of the
transaction. In addition, Senior Loans typically trade without accrued interest and
therefore a weighted average coupon rate is not available prior to settlement. At
settlement, if still unknown, the borrower or counterparty will provide the Fund with the
final weighted average coupon rate and maturity date.
See accompanying notes to financial statements.
49
Statement of
ASSETS AND LIABILITIES June 30, 2006 (Unaudited)
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
-------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $2,100,146,620 and
$2,949,635,171, respectively) $2,069,348,139 $2,897,285,395
Cash 71,805 --
Unrealized appreciation on interest rate swaps 7,737,752 10,206,558
Receivables:
Dividends 2,584,116 2,534,504
Interest 10,480,195 16,199,507
Investments sold 12,871,245 27,140,834
Reclaims -- 69,108
Other assets 131,462 123,298
-------------------------------------------------------------------------------------------------
Total assets 2,103,224,714 2,953,559,204
-------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 34,203,812 60,616,057
Accrued expenses:
Management fees 898,356 1,215,309
Other 378,927 470,566
FundPreferred shares dividends payable 322,331 405,947
-------------------------------------------------------------------------------------------------
Total liabilities 35,803,426 62,707,879
-------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 708,000,000 965,000,000
-------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $1,359,421,288 $1,925,851,325
-------------------------------------------------------------------------------------------------
Common shares outstanding 99,690,977 140,495,800
-------------------------------------------------------------------------------------------------
Net asset value per Common share outstanding (net assets
applicable to
Common shares, divided by Common shares outstanding) $ 13.64 $ 13.71
-------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
-------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 996,910 $ 1,404,958
Paid-in surplus 1,411,120,142 1,990,088,778
Undistributed (Over-distribution of) net investment income (41,403,764) (47,101,918)
Accumulated net realized gain (loss) from investments and
derivative transactions 11,768,729 23,602,725
Net unrealized appreciation (depreciation) of investments
and derivative transactions (23,060,729) (42,143,218)
-------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $1,359,421,288 $1,925,851,325
-------------------------------------------------------------------------------------------------
Authorized shares:
Common Unlimited Unlimited
FundPreferred Unlimited Unlimited
-------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
50
Statement of
OPERATIONS Six Months Ended June 30, 2006 (Unaudited)
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
---------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 29,750,741 $ 39,340,145
Interest 29,156,019 44,951,951
---------------------------------------------------------------------------------------------
Total investment income 58,906,760 84,292,096
---------------------------------------------------------------------------------------------
EXPENSES
Management fees 8,891,662 12,166,761
FundPreferred shares - auction fees 877,727 1,196,336
FundPreferred shares - dividend disbursing agent fees 17,989 26,531
Shareholders' servicing agent fees and expenses 7,160 7,438
Custodian's fees and expenses 257,475 340,356
Trustees' fees and expenses 30,457 35,741
Professional fees 33,036 60,004
Shareholders' reports - printing and mailing expenses 129,265 181,179
Stock exchange listing fees 18,144 25,553
Investor relations expense 58,056 84,777
Other expenses 27,466 35,120
---------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 10,348,437 14,159,796
Custodian fee credit (18,244) (7,411)
Expense reimbursement (3,355,587) (4,684,184)
---------------------------------------------------------------------------------------------
Net expenses 6,974,606 9,468,201
---------------------------------------------------------------------------------------------
Net investment income 51,932,154 74,823,895
---------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments 9,027,476 20,573,173
Interest rate swaps 2,833,738 3,358,315
Change in net unrealized appreciation (depreciation) of:
Investments (50,398,217) (72,955,745)
Interest rate swaps 97,991 (148,092)
---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (38,439,012) (49,172,349)
---------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From and in excess of net investment income (15,645,314) (21,502,164)
From accumulated net realized gains -- --
---------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (15,645,314) (21,502,164)
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $ (2,152,172) $ 4,149,382
---------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
51
Statement of
CHANGES IN NET ASSETS (Unaudited)
PREFERRED AND PREFERRED AND
CONVERTIBLE INCOME (JPC) CONVERTIBLE INCOME 2 (JQC)
-------------------------------- ----------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
6/30/06 12/31/05 6/30/06 12/31/05
---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 51,932,154 $ 112,807,428 $ 74,823,895 $ 157,318,683
Net realized gain (loss) from:
Investments 9,027,476 19,497,960 20,573,173 12,860,799
Futures -- (425,117) -- 245,100
Interest rate swaps 2,833,738 1,556,692 3,358,315 2,000,191
Change in net unrealized appreciation (depreciation) of:
Investments (50,398,217) (96,969,970) (72,955,745) (119,738,770)
Futures -- 325,875 -- 424,500
Interest rate swaps 97,991 3,055,918 (148,092) 4,331,569
Distributions to FundPreferred shareholders:
From and in excess of net investment income (15,645,314) -- (21,502,164) --
From net investment income -- (21,981,246) -- (29,789,687)
From accumulated net realized gains -- (482,035) -- (944,714)
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to
Common shares from operations (2,152,172) 17,385,505 4,149,382 26,707,671
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (52,914,790) -- (73,988,630) --
From net investment income -- (114,775,658) -- (153,140,768)
From accumulated net realized gains -- (16,385,704) -- (12,048,934)
---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares
from distributions to Common shareholders (52,914,790) (131,161,362) (73,988,630) (165,189,702)
---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares repurchased (5,457,666) -- (6,388,907) --
FundPreferred shares offering costs adjustments -- -- -- (1,595)
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to
Common shares from capital share transactions (5,457,666) -- (6,388,907) (1,595)
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to
Common shares (60,524,628) (113,775,857) (76,228,155) (138,483,626)
Net assets applicable to Common shares at the beginning
of period 1,419,945,916 1,533,721,773 2,002,079,480 2,140,563,106
---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of
period $1,359,421,288 $1,419,945,916 $1,925,851,325 $2,002,079,480
---------------------------------------------------------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment
income at the end of period $ (41,403,764) $ (24,775,814) $ (47,101,918) $ (26,435,019)
---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
52
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The funds (the "Funds") covered in this report and their corresponding Common
share New York Stock Exchange symbols are Nuveen Preferred and Convertible
Income Fund (JPC) and Nuveen Preferred and Convertible Income Fund 2 (JQC). The
Funds are registered under the Investment Company Act of 1940, as amended, as
diversified, closed-end management investment companies.
Each Fund seeks to provide high income by investing primarily in a portfolio of
preferred securities, convertible securities, and, to a lesser degree, high
yield and equity securities.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities and instruments, other than futures, are generally
valued at the last sales price on the exchange on which such securities or
instruments are primarily traded. Securities or instruments traded on an
exchange for which there are no transactions on a given day or securities or
instruments not listed on an exchange are valued at the mean of the closing bid
and asked prices. Securities traded on Nasdaq are valued at the Nasdaq Official
Closing Price. Futures contracts are valued using the closing settlement price
or, in the absence of such a price, at the mean of the bid and asked prices.
Prices of other derivative instruments are provided by an independent pricing
service approved by the Funds' Board of Trustees. The prices of fixed-income
securities are generally also provided by an independent pricing service
approved by the Funds' Board of Trustees and based on the mean between the bid
and asked prices. When price quotes are not readily available, the pricing
service or, in the absence of a pricing service for a particular security or
instrument, the Board of Trustees of the Funds, or its designee, may establish
fair market value using a wide variety of market data including yields or prices
of securities of comparable quality, type of issue, coupon, maturity and rating,
market quotes or indications of value from security dealers, evaluations of
anticipated cash flows or collateral, general market conditions and other
information and analysis, including the obligor's credit characteristics
considered relevant by the pricing service or the Board of Trustee's designee.
Short-term investments are valued at amortized cost, which approximates market
value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. Investments purchased on a when-issued or delayed
delivery basis may have extended settlement periods. Any investments so
purchased are subject to market fluctuation during this period. The Funds have
instructed the custodian to segregate assets with a current value at least equal
to the amount of the when-issued/delayed delivery purchase commitments. At June
30, 2006, Preferred and Convertible Income (JPC) and Preferred and Convertible
Income 2 (JQC) had outstanding when-issued purchase commitments of $2,500,000
and $10,364,688, respectively.
Investment Income
Dividend income on securities purchased and dividend expense on securities sold
short are 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.
Federal Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to distribute substantially all net investment income and net capital
gains to shareholders and to otherwise comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no federal income tax provision is required.
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 accounting principles generally
accepted in the United States.
53
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
The Funds make monthly cash distributions to Common shareholders of a stated
dollar amount per share. Effective with the distribution payable June 1, 2006,
and subject to approval and oversight by the Funds' Board of Trustees, each Fund
began to make distributions that seek to maintain a stable distribution level
designed to deliver the long-term return potential of each Fund's investment
strategy through regular monthly distributions (a "Managed Distribution
Policy"). Total distributions during a calendar year generally will be made from
each Fund's net investment income, net realized capital gains and net unrealized
capital gains in the Fund's portfolio, if any. The portion of distributions paid
from net unrealized gains, if any, would be distributed from the Fund's assets
and would be treated by shareholders as a non-taxable distribution for tax
purposes. If a Fund's total return on net asset value exceeds total
distributions during a calendar year, the excess will be reflected as an
increase in net asset value per share. In the event that total distributions
during a calendar year exceed a Fund's total return on net asset value, the
difference will be treated as a return of capital for tax purposes and will
reduce net asset value per share. The final determination of the source and
character of all distributions for the fiscal year are made after the end of the
fiscal year and reflected in the financial statements contained in the annual
report as of December 31 each year.
Real Estate Investment Trust ("REIT") distributions received by the Funds are
generally comprised of ordinary income, long-term and short-term capital gains,
and a return of REIT capital. The actual character of amounts received during
the period are not known until after the fiscal year-end. For the fiscal year
ended December 31, 2005, the character of distributions to the Funds from the
REITs was as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
-------------------------------------------------------------------------------------------------------
Ordinary income 66.92% 71.62%
Long-term and short-term capital gains 33.08 28.38
Return of REIT capital -- --
-------------------------------------------------------------------------------------------------------
For the fiscal year ended December 31, 2005, the Funds applied the actual
character of distributions reported by the REITs in which the Funds invest to
their receipts from the REITs. If a REIT held in the portfolio of investments
did not report the actual character of its distributions during the period, the
Funds treated the distributions as ordinary income.
For the six months ended June 30, 2006, the Funds applied the actual percentages
for the twelve months ended December 31, 2005, described above, to its receipts
from the REITs and treated as income in the Statement of Operations only the
amount of ordinary income so calculated. The Funds adjust that estimated
breakdown of income type (and consequently their net investment income) as
necessary early in the following calendar year when the REITs inform their
shareholders of the actual breakdown of income type.
The actual character of distributions made by the Funds during the fiscal year
ended December 31, 2005, are reflected in the accompanying financial statements.
The distributions made by the Funds during the six months ended June 30, 2006,
are provisionally classified as being "From and in excess of net investment
income", and those distributions will be classified as being from net investment
income, net realized capital gains and/or a return of capital for tax purposes
after the fiscal year end. For purposes of calculating "Undistributed (Over-
distribution of) net investment income as of June 30, 2006, the distribution
amounts provisionally classified as "From and in excess of net investment
income" were treated as being entirely from net investment income. Consequently,
the financial statements at June 30, 2006, reflect an over-distribution of net
investment income.
54
FundPreferred Shares
The Funds have issued and outstanding FundPreferred shares, $25,000 stated value
per share, as a means of effecting financial leverage. Each Fund's FundPreferred
shares are issued in more than one Series. The dividend rate paid by the Funds
on each Series is determined every seven days, pursuant to a dutch auction
process overseen by the auction agent, and is payable at the end of each rate
period. The number of FundPreferred shares outstanding, by Series and in total,
for each Fund is as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
-------------------------------------------------------------------------------------------------------
Number of shares:
Series M 4,720 3,860
Series M2 -- 3,860
Series T 4,720 3,860
Series T2 -- 3,860
Series W 4,720 3,860
Series W2 -- 3,860
Series TH 4,720 3,860
Series TH2 -- 3,860
Series F 4,720 3,860
Series F2 4,720 3,860
-------------------------------------------------------------------------------------------------------
Total 28,320 38,600
-------------------------------------------------------------------------------------------------------
Interest Rate Swap Transactions
The Funds are authorized to invest in certain derivative financial instruments.
The Funds' use of interest rate swap transactions is intended to mitigate the
negative impact that an increase in short-term interest rates could have on
Common share net earnings as a result of leverage. Interest rate swap
transactions involve each Fund's agreement with the counterparty to pay a fixed
rate payment in exchange for the counterparty paying the Fund a variable rate
payment that is intended to approximate each Fund's variable rate payment
obligation on FundPreferred shares or any variable rate borrowing. The payment
obligation is based on the notional amount of the interest rate swap contract.
Interest rate swaps do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
the swap counterparty on such transactions is limited to the net amount of
interest payments that each Fund is to receive. Interest rate swap positions are
valued daily. Although there are economic advantages of entering into interest
rate swap transactions, there are also additional risks. The Funds help manage
the credit risks associated with interest rate swap transactions by entering
into agreements only with counterparties the Adviser believes have the financial
resources to honor their obligations and by having the Adviser continually
monitor the financial stability of the swap counterparties.
Futures Contracts
Each Fund may use futures contracts to hedge against changes in the values of
securities the Fund owns. Each Fund bears the market risk arising from changes
in the value of these financial instruments. At the time a Fund enters into a
futures contract, the Fund deposits and maintains as collateral an initial
margin as required by the exchange on which the transaction is affected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract.
Such receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses on futures contracts. Risk may arise from the
potential inability of the counterparty to meet the terms of the contract. When
a contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
time is was closed. At June 30, 2006, there were no open futures contracts in
either Fund.
Short Sales
The Funds are authorized to make short sales of securities if the Funds own at
least an equal amount of such securities or securities convertible into
securities of the same issuer. To secure its obligation to deliver securities
sold short, the Funds have instructed the custodian to segregate assets in an
equivalent amount of the securities sold short or securities convertible into or
exchangeable for such securities. The Fund is obligated to pay to the party to
which the securities were sold short, dividends declared on the stock by the
issuer and records such amounts as expense in the Statement of Operations. Short
sales are valued daily and the corresponding unrealized gains or losses are
included in "Change in net unrealized appreciation (depreciation) of
investments." At June 30, 2006, there were no outstanding short sales in either
Fund.
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.
55
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on each Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Funds' organizational documents, their Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Funds. In addition, in the normal course of business, the Funds
enter into contracts that provide general indemnifications to other parties. The
Funds' maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Funds that have not yet
occurred. However, the Funds have not had prior claims or losses pursuant to
these contracts and expect the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
On February 3, 2006, the Funds' Board of Trustees approved an open market share
repurchase program a part of a broad, ongoing effort designed to support the
market prices of the Funds' common shares. Under the terms of the program, each
Fund may repurchase up to 10% of its outstanding common shares.
Transactions in Common shares were as follows:
PREFERRED AND PREFERRED AND
CONVERTIBLE INCOME (JPC) CONVERTIBLE INCOME 2 (JQC)
----------------------------- -----------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
6/30/06 12/31/05 6/30/06 12/31/05
---------------------------------------------------------------------------------------------------------------------
Shares repurchased (432,200) -- (511,200) --
---------------------------------------------------------------------------------------------------------------------
Average price per share repurchased $12.63 -- $12.50 --
---------------------------------------------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales (including maturities but excluding short-term investments
and derivative transactions) during the six months ended June 30, 2006, were as
follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
-------------------------------------------------------------------------------------------------------
Purchases $582,569,539 $839,448,740
Sales and maturities 613,364,057 858,999,010
-------------------------------------------------------------------------------------------------------
56
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis based on the
information currently available to the Funds. Differences between amounts for
financial statement and federal income tax purposes are primarily due to timing
differences in the recognition of income and timing differences in recognizing
certain gains and losses on investment transactions.
At June 30, 2006, the cost of investments was as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
-------------------------------------------------------------------------------------------------------
Cost of investments $2,120,399,922 $2,979,465,155
-------------------------------------------------------------------------------------------------------
Gross unrealized appreciation and gross unrealized depreciation of investments
at June 30, 2006, were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
-------------------------------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 47,136,170 $ 53,019,304
Depreciation (98,187,953) (135,199,064)
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $ (51,051,783) $ (82,179,760)
-------------------------------------------------------------------------------------------------------
The tax components of undistributed net ordinary income and net long-term
capital gains at December 31, 2005, the Funds' last tax year end, were as
follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
-------------------------------------------------------------------------------------------------------
Undistributed net ordinary income * $247,471 $1,795,011
Undistributed net long-term capital gains -- --
-------------------------------------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
The tax character of distributions paid during the Funds' last tax year ended
December 31, 2005, was designated for purposes of the dividends paid deduction
as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
-------------------------------------------------------------------------------------------------------
Distributions from ordinary income * $136,580,519 $182,688,579
Distributions from net long-term capital gains 16,867,739 12,933,648
-------------------------------------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
Calculation of certain of the amounts presented above (namely, undistributed net
ordinary income for tax purposes) involves the application of complex aspects of
the Internal Revenue Code to certain securities held by the Funds. In
calculating the amount of taxable income derived from these securities,
management made assumptions as to the correct tax treatment of certain of those
securities and made estimates about the tax characteristics of income received
from those securities, based on information currently available to the Funds.
The use of these assumptions and estimates will not affect the qualification of
the Funds as regulated investment companies under Subchapter M of the Internal
Revenue Code, nor is it expected that these assumptions and estimates will be
used in computing taxable income for purposes of preparing the federal and state
income and excise tax returns.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Each Fund's management fee is separated into two components -- a complex-level
component, based on the aggregate amount of all fund assets managed by Nuveen
Asset Management (the "Adviser"), a wholly owned subsidiary of Nuveen
Investments, Inc. ("Nuveen"), and a specific fund-level component, based only on
the amount of assets within each individual fund. This pricing structure enables
Nuveen fund shareholders to benefit from growth in the assets within each
individual fund as well as from growth in the amount of complex-wide assets
managed by the Adviser.
57
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
The annual fund-level fee, payable monthly, for each Fund is based upon the
average daily Managed Assets of each Fund as follows:
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
---------------------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
---------------------------------------------------------------------------------------------
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the table below. As
of June 30, 2006, the complex-level fee rate was .1887%.
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE
---------------------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion(2) .1400
---------------------------------------------------------------------------------------------
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds in
the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level fee
rate for such complex-wide Managed Assets shall be .1400% until such time as
a different rate or rates is determined.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser is
responsible for the overall strategy and asset allocation decisions. The Adviser
has entered into Sub-Advisory Agreements with Spectrum Asset Management, Inc.
("Spectrum"), Froley, Revy Investment Co., Inc. ("Froley, Revy") and Symphony
Asset Management, LLC ("Symphony"). Spectrum manages the portion of the Funds'
investment portfolios allocated to preferred securities. Froley, Revy manages
the portion of the Funds' investment portfolios allocated to convertible
securities. Symphony manages the portion of the Funds' investment portfolios
allocated to debt securities. Spectrum, Froley, Revy and Symphony are
compensated for their services to the Funds from the management fees paid to the
Adviser. Spectrum also receives compensation on certain portfolio transactions
for providing brokerage services to the Funds.
The Funds pay no compensation directly to those of their Trustees who are
affiliated with the Adviser or to its Officers, all of whom receive remuneration
for their services to the Funds from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
58
For the first eight years of Preferred and Convertible Income's (JPC)
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
MARCH 31, MARCH 31,
------------------------------------------------------------
2003 * .32% 2008 .32%
2004 .32 2009 .24
2005 .32 2010 .16
2006 .32 2011 .08
2007 .32
------------------------------------------------------------
* From the commencement of operations.
The Adviser has not agreed to reimburse Preferred and Convertible Income (JPC)
for any portion of its fees and expenses beyond March 31, 2011.
For the first eight years of Preferred and Convertible Income 2's (JQC)
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,
------------------------------------------------------------
2003 * .32% 2008 .32%
2004 .32 2009 .24
2005 .32 2010 .16
2006 .32 2011 .08
2007 .32
------------------------------------------------------------
* From the commencement of operations.
The Adviser has not agreed to reimburse Preferred and Convertible Income 2 (JQC)
for any portion of its fees and expenses beyond June 30, 2011.
6. NEW ACCOUNTING PRONOUNCEMENT
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and does not expect the adoption of FIN 48
will have a significant impact on the net assets or results of operations of the
Funds.
7. SUBSEQUENT EVENT
Distributions to Common Shareholders
The Funds declared Common share distributions which were paid on August 1, 2006,
to shareholders of record on July 15, 2006, as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
-------------------------------------------------------------------------------------------------------
Distribution per share $.0950 $.0950
-------------------------------------------------------------------------------------------------------
59
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations
-----------------------------------------------------------------
Distributions
from Net Distributions
Beginning Investment from Capital
Common Net Income to Gains to
Share Net Realized/ FundPreferred FundPreferred
Net Asset Investment Unrealized Share- Share-
Value Income(b) Gain (Loss) holders+ holders+ Total
-----------------------------------------------------------------------------------------------------
PREFERRED AND CONVERTIBLE INCOME (JPC)
-----------------------------------------------------------------------------------------------------
Year Ended 12/31:
2006(a) $ 14.18 $ .52 $ (.37) $ (.16)* $ -- $ (.01)
2005 15.32 1.13 (.74) (.22) -- .17
8/01/04-12/31/04 14.73 .52 .85 (.04) (.01) 1.32
Year Ended 7/31:
2004 14.12 1.25 .71 (.08) -- 1.88
2003(c) 14.33 .30 (.02) (.02) -- .26
PREFERRED AND CONVERTIBLE INCOME 2 (JQC)
-----------------------------------------------------------------------------------------------------
Year Ended 12/31:
2006(a) 14.20 .53 (.34) (.15)* -- .04
2005 15.18 1.12 (.70) (.21) (.01) .20
8/01/04-12/31/04 14.33 .51 .90 (.05) -- 1.36
Year Ended 7/31:
2004 13.83 1.16 .73 (.08) -- 1.81
2003(d) 14.33 .04 (.53) -- -- (.49)
-----------------------------------------------------------------------------------------------------
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
--------------------- --------------------------------------------------------------------
PREFERRED AND CONVERT
---------------------
Year Ended 12/31:
2006(a) $ (.53)* $ -- $ (.53) $ -- $ 13.64 $ 12.29
2005 (1.15) (.16) (1.31) -- 14.18 11.97
8/01/04-12/31/04 (.50) (.23) (.73) -- 15.32 14.33
Year Ended 7/31:
2004 (1.22) (.05) (1.27) -- 14.73 13.95
2003(c) (.30) -- (.30) (.17) 14.12 14.57
PREFERRED AND CONVERT
---------------------
Year Ended 12/31:
2006(a) (.53)* -- (.53) -- 13.71 12.28
2005 (1.09) (.09) (1.18) -- 14.20 12.11
8/01/04-12/31/04 (.49) (.02) (.51) -- 15.18 13.87
Year Ended 7/31:
2004 (1.17) -- (1.17) (.14) 14.33 13.54
2003(d) -- -- -- (.01) 13.83 14.69
---------------------
* Represents distributions paid "From and in excess of net investment income"
for the six months ended June 30, 2006.
** Annualized.
*** Total Return on Market Value is the combination of changes in the market
price per share and the effect of reinvested dividend income and reinvested
capital gains distributions, if any, at the average price paid per share at
the time of reinvestment. Total Return on Common Share Net Asset Value is
the combination of changes in Common Share net asset value, reinvested
dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. Total returns are not annualized.
**** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ - Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders.
- Income ratios reflect income earned on assets attributable to
FundPreferred shares.
- Each ratio includes the effect of the dividend expense on securities sold
short as follows:
Ratio of Dividend Expense on Securities
Sold Short to Average Net Assets
Applicable to Common Shares
--------------------------------------------------
PREFERRED AND CONVERTIBLE INCOME
(JPC)
Year Ended 12/31:
2005 .01%
8/01/04-12/31/04 .04**
Year Ended 7/31:
2004 .03
2003(c) --
PREFERRED AND CONVERTIBLE INCOME 2
(JQC)
Year Ended 12/31:
2005 .01%
8/01/04-12/31/04 .05**
Year Ended 7/31:
2004 .03
2003(d) --
(a) For the six months ended June 30, 2006.
(b) Per share Net Investment Income is calculated using the average daily
shares method.
(c) For the period March 26, 2003 (commencement of operations) through July
31, 2003.
(d) For the period June 25, 2003 (commencement of operations) through July 31,
2003.
60
Ratios/Supplemental Data
----------------------------------------------------------------------------------------
Total Returns Before Credit/Reimbursement After Credit/Reimbursement****
------------------- ---------------------------- ------------------------------
Ratio of Net Ratio of Net
Based Ratio of Investment Ratio of Investment
on Expenses Income to Expenses Income to
Common Ending Net to Average Average to Average Average
Based Share Assets Net Assets Net Assets Net Assets Net Assets
on Net Applicable Applicable Applicable Applicable Applicable Portfolio
Market Asset to Common to Common to Common to Common to Common Turnover
Value*** Value*** Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
7.13% (.13)% $ 1,359,421 1.50%** 7.02%** 1.01%** 7.51%** 28%
(7.63) 1.32 1,419,946 1.50 7.25 1.03 7.72 37
8.06 9.07 1,533,722 1.51** 7.66** 1.04** 8.13** 13
4.34 13.44 1,474,983 1.53 7.90 1.05 8.37 19
(.89) .58 1,412,983 1.29** 5.67** .87** 6.09** 21
-------------------------------------------------------------------------------------------------------------------
5.79 .42 1,925,851 1.45** 7.17** .97** 7.65** 29
(4.40) 1.41 2,002,079 1.46 7.25 .99 7.72 34
6.20 9.59 2,140,563 1.47** 7.81** 1.00** 8.28** 13
.10 12.25 2,021,258 1.47 7.51 1.00 7.98 27
(2.07) (3.49) 1,950,622 .97** 2.86** .65** 3.18** 5
-------------------------------------------------------------------------------------------------------------------
FundPreferred Shares at End of Period
---------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Per Coverage
(000) Share Per Share
--- ---------------------------------------
---
$ 708,000 $ 25,000 $ 73,002
708,000 25,000 75,139
708,000 25,000 79,157
708,000 25,000 77,083
708,000 25,000 74,893
---
965,000 25,000 74,893
965,000 25,000 76,867
965,000 25,000 80,455
965,000 25,000 77,364
-- -- --
---
See accompanying notes to financial statements.
61
ANNUAL INVESTMENT
MANAGEMENT AGREEMENT
APPROVAL PROCESS
The Board of Trustees is responsible for overseeing the performance of the
investment adviser to the Funds and determining whether to continue the advisory
arrangements. At a meeting held on May 23-25, 2006 (the "May Meeting"), the
Board of Trustees of the Funds, including the independent Trustees, unanimously
approved the continuance of the Investment Management Agreement between each
Fund and NAM and the Sub-Advisory Agreements between NAM and Spectrum, Froley,
Revy and Symphony, respectively (each, a "Sub-Adviser"). NAM and the
Sub-Advisers are each a "Fund Adviser."
THE APPROVAL PROCESS
During the course of the year, the Board received a wide variety of materials
relating to the services provided by the Fund Advisers and the performance of
each Fund. To assist the Board in its evaluation of the advisory contract with a
Fund Adviser at the May Meeting, the independent Trustees received extensive
materials in advance of their meeting which outlined, among other things:
- the nature, extent and quality of services provided by the Fund Adviser;
- the organization and business operations of the Fund Adviser, including
the responsibilities of various departments and key personnel;
- the Fund's past performance, the Fund's performance compared to funds of
similar investment objectives compiled by an independent third party and
with recognized and/or customized benchmarks (as appropriate);
- the profitability of the Fund Adviser and certain industry profitability
analyses for unaffiliated advisers;
- the expenses of the Fund Adviser in providing the various services;
- the advisory fees (gross and net management fees) and total expense ratios
of the Fund, including comparisons of such fees and expenses with those of
comparable, unaffiliated funds based on information and data provided by
Lipper (the "Peer Universe") as well as compared to a subset of funds
within the Peer Universe (the "Peer Group") to the respective Fund (as
applicable);
- the advisory fees the Fund Adviser assesses to other types of investment
products or clients;
- the soft dollar practices of the Fund Adviser, if any; and
- from independent legal counsel, a legal memorandum describing, among other
things, the duties of the Trustees under the Investment Company Act of
1940 (the "1940 Act") as well as the general principles of relevant state
law in reviewing and approving advisory contracts; the requirements of the
1940 Act in such matters; an adviser's fiduciary duty with respect to
advisory agreements and compensation; the standards used by courts in
determining whether investment company boards of directors have fulfilled
their duties and factors to be considered by the board in voting on
advisory agreements.
At the May Meeting, NAM made a presentation to and responded to questions from
the Board. After the presentations and after reviewing the written materials,
the independent Trustees met privately with their legal counsel to review the
Board's duties in reviewing advisory contracts and consider the renewal of the
advisory contracts. It is with this background that the Trustees considered each
advisory contract (which includes the Sub-Advisory Agreements) with the
respective Fund Adviser. The independent Trustees, in consultation with
independent counsel, reviewed the factors set out in judicial decisions and SEC
directives relating to the renewal of advisory contracts. As outlined in more
detail below, the Trustees considered all factors they believed relevant with
respect to each Fund, including the following: (a) the nature, extent and
quality of the services to be provided by the Fund Adviser; (b) the investment
performance of the Fund and the Fund Adviser; (c) the costs of the services to
be provided and profitability of the Fund Adviser and its affiliates; (d) the
extent to which economies of scale would be realized as the Fund grows; and (e)
whether fee levels reflect these economies of scale for the benefit of Fund
investors.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In reviewing the Fund Advisers, the Trustees considered the nature, extent and
quality of the respective Fund Adviser's services. The Trustees reviewed
materials outlining, among other things, the Fund Adviser's organization and
business; the types of services that the Fund Adviser or its affiliates provide
and are expected to provide to the Funds; the performance record of the
applicable Fund (as described in further detail below); and any initiatives
Nuveen has taken for its fund product line. In connection with their continued
service as Trustees, the Trustees also have a good understanding of each Fund
Adviser's organization, operations and personnel. In this regard, the Trustees
are familiar with and have evaluated the professional experience, qualifications
and credentials of the Fund Adviser's personnel. With respect to each
Sub-Adviser, the Trustees also received and reviewed an evaluation of the
Sub-Adviser from NAM. Such evaluation outlined, among other things, the
Sub-Adviser's organizational history, client base, product mix, investment team
and any changes thereto, investment process and any changes to its investment
strategy, the Fund's investment objectives and performance (as applicable). The
Trustees noted that NAM recommended the renewal of the
62
Sub-Advisory Agreements and considered the basis for such recommendation and any
qualifications in connection therewith. Given the Trustees' experience with the
Funds (including any other Nuveen funds advised by a Fund Adviser) and each Fund
Adviser, the Trustees recognized and considered the quality of their investment
processes in making portfolio management decisions as well as any refinements or
improvements thereto. In this regard, the Trustees considered the continued
quality of the Fund Adviser's investment process in making portfolio management
decisions as well as any additional refinements and improvements adopted to the
portfolio management processes.
In addition to advisory services, the independent Trustees considered the
quality of any administrative or non-advisory services provided. With respect to
each Sub-Adviser, the independent Trustees noted that each respective
Sub-Advisory Agreement was essentially an agreement for portfolio management
services only and the Sub-Adviser was not expected to supply other significant
administrative services to the Funds.
With respect to NAM, NAM provides the Funds with such administrative and other
services (exclusive of, and in addition to, any such services provided by others
for the Funds) and officers and other personnel as are necessary for the
operations of the respective Fund. In connection with the review of the
Investment Management Agreement, the Trustees considered the extent and quality
of these other services which include, among other things, providing: product
management (e.g., product positioning, performance benchmarking, risk
management); fund administration (e.g., daily net asset value pricing and
reconciliation, tax reporting, fulfilling regulatory filing requirements);
oversight of third party service providers; administration of board relations
(e.g., organizing board meetings and preparing related materials); compliance
(e.g., monitoring compliance with investment policies and guidelines and
regulatory requirements); and legal support (e.g., helping prepare and file
registration statements, amendments thereto, proxy statements and responding to
regulatory requests and/or inquiries). As the Funds operate in a highly
regulated industry and given the importance of compliance, the Trustees
considered, in particular, the additions of experienced personnel to the
compliance teams and the enhancements to technology and related systems to
support the compliance activities for the Funds (including a new reporting
system for quarterly portfolio holdings). In addition to the above, because the
Funds utilize Sub-Advisers, the Trustees also considered NAM's ability and
procedures to monitor each respective Sub-Adviser's performance, business
practices and compliance policies and procedures. In this regard, the Trustees
noted the enhancements in the investment oversight process, including increased
site visits and departments participating in investment oversight.
In addition to the foregoing, the Trustees also noted the additional services
that the Fund Adviser or its affiliates provide to closed-end funds, including,
in particular, secondary market support activities. The Trustees recognized
Nuveen's continued commitment to supporting the secondary market for the common
shares of its closed-end funds through a variety of initiatives designed to
raise investor and analyst awareness and understanding of closed-end funds.
These efforts include providing advertising and other media relations programs,
continued contact with analysts, maintaining and enhancing its website for
closed-end funds, and targeted advisor communication programs. With respect to
Funds that utilize leverage through the issuance of preferred shares, the
Trustees noted Nuveen's continued support for the preferred shares by
maintaining, among other things, an in-house preferred trading desk; designating
a product manager whose responsibilities include creating and disseminating
product information and managing relations in connection with the preferred
share auction; and maintaining systems necessary to test compliance with rating
agency requirements.
Based on their review, the Trustees found that, overall, the nature, extent and
quality of services provided (and expected to be provided) to the respective
Funds under the Investment Management Agreement or Sub-Advisory Agreement, as
applicable, were of a high level and were satisfactory.
B. THE INVESTMENT PERFORMANCE OF THE FUND AND FUND ADVISERS
The Board considered the investment performance for each Fund, including the
Fund's historic performance as well as its performance compared to funds with
similar investment objectives identified by an independent third party
(the"Performance Peer Group") and recognized and/or customized benchmarks (as
applicable). In evaluating the performance information, in certain instances,
the Trustees noted that the closest Performance Peer Group for a Fund still may
not adequately reflect such Fund's investment objectives, strategies and
portfolio duration, thereby limiting the usefulness of the comparisons of such
Fund's performance with that of the Performance Peer Group (such as, the Nuveen
Diversified Dividend and Income Fund, Nuveen Preferred and Convertible Income
Fund, Nuveen Preferred and Convertible Income Fund 2, Nuveen Tax-Advantaged
Floating Rate Fund, and the Nuveen Real Estate Income Fund).
In reviewing performance, the Trustees reviewed performance information
including, among other things, total return information compared with the Fund's
Performance Peer Group as well as recognized and/or customized benchmarks (as
appropriate) for the one-, three- and five-year periods (as applicable) ending
December 31, 2005. This information supplements the Fund performance information
provided to the Board at each of their quarterly meetings. Based on their
review, the Trustees determined that the respective Fund's absolute and relative
investment performance over time had been satisfactory.
C. FEES, EXPENSES AND PROFITABILITY
1. FEES AND EXPENSES
In evaluating the management fees and expenses of a Fund, the Board reviewed,
among other things, the Fund's advisory fees (net and gross management fees)
and total expense ratios (before and after expense reimbursements and/or
waivers) in absolute terms as well as comparisons to the gross management
fees (before waivers), net management fees (after waivers) and total expense
ratios (before and after waivers) of comparable funds in the Peer Universe
and the Peer Group. The Trustees reviewed data regarding the construction of
Peer Groups as well as the methods of measurement for the fee and expense
analysis and the performance analysis. In certain cases, due to the small
number of peers in the Peer Universe, the Peer
63
ANNUAL INVESTMENT
MANAGEMENT AGREEMENT APPROVAL PROCESS (continued)
Universe and the Peer Group may be the same. Further, the Trustees recognized
that in certain cases the closest Peer Universe and/or Peer Group may not
adequately reflect the Fund's investment objectives and strategies limiting
the usefulness of comparisons. In reviewing comparisons, the Trustees also
considered the size of the Peer Universe and/or Peer Group, the composition
of the Peer Group (including differences in the use of leverage) as well as
differing levels of fee waivers and/or expense reimbursements. In this
regard, the Trustees considered the fund-level and complex-wide breakpoint
schedules (described in further detail below) and any fee waivers and
reimbursements provided by Nuveen (applicable, in particular, for certain
funds launched since 1999). Based on their review of the fee and expense
information provided, the Trustees determined that each Fund's net total
expense ratio was within an acceptable range compared to peers.
2. COMPARISONS WITH THE FEES OF OTHER CLIENTS
The Trustees further reviewed data comparing the advisory fees of NAM with
fees NAM charges to other clients (such as separate managed accounts and
funds that are not offered by Nuveen Investments but are sub-advised by one
of Nuveen's investment management teams). In general, the advisory fees
charged for separate accounts are somewhat lower than the advisory fees
assessed to the Funds. The Trustees recognized that the differences in fees
are attributable to a variety of factors, including the differences in
services provided, product distribution, portfolio investment policies,
investor profiles, account sizes and regulatory requirements. The Trustees
noted, in particular, that the range of services provided to the Funds is
more extensive than that provided to managed separate accounts. As described
in further detail above, such additional services include, but are not
limited to, providing: product management, fund administration, oversight of
third party service providers, administration of board relations, and legal
support. Funds further operate in a highly regulated industry requiring
extensive compliance functions compared to the other investment products. In
addition to the costs of the additional services, administrative costs may
also be greater for funds as the average account size for separate accounts
is notably larger than the retail accounts of funds. Given the differences in
the product structures, particularly the extensive services provided to
closed-end funds, the Trustees believe such facts justify the different
levels of fees.
In considering the advisory fees of a Sub-Adviser, the Trustees also
considered the pricing schedule that the Sub-Adviser charges for similar
investment management services for other sponsors or clients. With respect to
Symphony, the Trustees reviewed the generally higher fees for hedge funds and
accounts it manages, which include performance fees.
3. PROFITABILITY OF FUND ADVISERS
In conjunction with its review of fees, the Trustees also considered the
profitability of Nuveen Investments for advisory activities (which
incorporated Nuveen's wholly-owned affiliated sub-advisers). The Trustees
reviewed data comparing Nuveen's profitability with other fund sponsors
prepared by three independent third party service providers as well as
comparisons of the revenues, expenses and profits margins of various
unaffiliated management firms with similar amounts of assets under management
prepared by Nuveen. The Trustees further reviewed the 2005 Annual Report for
Nuveen Investments. In considering profitability, the Trustees recognized the
inherent limitations in determining profitability as well as the difficulties
in comparing the profitability of other unaffiliated advisers. Profitability
may be affected by numerous factors, including the methodology for allocating
expenses, the adviser's business mix, the types of funds managed, the
adviser's capital structure and cost of capital. Further, individual fund or
product line profitability of other sponsors is generally not publicly
available. Accordingly, the profitability information that is publicly
available from various investment advisory or management firms may not be
representative of the industry.
Notwithstanding the foregoing, in reviewing profitability, the Trustees reviewed
Nuveen's methodology and assumptions for allocating expenses across product
lines to determine profitability. In this regard, the methods of allocation used
appeared reasonable. The Trustees also, to the extent available, compared
Nuveen's profitability margins (including pre- and post-marketing profit
margins) with the profitability of various unaffiliated management firms. The
Trustees noted that Nuveen's profitability is enhanced due to its efficient
internal business model. The Trustees also recognized that while a number of
factors affect profitability, Nuveen's profitability may change as fee waivers
and/or expense reimbursement commitments of Nuveen to various funds in the
Nuveen complex expire. To keep apprised of profitability and developments that
may affect profitability, the Trustees have requested profitability analysis be
provided periodically during the year. With respect to unaffiliated Sub-Advisers
(i.e., Spectrum and Froley, Revy), the Trustees also considered the
Sub-Adviser's revenues from serving as a Sub-Adviser to the Funds, expenses
(including the basis for allocating expenses) and profitability margins (pre-
and post-tax). Based on their review, the Trustees were satisfied that the
respective Fund Adviser's level of profitability was reasonable in light of the
services provided.
In evaluating the reasonableness of the compensation, the Trustees also
considered any other revenues paid to a Fund Adviser as well as any indirect
benefits (such as soft dollar arrangements, if any) the Fund Adviser and its
affiliates are expected to receive that are directly attributable to their
management of the Funds, if any. See Section E below for additional information.
Based on their review of the overall fee arrangements of the applicable Fund,
the Trustees determined that the advisory fees and expenses of the respective
Fund were reasonable.
64
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
With respect to economies of scale, the Trustees recognized the potential
benefits resulting from the costs of a fund being spread over a larger asset
base as a fund grows. To help ensure the shareholders share in these benefits,
the Trustees have reviewed and considered the breakpoints in the advisory fee
schedules that reduce advisory fees as the applicable Fund's assets grow. In
addition to advisory fee breakpoints as assets in a respective Fund rise, after
lengthy discussions with management, the Board also approved a complex-wide fee
arrangement that was introduced on August 1, 2004. Pursuant to the complex-wide
fee arrangement, the fees of the funds in the Nuveen complex, including the
Funds, are reduced as the assets in the fund complex reach certain levels. In
evaluating the complex-wide fee arrangement, the Trustees considered, among
other things, the historic and expected fee savings to shareholders as assets
grow, the amount of fee reductions at various asset levels, and that the
arrangement would extend to all funds in the Nuveen complex. The Trustees noted
that 2005 was the first full year to reflect the fee reductions from the complex
wide fee arrangement. The Trustees also considered the impact, if any, the
complex-wide fee arrangement may have on the level of services provided. Based
on their review, the Trustees concluded that the breakpoint schedule and
complex-wide fee arrangement currently was acceptable and desirable in providing
benefits from economies of scale to shareholders.
E. INDIRECT BENEFITS
In evaluating fees, the Trustees also considered any indirect benefits or
profits the Fund Adviser or its affiliates may receive as a result of its
relationship with each Fund. In this regard, the Trustees considered revenues
received by affiliates of the Fund Adviser for serving as agent at Nuveen's
preferred trading desk and for serving as a co-manager in the initial public
offering of new closed-end exchange traded funds.
In addition to the above, the Trustees considered whether the Fund Adviser
received any benefits from soft dollar arrangements. With respect to NAM, the
Trustees noted that NAM does not currently have any soft dollar arrangements and
does not pay excess brokerage commissions (or spreads on principal transactions)
in order to receive research services; however, NAM may from time to time
receive and have access to research generally provided to institutional clients.
The Trustees also considered the soft dollar arrangements, if any, of the
Sub-Advisers. With respect to Froley, Revy, the Trustees noted such Sub-Adviser
has engaged in soft dollar arrangements. The Trustees recognize this Sub-Adviser
benefits from its soft dollar arrangements pursuant to which it receives
research from brokers that execute the Fund's portfolio transactions. At the May
Meeting and in prior meetings, the Trustees have received and reviewed materials
concerning such Sub-Adviser's soft dollar arrangements, including the type of
research received. Such Sub-Adviser has agreed to limit the type of research
received with the use of soft dollars to that with intellectual content. The
Trustees note that such Sub-Adviser's profitability may be lower if it was
required to pay for this research with hard dollars. With respect to Spectrum,
such Sub-Adviser does not currently use soft dollar arrangements. Finally, with
respect to Symphony, Symphony currently does not enter into soft dollar
arrangements; however, it has adopted a soft dollar policy in the event it does
so in the future.
The Trustees did not identify any single factor discussed previously as
all-important or controlling. The Trustees, including a majority of independent
Trustees, concluded that the terms of the Investment Management Agreement and
Sub-Advisory Agreements were fair and reasonable, that the respective Fund
Adviser's fees are reasonable in light of the services provided to each Fund,
and that the renewal of the respective Investment Management Agreement and
Sub-Advisory Agreements should be approved.
65
Reinvest Automatically
EASILY AND CONVENIENTLY
NUVEEN EXCHANGE-TRADED CLOSED-END FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Exchange-Traded Closed-End Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO
SET UP YOUR REINVESTMENT ACCOUNT.
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of the shares may increase before
purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
66
AUTOMATIC DIVIDEND
REINVESTMENT PLAN
NOTICE OF AMENDMENT TO THE TERMS AND CONDITIONS
The Fund is amending the terms and conditions of its Automatic Dividend
Reinvestment Plan (the "Plan") as further described below effective with the
close of business on December 1, 2006. THESE CHANGES ARE INTENDED TO ENABLE PLAN
PARTICIPANTS UNDER CERTAIN CIRCUMSTANCES TO REINVEST FUND DISTRIBUTIONS AT A
LOWER AGGREGATE COST THAN IS POSSIBLE UNDER THE EXISTING PLAN. Shareholders who
do not wish to continue as participants under the amended Plan may withdraw from
the Plan by notifying the Plan Agent prior to the effective date of the
amendments. Participants should refer to their Plan document for notification
instructions, or may simply call Nuveen at (800) 257-8787.
Fund shareholders who elect to participate in the Plan are able to have Fund
distributions consisting of income dividends, realized capital gains and returns
of capital automatically reinvested in additional Fund shares. Under the Plan's
existing terms, the Plan Agent purchases Fund shares in the open market if the
Fund's shares are trading at a discount to their net asset value on the payable
date for the distribution. If the Fund's shares are trading at or above their
net asset value on the payable date for the distribution, the Plan Agent
purchases newly-issued Fund shares directly from the Fund at a price equal to
the greater of the shares' net asset value or 95% of the shares' market value.
Under the Plan's amended terms, if the Plan Agent begins purchasing Fund shares
on the open market while shares are trading below net asset value, but the
Fund's shares subsequently trade at or above their net asset value before the
Plan Agent is able to complete its purchases, the Plan Agent may cease
open-market purchases and may invest the uninvested portion of the distribution
in newly-issued Fund shares at a price equal to the greater of the shares' net
asset value or 95% of the shares' market value. This change will permit Plan
participants under these circumstances to reinvest Fund distributions at a lower
aggregate cost than is possible under the existing Plan.
67
Notes
68
Notes
69
Notes
70
OTHER USEFUL
INFORMATION
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
The Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
most recent 12-month period ended June 30, 2006, and (iii) a description of the
policies and procedures that the Fund used to determine how to vote proxies
relating to portfolio securities are available without charge, upon request, by
calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
MARKET YIELD: Market yield is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Funds'
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any MuniPreferred shares
issued in order to leverage the Fund) from its total assets and then dividing
the remainder by the number of shares outstanding. Fund NAVs are calculated at
the end of each business day.
BOARD OF TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
David J. Kundert
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Eugene S. Sunshine
FUND MANAGER
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust Company
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
The Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. During the
period covered by this report JPC and JQC repurchased 432,200 and 511,200 of
common shares, respectively. Any future repurchases will be reported to
shareholders in the next annual or semiannual report.
71
(back cover photo)
NUVEEN INVESTMENTS:
SERVING INVESTORS
FOR GENERATIONS
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past
century, Nuveen Investments has adhered to the belief that the best
approach to investing is to apply conservative risk-management principles
to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity
and fixed-income solutions that are integral to a well-diversified core
portfolio. Our clients have come to appreciate this diversity, as well as
our continued adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT
NEEDS.
Managing more than $149 billion in assets, Nuveen Investments offers
access to a number of different asset classes and investing solutions
through a variety of products. Nuveen Investments markets its
capabilities under six distinct brands: Nuveen, a leader in fixed-income
investments; NWQ, a leader in value-style equities; Rittenhouse, a leader
in growth-style equities; Symphony, a leading institutional manager of
market-neutral alternative investment portfolios; Santa Barbara, a leader
in growth equities; and Tradewinds, NWQ a leader in global equities.
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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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ESA-F-0606D
NUVEEN LOGO
ITEM 2. CODE OF ETHICS.
Not applicable to this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
PERIOD* (a) (b) (c) (d)
TOTAL NUMBER OF AVERAGE TOTAL NUMBER OF SHARES MAXIMUM NUMBER (OR
SHARES (OR PRICE PAID (OR UNITS) PURCHASED AS APPROXIMATE DOLLAR VALUE) OF
UNITS) PER SHARE PART OF PUBLICLY SHARES (OR UNITS) THAT MAY YET
PURCHASED (OR ANNOUNCED PLANS OR BE PURCHASED UNDER THE PLANS OR
UNIT) PROGRAMS PROGRAMS
FEBRUARY 3-28, 2006
304,800 $12.57 304,800 13,695,200
MARCH 1-31, 2006
175,200 $12.38 480,000 13,520,000
APRIL 1-30, 2006
20,000 $12.01 500,000 13,500,000
MAY 1-31, 2006
11,200 $12.31 511,200 13,488,800
JUNE 1-30, 2006
0 $0 511,200 13,488,800
TOTAL 511,200
* The registrant's repurchase program was announced February 3, 2006. The
registrant's repurchase program authorized the repurchase of 14,000,000 shares.
The repurchases made by the registrant pursuant to the program were all made
through open-market transactions.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During this reporting period, the registrant's Board of Trustees implemented a
change to the procedures by which shareholders may recommend nominees to the
registrant's board of trustees by amending the registrant's by-laws to include a
provision specifying the date by which shareholder nominations for election as
trustee at a subsequent meeting must be submitted to the registrant.
Shareholders must deliver or mail notice to the registrant not less than
forty-five days nor more than sixty days prior to the first anniversary date of
the date on which the registrant first mailed its proxy materials for the prior
year's annual meeting; provided, however, if and only if the annual meeting is
not scheduled to be held within a period that commences thirty days before the
first anniversary date of the annual meeting for the preceding year and ends
thirty days after such anniversary date (an annual meeting date outside such
period being referred to as an "Other Annual Meeting Date" hereafter), the
shareholder notice must be given no later than the close of business on the date
forty-five days prior to such Other Annual Meeting Date or the tenth business
day following the date such Other Annual Meeting Date is first publicly
announced or disclosed. The shareholder's notice must be in writing and set
forth the name, age, date of birth, business address, residence address and
nationality of the person(s) being nominated and the class or series, number of
all shares of the registrant owned of record or beneficially be each such
person(s), any other information regarding such person required by Item 401 of
Regulation S-K or Item 22 of Rule 14a-101 (Schedule 14A) under the Securities
Exchange Act of 1934, as amended, any other information regarding the person(s)
to be nominated that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitation of proxies for
election of trustees, and whether such shareholder believes any nominee is or
will be an "interested person" (as that term is defined in the Investment
Company Act of 1940, as amended) of the registrant or sufficient information to
enable the registrant to make that determination and the written and signed
consent of the person(s) to be nominated.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of this report that
includes the disclosure required by this paragraph, based on their
evaluation of the controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")(17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable to
this filing.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons: Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Preferred and Convertible Income Fund 2
By (Signature and Title)* /s/ Jessica R. Droeger
---------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: September 8, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
---------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: September 8, 2006
By (Signature and Title)* /s/ Stephen D. Foy
---------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: September 8, 2006
* Print the name and title of each signing officer under his or her signature.