UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21137
---------------------
Nuveen Quality Preferred Income Fund 2
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
-------------------
Date of fiscal year end: December 31
------------------
Date of reporting period: December 31, 2005
------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
-------------------------------
Annual Report December 31, 2005
-------------------------------
Nuveen Investments
Exchange-Traded
Closed-End
Funds
NUVEEN QUALITY
PREFERRED INCOME
FUND
JTP
NUVEEN QUALITY
PREFERRED INCOME [GRAPHIC OMITTED]
FUND 2
JPS
NUVEEN QUALITY
PREFERRED INCOME
FUND 3
JHP
HIGH CURRENT INCOME
FROM A PORTFOLIO OF
INVESTMENT-GRADE
PREFERRED SECURITIES
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NUVEEN
Investments
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NUVEEN
Investments
[PHOTO OMITTED]
Timothy R. Schwertfeger
Chairman of the Board
Chairman's
Letter to Shareholders
I am very pleased to report that for the year ended December 31, 2005,
your Fund continued to provide you with attractive monthly income from a
diversified portfolio of quality preferred securities. For more
information on your Fund's performance, please read the Portfolio
Managers' Comments, the Distribution and Share Price Information, and the
Performance Overview sections of this report.
Portfolio diversification is a recognized way to try to reduce some of the
risk that comes with investing. Since one part of your portfolio may be
going up when another is going down, portfolio diversification may help
smooth your investment returns over time. In addition to providing regular
monthly income, a preferred securities 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, a preferred securities
investment like your Fund may help you achieve and benefit from greater
portfolio diversification."
As you look through this report, be sure to review the inside front cover.
This contains information on how you can receive future Fund reports and
other Fund information faster by using e-mails and the Internet. Sign up
is quick and easy - just follow the step-by-step instructions.
As we noted in our last shareholder report, The St. Paul Travelers
Companies, Inc., which had owned 79% of Nuveen Investments, Inc. (the
parent of your Fund's investment adviser), had sold a substantial portion
of its stake in Nuveen. Since then, St. Paul has sold the balance of its
shares to Nuveen Investments or to others. Please be assured that these
transactions only affected Nuveen's corporate structure, and they do not
have any impact on the investment objectives or management of your Fund.
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,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
February 15, 2006
Nuveen Exchange-Traded Closed-End Funds (JTP, JPS, JHP)
Portfolio Managers'
Comments
The Nuveen Quality Preferred Income Funds are subadvised by a team of
specialists at Spectrum Asset Management, Inc., an affiliate of Principal
Capital(SM). Mark Lieb, Bernie Sussman and Phil Jacoby, who have more than 50
years of combined experience in the preferred securities markets, lead the team.
Here Mark, Bernie and Phil talk about their management strategy and the
performance of each Fund for the 12-month period ended December 31, 2005.
What were the general economic conditions and market trends over the course of
2005?
The U.S. economy posted another year of growth in 2005. The Gross Domestic
Product grew 3.5% during the year, in line with the rise of the Consumer Price
Index. The U.S. equity market, as measured by the Standard & Poor's 500 Index,
produced a return of 4.91%. The Federal Reserve continued to be on guard against
an increase in the rate of inflation, raising the closely-watched short-term fed
funds rate to 4.25% by year end. (On January 31, 2006, after the close of this
reporting period, the Fed raised the fed funds rate to 4.50%.)
As with most fixed income investors, participants in the preferred market spent
much of the year concerned with Fed tightening, potential inflation, rising
energy prices, and the economic impact of natural disasters. Credit spreads
began 2005 at historically narrow levels relative to U.S. Treasury and corporate
bonds, and individual investors began to shy away from $25 par preferreds early
in the year fearing poor performance as the Fed continued to raise the fed funds
rate. The $25 par market also suffered from what was at times more new issue
supply than could readily be absorbed. Consequently, the Merrill Lynch Preferred
Stock Hybrid Index returned 0.46% in 2005, which is the worst performance for
this index since 1999. The year also saw significant new issuance of DRD
(dividends received deduction) preferred securities. This new DRD supply caused
some price weakness during the summer, but DRDs rallied during the fourth
quarter and outperformed other preferreds as well as the general bond market.
The $1000 par Capital Security sector, targeted to institutional investors, also
experienced healthy new issuance. Fortunately, institutional investors were
ravenous for the incremental yield afforded by this sector and the strong demand
prevented any of the dislocations we saw in the $25 par market. The Lehman Tier
1 Capital Securities Index rise of 3.68% for the year far outpaced returns in
the $25 sector. Many of the new securities in the institutional sector utilized
a new structure which provided more equity
4
credit for the issuers and provided higher yields for investors. The advent of
these new types of "enhanced equity" preferreds is expected to foster a broad
expansion of the hybrid preferred securities market, which reached a size of
about $276 billion by year end following record new issuance of $46 billion in
2005. (Hybrid preferred carry stated maturities and fixed coupons, but they can
be treated by companies as equity for financial statement purposes.)
What strategies and tactics did you use to manage the Funds' assets?
We did some rebalancing between the $25 par and $1000 par Capital Security
sectors because of relative value considerations. We sold $1000 par Capital
Securities, which were aggressively bid up, and bought the relatively cheaper
$25 par securities. This decreased the Capital Security concentrations in the
Funds. Many of the Capital Security sales were high coupon callable securities
that were trading to their first call date and had little to no upside. As a
result we also were being proactive in managing upcoming call exposure within
the Funds' portfolios. We also reduced the Funds' exposure to mandatory
convertible preferreds, as many of these issues were approaching their
"maturity" date.
How did the Funds perform over the 12-months ended December 31, 2005?
The performance of each Fund, as well as the performance of a relevant index and
benchmark, is shown in the nearby chart.
Total Return on Net Asset Value
For the 12-month period ended December 31, 2005
JTP 2.89%
--------------------------------------------------------------------------------
JPS 3.01%
--------------------------------------------------------------------------------
JHP 2.88%
--------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index(1) 2.43%
--------------------------------------------------------------------------------
Comparative Benchmark(2) 1.92%
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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.
(1) The Lehman Brothers Aggregate Bond Index is an unmanaged index that
includes all investment-grade, publicly issued, fixed-rate,
dollar-denominated, nonconvertible debt issues and commercial mortgage
backed securities with maturities of at least one year and outstanding par
values of $150 million or more. Index returns do not include the effects
of any sales charges or management fees. It is not possible to invest
directly in an index.
(2) Comparative benchmark performance is a blended return consisting of: 1)
55% of the Merrill Lynch Preferred Stock Hybrid Securities Index is an
unmanaged index of investment-grade, exchange-traded preferred stocks with
outstanding market values of at least $30 million and at least one year to
maturity; and 2) 45% of the Lehman Tier 1 Capital Securities Index, an
unmanaged index that includes securities that can generally be viewed as
hybrid fixed- income securities that either receive regulatory capital
treatment or a degree of "equity credit" from a rating agency.
5
Over the course of what turned out to be a difficult 12-month period, all three
Funds outperformed the Lehman Brothers Aggregate Bond Index and a comparative
benchmark.
Taking advantage of the large amount of new issuance in the preferred DRD sector
and the attractiveness of their yields compared to other preferreds, we
increased our concentration in these securities and reaped the benefits as these
positions generally performed well toward the end of the year.
In addition, in keeping with our strategy of selling Capital Securities and
purchasing $25 par securities due to their relative values, we sold high coupon
U.S. bank trust preferred securities which become callable in late 2006 or early
2007. These securities were priced to their first call dates because the market
fully expected them to get called. Selling these short duration securities,
which had little to no price upside, throughout 2005 positioned the Funds ahead
of the call cycle, especially as the short end of the yield curve sold off. We
also bought several of the new "enhanced equity" issues which provided
relatively higher income levels and attractive total return opportunities.
We began 2005 with a relatively light concentration in the automotive industry,
when compared with the sector's standing in the preferred market. Nevertheless,
in hindsight, the positions were not small enough. Many of these holdings were
in the senior debt which we had bought when it looked cheap compared to their
$25 par preferred counterparts. We began selling Ford and General Motors in
January 2005 (for a profit) and had been selling Delphi since 2004. We took some
losses when we liquidated our position in Delphi early in the year while it was
still making payments and thereby avoided the huge price declines that
accompanied Delphi's subsequent bankruptcy filing. These three automotive names
were the worst performers in 2005. As of year end, we had no exposure to Ford,
GM and Delphi, and a relatively small position in Daimler Chrysler.
6
Distribution and Share Price
Information
Each of these Funds uses financial leverage in an effort to enhance its
dividend-paying capabilities. While this strategy adds volatility to a Fund's
net asset value and share price, it generally enhances the amount of income the
Fund has to distribute to its common shareholders. The extent of this benefit is
tied in part to the short-term rates these Funds pay their FundPreferredTM
shareholders. As short-term rates rose through this reporting period, the Funds
paid higher dividends to their FundPreferred shareholders. As a result, the
leveraging strategy did not provide as much income enhancement as it did before
short-term interest rates began to rise. Over this reporting period JTP and JHP
announced two reductions in their monthly distribution to shareholders, while
JPS announced three distribution reductions.
Each of these Funds seeks to pay stable distributions at rates that reflect each
Fund's past results and projected future performance. During certain periods,
each Fund may pay distributions at a rate that may be more or less than the
amount of net investment income actually earned by the Fund during the period.
If a Fund has cumulatively earned more than it has paid in distributions, it
holds the excess in reserve as undistributed net investment income (UNII) as
part of the Fund's NAV. Conversely, if a Fund has cumulatively paid
distributions in excess of its earnings, the excess constitutes negative UNII
that is likewise reflected in the Fund's NAV. Each Fund will, over time, pay all
of its net investment income in distributions to shareholders. As of December
31, 2005, each of the Funds in this report had positive UNII balances for both
financial statement and tax purposes.
In addition, due to normal portfolio management activity, common shareholders of
the following Funds received capital gains and net ordinary income distributions
at the end of December 2005, as follows:
Long-Term Capital Gains Ordinary Income
(per share) (per share)
--------------------------------------------------------------------------------
JPS $ 0.1615 $ 0.0232
--------------------------------------------------------------------------------
JHP $ 0.0787 $ 0.0135
--------------------------------------------------------------------------------
The relatively large distributions from JPS represented important parts of this
Fund's total return for this period. Generally, these types of distributions
were generated by calls or by sales of appreciated securities that occurred in
the course of normal portfolio management activities. This had a slight negative
impact on the Funds' earning power per share and was a minor factor in the per
share distribution reductions noted above.
As of December 31, 2005, the Funds' shares were trading at discounts to their
NAVs as shown in the accompanying chart:
12/31/05 12-Month Average
Discount Discount
--------------------------------------------------------------------------------
JTP -12.68% -8.09%
--------------------------------------------------------------------------------
JPS -13.34% -8.77%
--------------------------------------------------------------------------------
JHP - 9.59% -4.24%
--------------------------------------------------------------------------------
7
Nuveen Quality Preferred Income Fund
JTP
Performance
Overview As of December 31, 2005
Portfolio Statistics
--------------------------------------------------------------------------------
Common Share Price $ 12.40
--------------------------------------------------------------------------------
Common Share
Net Asset Value $ 14.20
--------------------------------------------------------------------------------
Premium/(Discount) to NAV -12.68%
--------------------------------------------------------------------------------
Latest Dividend $ .0900
--------------------------------------------------------------------------------
Market Yield 8.71%
--------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $ 915,598
--------------------------------------------------------------------------------
Average Annual Total Return
(Inception 6/25/02)
--------------------------------------------------------------------------------
On Share Price On NAV
--------------------------------------------------------------------------------
1-Year -3.69% 2.89%
--------------------------------------------------------------------------------
Since
Inception 2.86% 8.15%
--------------------------------------------------------------------------------
Industries
(as a % of total investments)
--------------------------------------------------------------------------------
Commercial Banks 29.3%
--------------------------------------------------------------------------------
Insurance 17.7%
--------------------------------------------------------------------------------
Real Estate 17.1%
--------------------------------------------------------------------------------
Capital Markets 9.3%
--------------------------------------------------------------------------------
Diversified Financial Services 8.9%
--------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels 3.7%
--------------------------------------------------------------------------------
Short-Term Investments 1.7%
--------------------------------------------------------------------------------
Other 12.3%
--------------------------------------------------------------------------------
Top Five Issuers
(excluding Short-Term Investments)
(as a % of total investments)
--------------------------------------------------------------------------------
ING Group NV 3.0%
--------------------------------------------------------------------------------
Wachovia Corporation 2.9%
--------------------------------------------------------------------------------
JPMorgan Chase & Company 2.7%
--------------------------------------------------------------------------------
HSBC Holdings Public
Limited Company 2.6%
--------------------------------------------------------------------------------
Banco Santander Central Hispano 2.6%
--------------------------------------------------------------------------------
Portfolio Allocation
(as a % of total investments)
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
-----------------------------------------------
$25 Par (or similar) Securities 57.4%
-----------------------------------------------
Capital Preferred Securities 39.5%
-----------------------------------------------
Short-Term Investments 1.7%
-----------------------------------------------
Convertible Preferred Securities 0.9%
-----------------------------------------------
Corporate Bonds 0.5%
-----------------------------------------------
2005 Monthly Distributions Per Share
--------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Jan 0.097
-----------------------------------------------
Feb 0.097
-----------------------------------------------
Mar 0.097
-----------------------------------------------
Apr 0.097
-----------------------------------------------
May 0.097
-----------------------------------------------
Jun 0.0935
-----------------------------------------------
Jul 0.0935
-----------------------------------------------
Aug 0.0935
-----------------------------------------------
Sep 0.09
-----------------------------------------------
Oct 0.09
-----------------------------------------------
Nov 0.09
-----------------------------------------------
Dec 0.09
Share Price Performance
--------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Weekly Closing Price
01/01/05 13.99
13.99
14.03
14.11
14.14
14.27
14.28
14.20
14.16
14.18
14.24
14.24
14.25
14.23
14.27
14.25
14.19
14.21
14.25
14.35
14.44
14.49
14.54
14.65
14.74
14.67
14.67
14.60
14.49
14.28
14.27
14.22
14.27
14.17
14.00
14.03
14.18
14.25
14.34
14.29
14.24
14.21
14.17
14.19
14.20
14.10
14.09
13.85
13.65
13.51
13.32
13.30
13.16
12.96
12.85
13.02
12.95
12.63
12.68
13.08
13.20
13.14
13.17
12.97
13.02
13.09
13.13
13.14
13.17
12.96
12.87
12.88
13.10
13.06
13.03
13.00
13.02
13.10
13.21
13.27
13.33
13.43
13.43
13.40
13.45
13.40
13.38
13.31
13.33
13.42
13.38
13.44
13.43
13.49
13.49
13.49
13.55
13.62
13.75
13.84
13.82
13.86
13.86
13.89
14.03
14.00
14.02
13.92
13.92
13.98
13.99
13.93
13.75
13.83
13.80
13.80
13.83
13.85
13.86
14.00
14.02
14.04
13.99
13.99
13.96
14.00
14.08
14.04
14.02
14.06
13.95
13.88
13.93
13.85
13.81
13.77
13.77
13.73
13.71
13.67
13.65
13.65
13.63
13.62
13.69
13.73
13.73
13.67
13.74
13.72
13.71
13.67
13.45
13.60
13.61
13.52
13.55
13.52
13.46
13.54
13.44
13.44
13.48
13.53
13.47
13.48
13.52
13.52
13.53
13.65
13.72
13.70
13.60
13.57
13.59
13.59
13.56
13.49
13.43
13.28
13.24
13.10
13.17
13.25
13.20
13.16
13.08
12.99
13.04
13.06
13.06
13.04
13.02
12.90
12.74
12.79
12.86
12.87
12.70
12.42
12.37
12.47
12.40
12.39
12.25
12.46
12.49
12.45
12.32
12.40
12.40
12.42
12.42
12.42
12.49
12.48
12.43
12.44
12.47
12.33
12.27
12.20
12.11
12.10
12.08
12.01
11.98
11.98
12.19
12.28
12.30
12.31
12.24
12.28
12.25
12.24
12.25
12.21
12.17
12.17
12.12
11.93
12.07
12.13
12.09
11.96
11.91
11.96
12.14
12.21
12.20
12.23
12.27
12.40
12/31/05 12.40
Past performance is not predictive of future results.
8
Nuveen Quality Preferred Income Fund 2
JPS
Performance
Overview As of December 31, 2005
Portfolio Allocation
(as a % of total investments)
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
$25 Par (or similar) Securities 57.2%
-----------------------------------------------
Capital Preferred Securities 39.8%
-----------------------------------------------
Short-Term Investments 1.5%
-----------------------------------------------
Convertible Preferred Securities 1.0%
-----------------------------------------------
Corporate Bonds 0.5%
-----------------------------------------------
2005 Monthly Distributions Per Share
--------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Jan 0.102
-----------------------------------------------
Feb 0.102
-----------------------------------------------
Mar 0.099
-----------------------------------------------
Apr 0.099
-----------------------------------------------
May 0.099
-----------------------------------------------
Jun 0.096
-----------------------------------------------
Jul 0.096
-----------------------------------------------
Aug 0.096
-----------------------------------------------
Sep 0.093
-----------------------------------------------
Oct 0.093
-----------------------------------------------
Nov 0.093
-----------------------------------------------
Dec 0.093
-----------------------------------------------
Share Price Performance
--------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Weekly Closing Price
01/01/05 14.48
14.58
14.54
14.78
14.85
14.84
14.84
14.76
14.81
14.79
14.88
14.96
14.95
14.95
14.98
14.94
14.94
15.04
15.04
15.03
15.09
15.16
15.16
15.26
15.37
15.31
15.31
15.30
15.12
14.86
14.92
14.90
14.85
14.72
14.65
14.82
14.93
14.97
15.05
15.06
14.94
14.80
14.69
14.73
14.80
14.55
14.50
14.24
13.99
13.83
13.58
13.77
13.60
13.40
13.20
13.25
13.31
13.08
13.12
13.49
13.63
13.65
13.60
13.47
13.63
13.57
13.69
13.60
13.68
13.47
13.33
13.37
13.46
13.67
13.55
13.55
13.47
13.44
13.54
13.62
13.75
13.90
13.90
13.95
13.97
14.05
14.00
14.00
13.94
14.01
13.94
13.96
13.92
13.92
13.97
13.97
13.99
14.07
14.08
14.17
14.23
14.32
14.31
14.32
14.37
14.40
14.44
14.40
14.49
14.48
14.44
14.32
14.25
14.22
14.08
14.20
14.29
14.31
14.25
14.37
14.36
14.41
14.25
14.25
14.38
14.45
14.50
14.51
14.58
14.58
14.59
14.58
14.59
14.52
14.49
14.50
14.47
14.42
14.37
14.30
14.33
14.35
14.41
14.50
14.54
14.60
14.60
14.55
14.56
14.54
14.48
14.35
14.06
14.13
14.22
14.18
14.15
14.12
14.12
14.13
14.10
14.10
14.12
14.12
14.16
14.06
14.12
14.13
14.14
14.28
14.26
14.28
14.22
14.22
14.21
14.20
14.17
14.06
13.98
13.84
13.81
13.80
13.70
13.79
13.71
13.71
13.74
13.69
13.52
13.58
13.62
13.65
13.63
13.52
13.52
13.59
13.46
13.38
13.26
13.02
13.03
13.07
12.95
12.99
12.88
12.99
13.11
13.09
13.05
13.10
13.12
13.29
13.22
13.28
13.15
13.15
13.07
13.06
13.10
12.97
12.91
12.88
12.73
12.73
12.65
12.63
12.57
12.62
12.73
12.81
12.88
12.93
12.90
13.13
13.18
13.08
13.10
13.03
13.04
13.21
13.11
12.75
13.00
12.92
12.84
12.72
12.69
12.62
12.62
12.70
12.58
12.59
12.66
12.80
12/31/05 12.80
Past performance is not predictive of future results.
Portfolio Statistics
--------------------------------------------------------------------------------
Common Share Price $ 12.80
--------------------------------------------------------------------------------
Common Share
Net Asset Value $ 14.77
--------------------------------------------------------------------------------
Premium/(Discount) to NAV -13.34%
--------------------------------------------------------------------------------
Latest Dividend $ .0930
--------------------------------------------------------------------------------
Market Yield 8.72%
--------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $ 1,765,543
--------------------------------------------------------------------------------
Average Annual Total Return
(Inception 9/24/02)
--------------------------------------------------------------------------------
On Share Price On NAV
--------------------------------------------------------------------------------
1-Year -2.06% 3.01%
--------------------------------------------------------------------------------
Since
Inception 4.29% 10.03%
--------------------------------------------------------------------------------
Industries
(as a % of total investments)
--------------------------------------------------------------------------------
Commercial Banks 28.8%
--------------------------------------------------------------------------------
Insurance 21.1%
--------------------------------------------------------------------------------
Real Estate 14.6%
--------------------------------------------------------------------------------
Capital Markets 8.6%
--------------------------------------------------------------------------------
Diversified Financial Services 8.4%
--------------------------------------------------------------------------------
Electric Utilities 3.4%
--------------------------------------------------------------------------------
Thrifts & Mortgage Finance 2.9%
--------------------------------------------------------------------------------
Short-Term Investments 1.5%
--------------------------------------------------------------------------------
Other 10.7%
--------------------------------------------------------------------------------
Top Five Issuers
(excluding Short-Term Investments)
(as a % of total investments)
--------------------------------------------------------------------------------
Wachovia Corporation 3.7%
--------------------------------------------------------------------------------
ING Group NV 3.0%
--------------------------------------------------------------------------------
JPMorgan Chase & Company 2.6%
--------------------------------------------------------------------------------
EverestRe Group 2.4%
--------------------------------------------------------------------------------
Banco Santander Central Hispano 2.3%
--------------------------------------------------------------------------------
9
Nuveen Quality Preferred Income Fund 3
JHP
Performance
Overview As of December 31, 2005
Portfolio Statistics
--------------------------------------------------------------------------------
Common Share Price $ 12.92
--------------------------------------------------------------------------------
SCommon Share
Net Asset Value $ 14.29
--------------------------------------------------------------------------------
Premium/(Discount) to NAV -9.59%
--------------------------------------------------------------------------------
Latest Dividend $ .0945
--------------------------------------------------------------------------------
Market Yield 8.78%
--------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $ 337,858
--------------------------------------------------------------------------------
Average Annual Total Return
(Inception 12/18/02)
--------------------------------------------------------------------------------
On Share Price On NAV
--------------------------------------------------------------------------------
1-Year -2.16% 2.88%
--------------------------------------------------------------------------------
Since
Inception 3.73% 8.65%
--------------------------------------------------------------------------------
Industries
(as a % of total investments)
--------------------------------------------------------------------------------
Commercial Banks 27.1%
--------------------------------------------------------------------------------
Insurance 22.7%
--------------------------------------------------------------------------------
Real Estate 13.1%
--------------------------------------------------------------------------------
Capital Markets 10.5%
--------------------------------------------------------------------------------
Diversified Financial Services 9.2%
--------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels 2.8%
--------------------------------------------------------------------------------
Short-Term Investments 1.5%
--------------------------------------------------------------------------------
Other 13.1%
--------------------------------------------------------------------------------
Top Five Issuers
(excluding Short-Term Investments)
(as a % of total investments)
--------------------------------------------------------------------------------
Wachovia Corporation 3.8%
--------------------------------------------------------------------------------
ING Group NV 3.3%
--------------------------------------------------------------------------------
JPMorgan Chase & Company 3.1%
--------------------------------------------------------------------------------
Union Planters Corporation 2.6%
--------------------------------------------------------------------------------
Zurich Financial Services 2.3%
--------------------------------------------------------------------------------
Portfolio Allocation
(as a % of total investments)
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
-----------------------------------------------
$25 Par (or similar) Securities 61.1%
-----------------------------------------------
Capital Preferred Securities 36.1%
-----------------------------------------------
Short-Term Investments 1.5%
-----------------------------------------------
Convertible Preferred Securities 0.9%
-----------------------------------------------
Corporate Bonds 0.4%
-----------------------------------------------
2005 Monthly Distributions Per Share
--------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Jan 0.1
-----------------------------------------------
Feb 0.1
-----------------------------------------------
Mar 0.1
-----------------------------------------------
Apr 0.1
-----------------------------------------------
May 0.1
-----------------------------------------------
Jun 0.0965
-----------------------------------------------
Jul 0.0965
-----------------------------------------------
Aug 0.0965
-----------------------------------------------
Sep 0.0945
-----------------------------------------------
Oct 0.0945
-----------------------------------------------
Nov 0.0945
-----------------------------------------------
Dec 0.0945
Share Price Performance
--------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Weekly Closing Price
01/01/05 14.42
14.48
14.42
14.47
14.46
14.55
14.68
14.77
14.78
14.71
14.74
14.72
14.84
14.85
14.85
14.85
14.75
14.89
15.02
15.00
15.08
15.15
15.14
15.27
15.28
15.32
15.30
15.30
15.14
15.05
15.06
15.02
14.93
14.79
14.60
14.61
14.66
14.86
14.95
14.92
14.85
14.80
14.86
14.86
14.93
14.77
14.75
14.45
14.37
14.16
14.06
13.96
13.90
13.81
13.60
13.39
13.51
13.35
13.39
13.69
14.15
14.10
14.06
13.99
13.93
13.90
13.82
13.85
13.91
13.88
13.68
13.70
13.81
13.99
14.00
14.08
13.89
13.93
14.11
14.15
14.27
14.39
14.39
14.43
14.47
14.45
14.40
14.45
14.38
14.35
14.30
14.17
14.30
14.18
14.20
14.45
14.31
14.28
14.21
14.27
14.35
14.22
14.40
14.50
14.61
14.63
14.49
14.41
14.45
14.69
14.50
14.47
14.65
14.74
14.56
14.47
14.60
14.51
14.54
14.52
14.54
14.55
14.49
14.42
14.54
14.53
14.56
14.53
14.56
14.64
14.58
14.61
14.65
14.58
14.61
14.54
14.55
14.52
14.49
14.45
14.39
14.54
14.56
14.65
14.92
14.84
14.84
14.85
14.94
14.93
14.89
14.78
14.62
14.64
14.80
14.64
14.69
14.70
14.60
14.50
14.68
14.62
14.65
14.67
14.67
14.75
14.65
14.67
14.57
14.61
14.55
14.55
14.62
14.57
14.63
14.59
14.65
14.51
14.40
14.32
14.24
14.19
14.20
14.16
14.14
13.99
13.85
13.76
13.62
13.75
13.82
13.78
13.76
13.76
13.72
13.73
13.72
13.47
13.24
13.00
13.05
13.01
13.02
13.04
12.96
13.06
13.20
13.15
13.07
13.09
13.12
13.20
13.30
13.27
13.20
13.23
13.34
13.33
13.30
13.18
13.09
13.10
13.06
12.94
12.86
12.73
12.81
12.72
12.79
12.84
12.80
12.84
12.81
12.90
12.90
12.84
12.82
12.77
12.71
12.69
12.63
12.39
12.43
12.49
12.57
12.50
12.41
12.45
12.50
12.61
12.75
12.81
12.91
12.92
12/31/05 12.92
Past performance is not predictive of future results.
10
Shareholder
Meeting Report
Approval of the new investment management agreement and sub-advisory agreements
were the proposals voted upon at the July 26, 2005, shareholder meeting held at
The Northern Trust Bank.
Approval of the Board Members was the proposal voted upon at the November 15,
2005, shareholder meeting held at the offices of Nuveen Investments
JTP JPS JHP
---------------------------------------------------------------------------------------------------------------------
Approval of the new investment management
agreement was reached as follows:
Common and Common and Common and
Preferred shares Preferred shares Preferred shares
voting together voting together voting together
as a class as a class as a class
=====================================================================================================================
For 61,442,199 111,901,427 22,591,613
Against 545,550 923,727 159,700
Abstain 640,605 1,128,256 205,026
---------------------------------------------------------------------------------------------------------------------
Total 62,628,354 113,953,410 22,956,339
=====================================================================================================================
Approval of the new sub-advisory agreement between
Nuveen Asset Management and Spectrum Asset
Management, Inc. was reached as follows:
Common and Common and Common and
Preferred shares Preferred shares Preferred shares
voting together voting together voting together
as a class as a class as a class
=====================================================================================================================
For 61,380,367 111,808,697 22,575,897
Against 569,219 974,606 173,069
Abstain 678,768 1,170,107 207,373
---------------------------------------------------------------------------------------------------------------------
Total 62,628,354 113,953,410 22,956,339
=====================================================================================================================
11
Report of
Independent Registered
Public Accounting Firm
The Board of Trustees and Shareholders
Nuveen Quality Preferred Income Fund
Nuveen Quality Preferred Income Fund 2
Nuveen Quality Preferred Income Fund 3
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Nuveen Quality Preferred Income Fund, Nuveen
Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 as of
December 31, 2005, and the related statements of operations for the year then
ended, and the statements of changes in net assets and the financial highlights
for the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Nuveen
Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen
Quality Preferred Income Fund 3 at December 31, 2005, and the results of their
operations for the year then ended, and changes in their net assets and their
financial highlights for the periods indicated therein in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 14, 2006
12
Nuveen Quality Preferred Income Fund (JTP)
Portfolio of
Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Securities - 1.3% (0.9% of
Total Investments)
Diversified Financial Services - 0.2%
23,134 Citigroup Global Markets 2.000% Aa1 $ 1,133,797
-----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.0%
7,241 FPL Group Inc. 8.000% A- 448,725
-----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0%
14,980 Albertson's, Inc. 7.250% BBB- 337,799
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.1%
50,000 XL Capital Ltd. 6.500% A2 1,117,000
-----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.9%
157,677 Dominion Resources Inc. 8.750% Baa1 8,200,781
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 0.1%
54,000 PMI Group Inc. 5.875% A1 1,331,100
-----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities
(cost $12,315,687) 12,569,202
---------------------------------------------------------------------------------------------------------------------
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
$25 Par (or similar) Securities - 84.1% (57.4%
of Total Investments)
Automobiles - 0.0%
5,300 Daimler Chrysler, Series DCX (CORTS) 7.250% A3 117,130
-----------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 7.1%
1,250 ABN AMRO North America, Series L, 144A, (3) 6.460% A3 1,275,000
60,900 Bear Stearns Capital Trust III 7.800% A2 1,549,905
338,500 BNY Capital Trust V, Series F 5.950% A1 8,201,855
233,595 Compass Capital Trust III 7.350% A3 5,914,625
34,900 First Union Capital II, Series II (CORTS) 7.500% A1 906,702
13,400 First Union Institutional Capital II (CORTS) 8.200% A1 361,934
11,700 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 271,089
72,600 Goldman Sachs Group Inc., (3) 6.200% A2 1,851,300
6,900 Goldman Sachs Group Inc., (CORTS) 6.300% A- 170,430
12,000 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 280,800
5,100 Goldman Sachs Group Inc., Series GSG-1 (PPLUS) 6.000% Aa3 120,717
12,100 Goldman Sachs Group Inc., Series 2004-04,
(SATURNS) 6.000% A1 281,325
8,600 Goldman Sachs Group Inc., Series 2004-06,
(SATURNS) 6.000% A1 200,380
4,600 Goldman Sachs Group Incorporated (SATURNS) 5.750% Aa3 103,132
108,549 Lehman Brothers Holdings Capital Trust III,
Series K 6.375% A2 2,723,494
68,400 Lehman Brothers Holdings Capital Trust IV,
Series L 6.375% A2 1,717,524
25,700 Lehman Brothers Holdings Capital Trust V,
Series M 6.000% A2 614,744
105,420 Lehman Brothers Holdings Capital Trust VI,
Series N 6.240% A2 2,597,549
35,000 Lehman Brothers Holdings Inc., Series C, (3) 5.940% BBB+ 1,750,000
50,000 Lehman Brothers Holdings Inc., Series F, (3) 6.500% A- 1,312,500
46,000 Merrill Lynch Capital Trust II 8.000% A1 1,190,480
198,700 Merrill Lynch Preferred Capital Trust 7.750% A1 5,086,720
128,100 Merrill Lynch Preferred Capital Trust III 7.000% A1 3,281,922
78,700 Merrill Lynch Preferred Capital Trust IV 7.120% A1 2,024,951
102,000 Merrill Lynch Preferred Capital Trust V 7.280% A1 2,664,240
5,700 Morgan Stanley (PPLUS) 7.050% Aa3 145,635
194,600 Morgan Stanley Capital Trust II 7.250% A1 4,956,462
227,900 Morgan Stanley Capital Trust III 6.250% A1 5,558,481
249,095 Morgan Stanley Capital Trust IV 6.250% A1 6,038,063
31,300 Morgan Stanley Capital Trust V 5.750% A+ 711,762
28,900 Washington Mutual Capital Trust I, Series
2001-22, Class A-1 (CORTS) 7.650% Baa1 729,725
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 64,593,446
-----------------------------------------------------------------------------------------------------------------------------------
13
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 11.6%
69,000 Abbey National plc, Series B 7.250% A1 $ 1,752,600
102,800 Abbey National plc, Series B 7.375% A 2,712,892
1,200 Abbey National plc, Series C 7.375% A2 30,720
134,500 ABN AMRO Capital Fund Trust V 5.900% A 3,186,305
34,500 ABN AMRO Capital Trust Fund VII 6.080% A 841,800
103,700 ASBC Capital I 7.625% Baa1 2,656,794
7,200 BAC Capital Trust I 7.000% Aa3 182,592
64,500 BAC Capital Trust II 7.000% Aa3 1,642,170
80,000 BAC Capital Trust III 7.000% Aa3 2,040,800
194,550 Banco Santander 6.410% A2 4,883,205
52,300 Banco Totta & Acores Finance, Series A 8.875% A3 1,340,188
3,600 BancorpSouth Capital Trust I 8.150% Baa2 91,584
66,000 Banesto Holdings, Series A, 144A 10.500% A2 1,980,000
64,300 Bank One Capital Trust VI 7.200% A1 1,642,222
11,700 BankNorth Capital Trust II 8.000% A3 301,626
10 BBVA Privanza International Gibraltar, 144A 7.764% A1 10,350,000
198,900 Chittenden Capital Trust I 8.000% Baa1 5,105,763
116,800 Cobank ABC, 144A, (3) 7.000% N/R 6,041,013
140,900 Comerica Capital Trust I 7.600% A3 3,557,725
33,900 Fleet Capital Trust VII 1.800% Aa3 854,958
16,200 HSBC Finance Corporation 6.000% A1 394,632
64,300 KeyCorp (PCARS) 7.500% A3 1,633,220
81,950 KeyCorp Capital Trust V 5.875% A3 1,921,728
18,500 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 481,925
31,300 KeyCorp, Series B (CORTS) 8.250% A3 785,943
67,800 National Commerce Capital Trust II 7.700% A1 1,728,900
55,300 National Westminster Bank plc, Series A 7.875% Aa2 1,405,173
9,300 PNC Capital Trust 6.125% A3 224,409
42,800 Regions Finance Trust I 8.000% A2 1,076,420
13,500 Royal Bank of Scotland Group plc, Series L 5.750% A1 311,175
27,400 Royal Bank of Scotland Group plc, Series M 6.400% A1 696,508
216,762 Royal Bank of Scotland Group plc, Series N 6.350% A1 5,447,229
30,300 SunTrust Capital Trust IV 7.125% A1 765,681
81,500 SunTrust Capital Trust V 7.050% A1 2,062,765
175,000 USB Capital Trust III 7.750% Aa3 4,459,000
423,005 USB Capital Trust IV 7.350% Aa3 10,799,318
46,800 USB Capital Trust V 7.250% Aa3 1,186,380
10,000 USB Capital Trust VII 5.875% Aa3 233,200
37,200 VNB Capital Trust I 7.750% Baa1 947,856
7,236 Wells Fargo Capital Trust IX 5.625% Aa2 165,560
25,500 Wells Fargo Capital Trust IV 7.000% Aa2 651,780
218,800 Wells Fargo Capital Trust V 7.000% Aa2 5,531,264
56,000 Wells Fargo Capital Trust VI 6.950% Aa2 1,414,560
29,200 Wells Fargo Capital Trust VII 5.850% Aa2 701,676
3,100 Wells Fargo Capital Trust VIII 5.625% Aa2 71,951
379,250 Zions Capital Trust B 8.000% Baa1 9,883,255
-----------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 106,176,465
-----------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0%
1,600 IBM Inc. (CORTS) 7.125% A+ 40,304
2,100 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 53,235
4,200 IBM Trust II (CORTS) 7.125% A+ 105,588
-----------------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 199,127
-----------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 0.3%
60,300 Household Capital Trust VI 8.250% A2 1,531,620
25,400 Household Capital Trust VII 7.500% A2 648,716
27,200 SLM Corporation 6.000% A 644,640
-----------------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 2,824,976
-----------------------------------------------------------------------------------------------------------------------------------
14
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 9.0%
17,000 BBVA Preferred Capital Ltd., Series B 7.750% A1 $ 428,825
197,600 CIT Group Inc., Series A, (3) 6.350% BBB+ 5,107,960
38,376 CIT Group Incorporated (CORTS) 7.750% A3 1,035,384
12,000 Citigroup Capital Trust IX 6.000% Aa2 290,640
258,700 Citigroup Capital Trust VII 7.125% Aa2 6,563,219
455,200 Citigroup Capital Trust VIII 6.950% Aa2 11,480,144
55,900 Citigroup Capital Trust XI 6.000% Aa2 1,364,519
66,300 Citigroup Inc., Series H, (3) 6.231% Aa3 3,474,120
39,400 Citigroup Inc., Series M, (3) 5.864% Aa3 2,015,310
2,000 General Electric Capital Corporation 5.875% AAA 48,760
7,400 General Electric Capital Corporation 6.100% AAA 186,702
10,800 General Electric Capital Corporation 6.625% AAA 272,808
3,000 General Electric Capital Corporation, (CORTS) 6.000% AAA 74,250
569,000 ING Group N.V. 7.050% A 14,560,710
1,015,458 ING Group N.V. 7.200% A 26,066,807
32,600 JPM Capital Trust I, Series 2001-1, Class A-1
(CORTS) 7.850% A1 847,274
1,700 JPMorgan Chase & Company (PCARS) 7.125% A2 42,534
81,500 JPMorgan Chase Capital Trust IX, Series I 7.500% A1 2,077,435
82,400 JPMorgan Chase Capital Trust X 7.000% A1 2,095,432
97,606 JPMorgan Chase Capital Trust XI 5.875% A1 2,259,579
71,100 JPMorgan Chase Capital Trust XVI 6.350% A1 1,778,922
20,300 JPMorgan Chase Trust, Series 2002-6, Class A
(SATURNS) 7.125% A1 523,740
-----------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 82,595,074
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 0.7%
93,400 AT&T Inc. 7.000% A 2,342,472
7,600 BellSouth Capital Funding (CORTS) 7.100% A1 195,852
4,300 BellSouth Corporation 7.125% A 108,145
69,235 BellSouth Corporation (CORTS) 7.000% Aa3 1,737,106
29,300 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 733,379
6,300 BellSouth Inc. (CORTS) 7.000% A 162,792
2,200 Verizon Communications (CORTS) 7.625% A+ 56,232
8,800 Verizon Communications, Series 2004-1 (SATURNS) 6.125% A+ 207,064
23,900 Verizon New England Inc., Series B 7.000% A3 609,450
19,900 Verizon South Inc., Series F 7.000% A 504,266
-----------------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 6,656,758
-----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 3.5%
2,300 BGE Capital Trust II 6.200% A3 58,880
77,740 DTE Energy Trust I 7.800% Baa3 1,979,260
109,205 Entergy Louisiana Inc. 7.600% A- 2,772,715
2,000 Entergy Mississippi Inc. 7.250% A- 51,840
56,400 Georgia Power Capital Trust V 7.125% A3 1,422,972
293,196 Georgia Power Company 5.700% AAA 7,151,050
3,000 Georgia Power Company 6.000% AAA 77,190
2,000 Georgia Power Company 5.750% A 46,060
118,651 Georgia Power Company 5.900% A 2,865,422
2,100 Gulf Power Capital Trust III 7.375% A3 53,067
251,073 Interstate Power and Light Company, Series B, (3) 8.375% BBB- 8,373,285
2,600 National Rural Utilities Cooperative Finance
Corporation 7.600% A3 65,572
24,000 National Rural Utilities Cooperative Finance
Corporation 7.400% A3 614,400
5,000 National Rural Utilities Cooperative Finance
Corporation 6.750% A3 126,950
36,900 National Rural Utilities Cooperative Finance
Corporation 6.100% A3 880,434
2,000 Southern Company Capital Trust I (CORTS) 8.000% BBB+ 51,800
8,000 Southern Company Capital Trust VI 7.125% BBB+ 206,160
14,200 Tennessee Valley Authority, Series D 6.750% AAA 340,800
191,400 Virginia Power Capital Trust 7.375% Baa1 4,903,668
-----------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 32,041,525
-----------------------------------------------------------------------------------------------------------------------------------
15
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.7%
64,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- $ 6,428,000
-----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1%
32,300 AGL Capital Trust II 8.000% BBB 822,035
-----------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.1%
21,700 General Electric Company, Series GE (CORTS) 6.800% AAA 564,851
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 16.4%
622,600 Ace Ltd., Series C 7.800% Baa2 16,249,860
1,161,650 Aegon N.V. 6.375% A- 29,343,279
37,000 Aegon N.V. 6.500% A- 920,560
2,800 Allstate Corporation (PCARS) 7.150% A2 70,924
10,500 AMBAC Financial Group Inc. 7.000% AA 264,810
21,500 AMBAC Financial Group Inc. 5.950% AA 516,000
2,800 AMBAC Financial Group Inc. 5.875% AA 66,948
211,400 Delphi Financial Group, Inc. 8.000% BBB 5,515,426
338,000 EverestRe Capital Trust II 6.200% Baa1 7,486,700
86,800 EverestRe Group Limited 7.850% Baa1 2,211,664
5,000 Financial Security Assurance Holdings 6.875% AA 127,300
4,600 Financial Security Assurance Holdings 6.250% AA 116,472
1,400 Financial Security Assurance Holdings 5.600% AA 31,486
205,377 Hartford Capital Trust III, Series C 7.450% Baa1 5,189,877
53,400 Hartford Life Capital Trust II, Series B 7.625% Baa1 1,360,632
79,600 Lincoln National Capital Trust V, Series E 7.650% Baa1 2,022,636
34,500 Lincoln National Capital Trust VI 6.750% Baa1 872,850
10,400 MetLife Inc. 5.875% A 249,808
616,400 MetLife Inc., Series B, (3) 6.500% Baa1 15,977,088
126,300 PartnerRe Limited 7.900% A3 3,220,650
292,500 PartnerRe Limited, Series C 6.750% BBB+ 7,069,725
72,700 PartnerRe Limited, Series D 6.500% BBB+ 1,703,361
80,000 PLC Capital Trust III 7.500% BBB+ 2,036,800
411,800 PLC Capital Trust IV 7.250% BBB+ 10,492,664
6,500 PLC Capital Trust V 6.125% BBB+ 154,635
264,165 Prudential plc 6.750% A 6,807,532
125,650 RenaissanceRe Holdings Ltd., Series A 8.100% BBB+ 3,176,432
61,100 RenaissanceRe Holdings Ltd., Series B 7.300% BBB 1,543,386
13,900 RenaissanceRe Holdings Ltd., Series C 6.080% BBB+ 280,780
40,000 Safeco Capital Trust I (CORTS) 8.700% Baa2 1,120,800
32,300 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 843,192
6,800 Safeco Capital Trust III (CORTS) 8.072% Baa2 179,520
1,900 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 49,571
31,500 Saint Paul Capital Trust I 7.600% Baa1 807,975
62,800 Torchmark Capital Trust I 7.750% A- 1,620,868
3,500 Torchmark Capital Trust II 7.750% A- 89,775
5,500 W.R. Berkley (CORTS) 8.250% BBB- 140,910
27,900 W.R. Berkley Capital Trust, Series 2002-1,
(CBTCS) 8.125% BBB- 283,464
315,400 W.R. Berkley Corporation 6.750% BBB- 7,885,000
391,854 XL Capital Ltd, Series A 8.000% Baa1 9,968,766
75,200 XL Capital Ltd, Series B 7.625% Baa1 1,917,600
-----------------------------------------------------------------------------------------------------------------------------------
Total Insurance 149,987,726
-----------------------------------------------------------------------------------------------------------------------------------
IT Services - 0.1%
29,400 Vertex Industries Inc. (PPLUS) 7.625% A+ 752,493
-----------------------------------------------------------------------------------------------------------------------------------
Media - 0.4%
124,800 CBS Corporation 7.300% BBB+ 3,138,720
9,600 The Walt Disney Company 7.000% A- 244,800
-----------------------------------------------------------------------------------------------------------------------------------
Total Media 3,383,520
-----------------------------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0%
4,100 Nordstrom Inc. (CORTS) 7.625% A- 105,370
-----------------------------------------------------------------------------------------------------------------------------------
16
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.7%
98,100 Dominion CNG Capital Trust I 7.800% Baa1 $ 2,503,512
58,600 Dominion Resources Capital Trust II 8.400% Baa2 1,490,198
100,400 Energy East Capital Trust I 8.250% BBB- 2,576,264
-----------------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 6,569,974
-----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 1.8%
532,332 Nexen, Inc. 7.350% Baa3 13,744,812
108,500 TransCanada Pipeline 8.250% A3 2,800,385
-----------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 16,545,197
-----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1%
23,000 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 588,800
12,800 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 328,064
-----------------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 916,864
-----------------------------------------------------------------------------------------------------------------------------------
Real Estate - 25.1%
50,458 AMB Property Corporation, Series M 6.750% Baa2 1,230,671
13,400 AvalonBay Communities, Inc., Series H 8.700% BBB 365,820
409,400 BRE Properties, Series B 8.080% BBB- 10,349,632
17,800 BRE Properties, Series C 6.750% BBB- 440,016
42,644 BRE Properties, Series D 6.750% Baa3 1,044,778
487,209 CarrAmerica Realty Corporation, Series E 7.500% BBB- 12,302,027
29,600 Developers Diversified Realty Corporation 7.500% Ba1 740,000
56,900 Developers Diversified Realty Corporation, Series F 8.600% BBB- 1,461,192
47,300 Developers Diversified Realty Corporation, Series G 8.000% BBB- 1,213,245
404,900 Developers Diversified Realty Corporation, Series H 7.375% BBB- 10,082,010
156,800 Duke Realty Corporation, Series L 6.600% Baa2 3,797,696
157,779 Duke-Weeks Realty Corporation, Series B 7.990% BBB 7,967,840
8,000 Duke-Weeks Realty Corporation, Series I 8.450% BBB 200,400
1,099,100 Equity Office Properties Trust, Series G 7.750% BBB- 27,983,086
25,800 Equity Residential Properties Trust, Series D 8.600% BBB 658,932
10,600 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 272,314
19,000 Firstar Realty LLC, 144A 8.875% Aa3 25,151,250
57,900 Harris Preferred Capital Corporation, Series A 7.375% A1 1,456,185
2,800 HRPT Properties Trust, Series A 9.875% BBB- 71,204
1,039,210 HRPT Properties Trust, Series B 8.750% BBB- 26,915,539
22,000 New Plan Excel Realty Trust, Series D 7.800% BBB- 1,130,250
418,600 New Plan Excel Realty Trust, Series E 7.625% BBB- 10,527,790
10,000 Prologis Trust, Series F 6.750% BBB 247,900
107,000 Prologis Trust, Series G 6.750% BBB 2,642,900
328,400 PS Business Parks, Inc. 7.000% BBB- 7,947,280
57,000 PS Business Parks, Inc., Series I 6.875% BBB- 1,330,950
240,000 PS Business Parks, Inc., Series L 7.600% BBB- 6,084,000
4,100 Public Storage, Inc. 7.125% BBB+ 104,345
64,800 Public Storage, Inc., Series C 6.600% BBB+ 1,562,976
90,000 Public Storage, Inc., Series D 6.180% BBB+ 2,004,300
2,900 Public Storage, Inc., Series E 6.750% BBB+ 71,775
59,400 Public Storage, Inc., Series F 6.450% BBB+ 1,372,140
23,100 Public Storage, Inc., Series Q 8.600% BBB+ 577,962
116,600 Public Storage, Inc., Series R 8.000% BBB+ 2,951,146
209,600 Public Storage, Inc., Series S 7.875% BBB+ 5,317,552
16,500 Public Storage, Inc., Series T 7.625% BBB+ 418,440
40,680 Public Storage, Inc., Series U 7.625% BBB+ 1,029,611
347,600 Public Storage, Inc., Series V 7.500% BBB+ 8,971,556
6,971 Public Storage, Inc., Series X 6.450% BBB+ 161,588
93,500 Realty Income Corporation 7.375% BBB- 2,398,275
47,500 Regency Centers Corporation 7.450% BBB- 1,199,375
22,400 Regency Centers Corporation 7.250% BBB- 562,688
20,500 Simon Property Group, Inc., Series F 8.750% Baa2 521,725
176,600 Simon Property Group, Inc., Series G 7.890% BBB 9,094,900
17
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Real Estate (continued)
13,700 United Dominion Realty Trust 8.600% BBB- $ 352,364
323,633 Vornado Realty Trust, Series G 6.625% BBB- 7,547,122
67,700 Vornado Realty Trust, Series H 6.750% BBB- 1,604,490
189,300 Vornado Realty Trust, Series I 6.625% BBB- 4,395,546
489,900 Wachovia Preferred Funding Corporation 7.250% A2 13,687,806
2,000 Weingarten Realty Trust, Preferred Securities 6.750% A- 52,260
2,500 Weingarten Realty Trust, Series E 6.950% A- 63,875
-----------------------------------------------------------------------------------------------------------------------------------
Total Real Estate 229,638,724
-----------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1%
45,700 Sherwin Williams Company, Series III (CORTS) 7.250% A+ 1,189,114
5,900 Sherwin Williams Trust (CORTS) 7.500% A+ 152,397
-----------------------------------------------------------------------------------------------------------------------------------
Total Specialty Retail 1,341,511
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 2.3%
11,000 Countrywide Capital Trust II, Series II, (CORTS) 8.000% BBB+ 280,500
12,200 Countrywide Capital Trust III (PPLUS) 8.050% BBB+ 318,054
799,020 Countrywide Capital Trust IV 6.750% BBB+ 20,159,275
4,600 Washington Mutual Incorporated (CORTS) 7.750% Baa1 116,380
-----------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 20,874,209
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Agency - 1.8%
110,300 Fannie Mae, (3) 6.129% AA- 5,533,200
19,000 Federal Home Loan Mortgage Corporation 5.300% AA- 846,095
23,500 Federal Home Loan Mortgage Corporation 5.810% Aa3 1,116,250
58,300 Federal Home Loan Mortgage Corporation, (3) 6.000% AA- 2,827,550
65,600 Federal Home Loan Mortgage Corporation, (3) 6.140% Aa3 3,266,880
12,000 Federal Home Loan Mortgage Corporation, (3) 5.100% AA- 513,750
58,600 Federal Home Loan Mortgage Corporation, (3) 5.100% AA- 2,519,800
-----------------------------------------------------------------------------------------------------------------------------------
Total U.S. Agency 16,623,525
-----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 2.2%
355,846 Telephone and Data Systems Inc. 7.600% A- 8,921,054
159,700 United States Cellular Corporation 8.750% A- 4,185,737
283,900 United States Cellular Corporation 7.500% A- 7,154,280
-----------------------------------------------------------------------------------------------------------------------------------
Total Wireless Telecommunication Services 20,261,071
-----------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $759,528,748) 770,019,571
---------------------------------------------------------------------------------------------------------------------
Principal
Amount (000) Description(1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds - 0.7% (0.5% of Total Investments)
Commercial Banks - 0.1%
$ 1,000 HBOS plc, Series 144A 6.413% 9/29/49 A1 1,015,000
-----------------------------------------------------------------------------------------------------------------------------------
Household Durables - 0.4%
3,700 Stanley Works Capital Trust I, 144A 5.902% 12/01/45 Baa1 3,682,862
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.2%
1,800 AIG Capital Trust I, 144A 5.900% 12/21/65 A 1,808,995
-----------------------------------------------------------------------------------------------------------------------------------
6,500 Total Corporate Bonds (cost $6,458,419) 6,506,857
-----------------------------------------------------------------------------------------------------------------------------------
Principal
Amount (000)
/Shares Description(1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Capital Preferred Securities - 58.0% (39.5% of
Total Investments)
Capital Markets - 6.5%
2,500 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 2,659,305
2,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 2,113,602
1,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 1,057,300
18
Principal
Amount (000)
/Shares Description(1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Capital Markets (continued)
7,900 BT Preferred Capital Trust II 7.875% 2/25/27 A2 $ 8,390,574
2,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 2,333,147
11,250 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 11,636,663
16,463 First Union Institutional Capital
Securities I 8.040% 12/01/26 A1 17,469,301
5,500 UBS Preferred Funding Trust I 8.622% 10/29/49 AA- 6,297,703
7,250 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 7,815,333
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 59,772,928
-----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 31.3%
9,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 9,222,129
18,250 Abbey National Capital Trust I 8.963% 6/30/50 A2 24,903,895
3,000 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 3,082,542
2,500 Bank One Capital III 8.750% 9/01/30 A1 3,370,302
1,500 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 1,591,515
7,200 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 8,315,690
3,000 Centura Capital Trust I, 144A 8.845% 6/01/27 A2 3,264,099
2,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 2,120,678
1,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 1,883,000
1,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 1,058,388
1,000 First Empire Capital Trust II 8.277% 6/01/27 Baa1 1,076,179
1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 1,665,264
25,500 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 25,930,542
5,750 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 6,735,665
17,150 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 26,276,201
12,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A2 13,888,896
2,000 KeyCorp Capital III 7.750% 7/15/29 A3 2,426,252
2,000 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 2,117,938
8,850 Lloyds TSB Bank plc, Subordinated Note 6.900% 11/22/49 Aa2 8,997,414
11,150 NB Capital Trust II 7.830% 12/15/26 Aa3 11,829,526
7,655 Nordbanken AB, 144A 8.950% 11/29/49 A 8,644,700
1,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 A3 1,069,163
8,000 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 8,577,232
200 PFCI Capital Corporation 7.750% 8/17/52 A- 5,406,260
19,000 PNC Institutional Capital Securities, 144A 7.950% 12/15/26 A3 20,150,412
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 2,063,752
16,000 RBS Capital Trust B 6.800% 12/31/49 A1 16,246,704
17,500 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 19,088,457
1,400 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 1,476,675
2,000 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 2,081,728
5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 5,038,150
23,000 Summit Capital Trust I, Capital Securities 8.400% 3/15/27 Aa3 24,568,140
1,800 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 2,067,561
2,000 Union Planters Capital Trust A 8.200% 12/15/26 A2 2,125,360
4,000 Wachovia Capital Trust I, Capital Securities, 144A 7.640% 1/15/27 A1 4,236,096
3,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 3,204,048
-----------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 285,800,553
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 3.9%
4,250 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 4,363,003
1,500 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A+ 1,737,981
3,000 Citigroup Capital X 6.100% 9/30/33 Aa2 73,170
19,500 JPM Capital Trust II 7.950% 2/01/27 A1 20,780,195
8,100 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 8,520,026
-----------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 35,474,375
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 1.6%
11,250 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 A- 14,575,781
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 9.2%
7,570 Ace Capital Trust II 9.700% 4/01/30 Baa1 10,562,928
1,000 Allstate Financing II 7.830% 12/01/45 A2 1,055,437
2,000 American General Capital II 8.500% 7/01/30 Aa3 2,694,616
19
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of Investments December 31, 2005
Principal
Amount (000)
/Shares Description(1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Insurance (continued)
2,500 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ $ 2,489,160
4,000 MIC Financing Trust I 8.375% 2/01/27 A+ 4,099,404
7,000 Prudential plc 6.500% 6/29/49 A 6,946,674
2,000 RenaissanceRe Capital Trust 8.540% 3/01/27 BBB+ 2,083,670
26,216 Sun Life Canada Capital Trust, Capital Securities,
144A 8.526% 5/06/47 A+ 28,271,098
24,373 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 26,386,673
-----------------------------------------------------------------------------------------------------------------------------------
Total Insurance 84,589,660
-----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 3.6%
4,000 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 4,285,908
5,860 KN Capital Trust III 7.630% 4/15/28 Baa3 6,506,241
20,900 Phillips 66 Capital Trust II 8.000% 1/15/37 A3 22,249,325
-----------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 33,041,474
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 1.6%
8,500 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 9,306,676
5,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 5,340,700
-----------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 14,647,376
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Agency - 0.3%
68,600 Fannie Mae 5.100% 4/15/49 AA- 2,939,085
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities
(cost $517,549,398) 530,841,232
---------------------------------------------------------------------------------------------------------------------
Principal
Amount (000) Description(1) Coupon Maturity Value
-----------------------------------------------------------------------------------------------------------------------------------
Short-Term Investments - 2.5% (1.7% of Total Investments)
Repurchase Agreement with State Street Bank,
dated 12/30/05, repurchase price $22,690,959,
collateralized by $16,830,000 U.S. Treasury
$ 22,683 Bonds, 7.875%, due 2/15/21, valued at $23,141,250 3.250% 1/03/06 22,682,768
============----------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $22,682,768) 22,682,768
---------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,318,535,020) - 146.6% 1,342,619,630
---------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 12,978,094
---------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (48.1)% (440,000,000)
---------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 915,597,724
=====================================================================================================================
Interest Rate Swaps outstanding at December 31, 2005
Fixed Rate
Paid Fixed Rate Floating Rate Floating Rate Unrealized
Notional by the Fund Payment Received Payment Termination Appreciation
Counterparty Amount (annualized) Frequency by the Fund(4) Frequency Date (Depreciation)
---------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $ 55,000,000 4.604% Monthly 4.320% Monthly 6/06/2006 $ 5,370
Citigroup Inc. 55,000,000 4.713% Monthly 4.320% Monthly 12/06/2006 25,223
Citigroup Inc. 110,000,000 3.860% Monthly 4.380% Monthly 8/29/2007 1,536,032
Citigroup Inc. 110,000,000 4.350% Monthly 4.380% Monthly 8/29/2009 1,444,477
---------------------------------------------------------------------------------------------------------------------
$ 3,011,102
=====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on
net assets applicable to Common shares unless otherwise noted.
(2) Ratings (not covered by the report of independent registered public
accounting firm): Using the higher of Standard & Poor's or Moody's
rating. Ratings below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poor's Group are considered to be below investment grade.
(3) Security is eligible for the Dividends Received Deduction.
(4) Based on LIBOR (London Inter-Bank Offered Rate).
N/R Investment is not rated.
144A Securities are exempt from registration under Rule 144A of the
Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally
those transactions with qualified institutional buyers.
CBTCS Corporate Backed Trust Certificates.
CORTS Corporate Backed Trust Securities.
PCARS Public Credit and Repackaged Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
20
Nuveen Quality Preferred Income Fund 2 (JPS)
Portfolio of Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Securities - 1.5%
(1.0% of Total Investments)
Diversified Financial Services - 0.1%
31,546 Citigroup Global Markets 2.000% Aa1 $ 1,546,069
-----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 0.1%
30,533 FPL Group Inc. 8.000% A- 1,892,130
-----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0%
28,484 Albertson's, Inc. 7.250% BBB- 642,314
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.1%
118,000 XL Capital Ltd 6.500% A2 2,636,120
-----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.9%
282,689 Dominion Resources Inc. 8.750% Baa1 14,702,655
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 0.3%
172,300 PMI Group Inc. 5.875% A1 4,247,195
-----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $23,056,240) 25,666,483
---------------------------------------------------------------------------------------------------------------------
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
$25 Par (or similar) Securities - 82.2%
(57.2% of Total Investments)
Automobiles - 0.0%
4,300 Daimler Chrysler, Series DCX (CORTS) 7.500% A3 100,405
2,400 Daimler Chrysler, Series DCX (CORTS) 8.250% A3 61,176
3,000 Daimler Chrysler, Series DCX (CORTS) 6.875% A3 63,060
3,400 DaimlerChrysler AG (CORTS) 7.875% A3 83,708
23,300 DaimlerChrysler Corp. (PPLUS) 7.250% A3 561,530
-----------------------------------------------------------------------------------------------------------------------------------
Total Automobiles 869,879
-----------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 5.1%
103,100 Bear Stearns Capital Trust III 7.800% A2 2,623,895
19,300 BNY Capital Trust IV, Series E 6.875% A1 485,395
51,300 BNY Capital Trust V, Series F 5.950% A1 1,242,999
395,625 Compass Capital Trust III 7.350% A3 10,017,225
28,600 CSFB USA, Series 2002-10 (SATURNS) 7.000% Aa3 719,290
63,300 First Union Capital II, Series II (CORTS) 7.500% A1 1,644,534
31,300 First Union Institutional Capital II (CORTS) 8.200% A1 845,413
6,300 Goldman Sachs Capital I (CORTS) 6.000% A1 148,019
2,100 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 48,657
179,900 Goldman Sachs Group Inc., (3) 6.200% A2 4,587,450
9,900 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 231,660
2,000 Goldman Sachs Group Inc., Series GSG-1 (PPLUS) 6.000% Aa3 47,340
3,000 Goldman Sachs Group Inc., Series GSG-2 (PPLUS) 5.750% Aa3 68,220
3,000 Goldman Sachs Group Inc., Series 2003-11 (SATURNS) 5.625% Aa3 66,720
13,700 Goldman Sachs Group Inc., Series 2004-04 (SATURNS) 6.000% A1 318,525
1,600 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 37,280
3,800 Goldman Sachs Group Incorporated (SATURNS) 5.750% Aa3 85,196
323,800 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 8,124,142
102,900 Lehman Brothers Holdings Capital Trust IV, Series L 6.375% A2 2,583,819
58,800 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 1,406,496
42,000 Lehman Brothers Holdings Inc., Series C, (3) 5.940% BBB+ 2,100,000
70,000 Lehman Brothers Holdings Inc., Series F, (3) 6.500% A- 1,837,500
122,400 Merrill Lynch Capital Trust II 8.000% A1 3,167,712
107,900 Merrill Lynch Preferred Capital Trust 7.750% A1 2,762,240
209,300 Merrill Lynch Preferred Capital Trust III 7.000% A1 5,362,266
21
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Capital Markets (continued)
129,700 Merrill Lynch Preferred Capital Trust IV 7.120% A1 $ 3,337,181
228,700 Merrill Lynch Preferred Capital Trust V 7.280% A1 5,973,644
55,200 Morgan Stanley (PPLUS) 7.050% Aa3 1,410,360
168,008 Morgan Stanley Capital Trust II 7.250% A1 4,279,164
459,900 Morgan Stanley Capital Trust III 6.250% A1 11,216,961
380,000 Morgan Stanley Capital Trust IV 6.250% A1 9,211,200
43,500 Morgan Stanley Capital Trust V 5.750% A+ 989,190
46,400 UBS Preferred Funding Trust III 7.250% AA- 1,176,240
44,500 Washington Mutual Capital Trust I,
Series 2001-22, Class A-1 (CORTS) 7.650% Baa1 1,123,625
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 89,279,558
-----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 11.0%
119,000 ABN AMRO Capital Fund Trust V 5.900% A 2,819,110
7,000 ABN AMRO Capital Trust Fund VII 6.080% A 170,800
158,960 ASBC Capital I 7.625% Baa1 4,072,555
136,100 BAC Capital Trust I 7.000% Aa3 3,451,496
168,500 BAC Capital Trust II 7.000% Aa3 4,290,010
218,300 BAC Capital Trust III 7.000% Aa3 5,568,833
304,100 Banco Santander 6.410% A2 7,632,910
54,100 Banco Totta & Acores Finance, Series A 8.875% A3 1,386,313
11,400 BancorpSouth Capital Trust I 8.150% Baa2 290,016
731,000 Banesto Holdings, Series A, 144A 10.500% A2 21,930,000
204,000 Bank One Capital Trust VI 7.200% A1 5,210,160
67,300 BankNorth Capital Trust II 8.000% A3 1,734,994
121,500 Chittenden Capital Trust I 8.000% Baa1 3,118,905
225,500 Cobank ABC, 144A, (3) 7.000% N/R 11,663,086
268,700 Comerica Capital Trust I 7.600% A3 6,784,675
362,100 HSBC Finance Corporation 6.875% A1 9,407,358
36,500 HSBC Finance Corporation 6.000% A1 889,140
39,600 KeyCorp (PCARS) 7.500% A3 1,005,840
8,500 KeyCorp Capital Trust V 5.875% A3 199,325
32,500 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 846,625
99,000 KeyCorp, Series B (CORTS) 8.250% A3 2,485,890
270,400 National Commerce Capital Trust II 7.700% A1 6,895,200
5,000 National Westminster Bank plc 7.760% Aa3 128,050
112,200 National Westminster Bank plc, Series A 7.875% Aa2 2,851,002
5,800 PNC Capital Trust 6.125% A3 139,954
50,500 Regions Finance Trust I 8.000% A2 1,270,075
596,876 Royal Bank of Scotland Group plc, Series N 6.350% A1 14,999,494
173,800 SunTrust Capital Trust IV 7.125% A1 4,391,926
162,200 SunTrust Capital Trust V 7.050% A1 4,105,282
714,300 USB Capital Trust III 7.750% Aa3 18,200,364
315,800 USB Capital Trust IV 7.350% Aa3 8,062,374
132,200 USB Capital Trust V 7.250% Aa3 3,351,270
63,300 USB Capital Trust VI 5.750% Aa3 1,448,304
118,600 USB Capital Trust VII 5.875% Aa3 2,765,752
92,300 VNB Capital Trust I 7.750% Baa1 2,351,804
55,900 Wells Fargo Capital Trust IX 5.625% Aa2 1,278,992
38,700 Wells Fargo Capital Trust IV 7.000% Aa2 989,172
301,600 Wells Fargo Capital Trust V 7.000% Aa2 7,624,448
43,100 Wells Fargo Capital Trust VI 6.950% Aa2 1,088,706
61,300 Wells Fargo Capital Trust VII 5.850% Aa2 1,473,039
578,650 Zions Capital Trust B 8.000% Baa1 15,079,619
-----------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 193,452,868
-----------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.1%
22,400 IBM Inc. (CORTS) 7.125% A+ 564,256
9,100 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 230,685
20,200 IBM Trust II (CORTS) 7.125% A+ 507,828
39,200 IBM Trust III (CORTS) 7.200% A+ 1,003,912
-----------------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 2,306,681
-----------------------------------------------------------------------------------------------------------------------------------
22
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 2.4%
620,196 Household Capital Trust VI 8.250% A2 $ 15,752,978
73,600 Household Capital Trust VII 7.500% A2 1,879,744
917,000 HSBC Finance Corporation 6.360% A3 23,429,350
39,900 SLM Corporation 6.000% A 945,630
-----------------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 42,007,702
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 9.3%
78,800 BBVA Preferred Capital Ltd., Series B 7.750% A1 1,987,730
407,000 CIT Group Inc., Series A, (3) 6.350% BBB+ 10,520,950
38,100 CIT Group Incorporated (CORTS) 7.750% A3 1,027,938
14,900 Citigroup Capital Trust IX 6.000% Aa2 360,878
476,200 Citigroup Capital Trust VII 7.125% Aa2 12,081,194
828,207 Citigroup Capital Trust VIII 6.950% Aa2 20,887,381
37,300 Citigroup Capital Trust XI 6.000% Aa2 910,493
36,900 Citigroup Inc., Series H, (3) 6.231% Aa3 1,933,560
39,000 Citigroup Inc., Series M, (3) 5.864% Aa3 1,994,850
10,400 Citigroup, Series CIT (CORTS) 6.750% A3 261,040
14,100 General Electric Capital Corporation 5.875% AAA 343,758
300,700 General Electric Capital Corporation 6.100% AAA 7,586,661
199,700 General Electric Capital Corporation 6.625% AAA 5,044,422
3,900 General Electric Capital Corporation, (CORTS) 6.000% AAA 96,525
1,445,555 ING Group N.V. 7.050% A 36,991,752
1,523,600 ING Group N.V. 7.200% A 39,110,812
11,000 ING Group N.V. 6.200% A 272,800
91,500 JPM Capital Trust (CORTS) 7.200% A2 2,368,935
11,600 JPM Capital Trust I, Series 2001-1,
Class A-1 (CORTS) 7.850% A1 301,484
9,700 JPMorgan Chase & Company (PCARS) 7.125% A2 242,694
366,000 JPMorgan Chase Capital Trust IX, Series I 7.500% A1 9,329,340
203,600 JPMorgan Chase Capital Trust X 7.000% A1 5,177,548
22,156 JPMorgan Chase Capital Trust XI 5.875% A1 512,911
210,900 JPMorgan Chase Capital Trust XVI 6.350% A1 5,276,718
52,900 JPMorgan Chase Trust, Series 2002-6,
Class A (SATURNS) 7.125% A1 1,364,820
-----------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 165,987,194
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 0.6%
114,999 AT&T Inc. 7.000% A 2,884,175
17,500 BellSouth Capital Funding (CORTS) 7.100% A1 450,975
33,300 BellSouth Corporation 7.125% A 837,495
21,600 BellSouth Corporation (CORTS) 7.000% Aa3 541,944
16,300 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 407,989
15,100 BellSouth Corporation, Series BLS, (CORTS) 7.000% A 386,636
16,300 BellSouth Inc. (CORTS) 7.000% A 421,192
28,400 BellSouth Telecommunications (PPLUS) 7.300% Aa3 714,260
30,600 Verizon Communications (CORTS) 7.625% A+ 782,136
7,600 Verizon Communications (CORTS) 7.375% A+ 193,952
70,100 Verizon Global Funding Corporation (SATURNS) 7.500% A+ 1,781,942
22,100 Verizon New England Inc., Series B 7.000% A3 563,550
13,000 Verizon South Inc., Series F 7.000% A 329,420
-----------------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 10,295,666
-----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 4.8%
189,500 Alabama Power Company, (3) 5.830% BBB+ 4,620,010
2,800 Consolidated Edison Company 7.250% A2 71,764
17,200 Consolidated Edison Company of New York Inc. 7.500% A1 434,300
27,400 DTE Energy Trust I 7.800% Baa3 697,604
1,600 Entergy Arkansas Inc. 6.000% AAA 40,048
5,500 Entergy Arkansas Inc. 6.700% AAA 138,710
56,750 Entergy Louisiana Inc. 7.600% A- 1,440,883
1,299,100 Entergy Mississippi Inc. 7.250% A- 33,672,672
3,000 Georgia Power Capital Trust V 7.125% A3 75,690
1,800 Georgia Power Capital Trust VII 5.875% A3 43,650
30,900 Georgia Power Company 5.700% AAA 753,651
23
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities (continued)
941,500 Interstate Power and Light Company, Series B, (3) 8.375% BBB- $ 31,399,025
2,500 Mississippi Power Company 5.625% AAA 59,925
8,900 National Rural Utilities Cooperative
Finance Corporation 7.600% A3 224,458
30,200 National Rural Utilities Cooperative
Finance Corporation 7.400% A3 773,120
1,700 National Rural Utilities Cooperative
Finance Corporation 6.750% A3 43,163
18,400 National Rural Utilities Cooperative
Finance Corporation 5.950% A3 434,240
53,200 Public Service Company of Oklahoma, Series B 6.000% AAA 1,341,704
2,900 Southern Company Capital Trust I (CORTS) 7.375% BBB+ 74,965
3,700 Tennessee Valley Authority, Series A 4.081% AAA 89,207
59,800 Tennessee Valley Authority, Series D 6.750% AAA 1,435,200
265,500 Virginia Power Capital Trust 7.375% Baa1 6,802,110
-----------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 84,666,099
-----------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.7%
122,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 12,253,375
-----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.1%
53,500 AGL Capital Trust II 8.000% BBB 1,361,575
-----------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.1%
62,900 Aetna Inc. 8.500% BBB+ 1,602,692
-----------------------------------------------------------------------------------------------------------------------------------
Industrial Conglomerates - 0.0%
8,600 General Electric Company, Series GE (CORTS) 6.800% AAA 223,858
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 19.2%
972,600 Ace Ltd., Series C 7.800% Baa2 25,384,860
2,119,800 Aegon N.V. 6.375% A- 53,546,148
131,200 Aegon N.V. 6.500% A- 3,264,256
21,300 AMBAC Financial Group Inc. 7.000% AA 537,186
56,600 AMBAC Financial Group Inc. 5.950% AA 1,358,400
4,800 AMBAC Financial Group Inc. 5.875% AA 114,768
479,357 Delphi Financial Group, Inc. 8.000% BBB 12,506,424
2,417,400 EverestRe Group Limited 7.850% Baa1 61,595,352
55,900 Financial Security Assurance Holdings 6.875% AA 1,423,214
704,200 Financial Security Assurance Holdings 6.250% AA 17,830,344
11,700 Financial Security Assurance Holdings 5.600% AA 263,133
369,200 Hartford Capital Trust III, Series C 7.450% Baa1 9,329,684
105,300 Hartford Life Capital Trust II, Series B 7.625% Baa1 2,683,044
94,000 Lincoln National Capital Trust V, Series E 7.650% Baa1 2,388,540
55,300 Lincoln National Capital Trust VI 6.750% Baa1 1,399,090
7,500 MetLife Inc. 5.875% A 180,150
1,097,500 MetLife Inc., Series B, (3) 6.500% Baa1 28,447,200
301,581 PartnerRe Limited 7.900% A3 7,690,316
644,020 PartnerRe Limited, Series C 6.750% BBB+ 15,565,963
27,400 PartnerRe Limited, Series D 6.500% BBB+ 641,982
108,700 PLC Capital Trust III 7.500% BBB+ 2,767,502
453,140 PLC Capital Trust IV 7.250% BBB+ 11,546,007
19,600 PLC Capital Trust V 6.125% BBB+ 466,284
5,600 Prudential Financial Inc. (CORTS) 6.000% A- 132,664
223,000 Prudential plc 6.750% A 5,746,710
324,060 RenaissanceRe Holdings Ltd., Series A 8.100% BBB+ 8,192,237
145,800 RenaissanceRe Holdings Ltd., Series B 7.300% BBB 3,682,908
20,200 RenaissanceRe Holdings Ltd., Series C 6.080% BBB+ 408,040
90,500 Safeco Capital Trust I (CORTS) 8.700% Baa2 2,535,810
21,100 Safeco Capital Trust I (CORTS) 8.750% Baa2 624,560
59,900 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 1,563,690
4,800 Safeco Capital Trust III (CORTS) 8.072% Baa2 126,720
3,100 Safeco Capital Trust IV (CORTS) 8.375% Baa2 83,127
2,600 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 67,093
8,100 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 211,329
129,500 Saint Paul Capital Trust I 7.600% Baa1 3,321,675
24
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Insurance (continued)
132,300 Torchmark Capital Trust I 7.750% A- $ 3,414,663
6,900 Torchmark Capital Trust II 7.750% A- 176,985
21,200 W.R. Berkley (CORTS) 8.250% BBB- 543,144
26,800 W.R. Berkley Capital Trust, Series 2002-1 (CBTCS) 8.125% BBB- 272,288
711,146 W.R. Berkley Corporation 6.750% BBB- 17,778,650
570,300 XL Capital Ltd, Series A 8.000% Baa1 14,508,432
598,417 XL Capital Ltd, Series B 7.625% Baa1 15,259,634
-----------------------------------------------------------------------------------------------------------------------------------
Total Insurance 339,580,206
-----------------------------------------------------------------------------------------------------------------------------------
IT Services - 0.0%
16,100 Vertex Industries Inc. (PPLUS) 7.625% A+ 412,080
-----------------------------------------------------------------------------------------------------------------------------------
Media - 0.3%
166,800 CBS Corporation 7.300% BBB+ 4,195,020
18,200 The Walt Disney Company 7.000% A- 464,100
2,900 The Walt Disney Company (CORTS) 6.875% A- 74,385
-----------------------------------------------------------------------------------------------------------------------------------
Total Media 4,733,505
-----------------------------------------------------------------------------------------------------------------------------------
Multiline Retail - 0.0%
5,700 Nordstrom Inc. (CORTS) 7.625% A- 146,490
-----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.4%
119,400 Dominion CNG Capital Trust I 7.800% Baa1 3,047,088
46,300 Dominion Resources Capital Trust II 8.400% Baa2 1,177,409
120,200 Energy East Capital Trust I 8.250% BBB- 3,084,332
-----------------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 7,308,829
-----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 1.6%
910,411 Nexen, Inc. 7.350% Baa3 23,506,812
151,900 TransCanada Pipeline 8.250% A3 3,920,539
-----------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 27,427,351
-----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.0%
13,700 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 350,720
7,300 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 187,099
-----------------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 537,819
-----------------------------------------------------------------------------------------------------------------------------------
Real Estate - 21.0%
95,400 AvalonBay Communities, Inc., Series H 8.700% BBB 2,604,420
16,400 BRE Properties, Series B 8.080% BBB- 414,592
356,900 BRE Properties, Series C 6.750% BBB- 8,822,568
81,006 BRE Properties, Series D 6.750% Baa3 1,984,647
925,955 CarrAmerica Realty Corporation, Series E 7.500% BBB- 23,380,364
40,467 Developers Diversified Realty Corporation 7.500% Ba1 1,011,675
135,925 Developers Diversified
Realty Corporation, Series F 8.600% BBB- 3,490,554
639,813 Developers Diversified Realty
Corporation, Series G 8.000% BBB- 16,411,203
183,623 Developers Diversified Realty
Corporation, Series H 7.375% BBB- 4,572,213
5,600 Duke-Weeks Realty Corporation 6.625% BBB 137,928
220,650 Duke-Weeks Realty Corporation, Series B 7.990% BBB 11,142,825
39,900 Duke-Weeks Realty Corporation, Series I 8.450% BBB 999,495
298,900 Duke Realty Corporation, Series L 6.600% Baa2 7,239,358
380,900 Equity Office Properties Trust, Series G 7.750% BBB- 9,697,714
54,000 Equity Residential Properties Trust, Series C 9.125% BBB 1,370,520
68,250 Equity Residential Properties Trust, Series D 8.600% BBB 1,743,105
36,484 Equity Residential Properties Trust, Series N 6.480% BBB 870,873
332,800 Federal Realty Investment Trust 8.500% BBB- 8,576,256
18,300 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 470,127
16,800 Harris Preferred Capital Corporation, Series A 7.375% A1 422,520
213,100 HRPT Properties Trust, Series A 9.875% BBB- 5,419,133
1,579,825 HRPT Properties Trust, Series B 8.750% BBB- 40,917,468
149,500 Kimco Realty Corporation, Series F 6.650% BBB+ 3,842,150
199,550 New Plan Excel Realty Trust, Series D 7.800% BBB- 10,251,881
25
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Real Estate (continued)
770,900 New Plan Excel Realty Trust, Series E 7.625% BBB- $ 19,388,135
1,700 Prologis Trust, Series F 6.750% BBB 42,143
97,728 Prologis Trust, Series G 6.750% BBB 2,413,882
734,970 PS Business Parks, Inc. 7.000% BBB- 17,786,274
107,600 PS Business Parks, Inc., Series I 6.875% BBB- 2,512,460
401,000 PS Business Parks, Inc., Series L 7.600% BBB- 10,165,350
6,000 Public Storage, Inc. 7.125% BBB+ 152,700
230,400 Public Storage, Inc., Series C 6.600% BBB+ 5,557,248
35,200 Public Storage, Inc., Series D 6.180% BBB+ 783,904
38,600 Public Storage, Inc., Series E 6.750% BBB+ 955,350
60,066 Public Storage, Inc., Series F 6.450% BBB+ 1,387,525
86,300 Public Storage, Inc., Series Q 8.600% BBB+ 2,159,226
264,295 Public Storage, Inc., Series R 8.000% BBB+ 6,689,306
50,700 Public Storage, Inc., Series S 7.875% BBB+ 1,286,259
131,065 Public Storage, Inc., Series T 7.625% BBB+ 3,323,808
108,700 Public Storage, Inc., Series U 7.625% BBB+ 2,751,197
148,000 Public Storage, Inc., Series V 7.500% BBB+ 3,819,880
2,129 Public Storage, Inc., Series X 6.450% BBB+ 49,350
164,100 Realty Income Corporation 7.375% BBB- 4,209,165
309,100 Regency Centers Corporation 7.450% BBB- 7,804,775
245,100 Regency Centers Corporation 7.250% BBB- 6,156,912
16,100 Regency Centers Corporation 6.700% BBB- 394,450
34,500 Simon Property Group, Inc., Series F 8.750% Baa2 878,025
326,041 Simon Property Group, Inc., Series G 7.890% BBB 16,791,112
58,600 United Dominion Realty Trust 8.600% BBB- 1,507,192
9,200 Vornado Realty Trust, Series E 7.000% BBB- 232,024
22,300 Vornado Realty Trust, Series F 6.750% BBB- 529,625
213,940 Vornado Realty Trust, Series G 6.625% BBB- 4,989,081
112,800 Vornado Realty Trust, Series H 6.750% BBB- 2,673,360
226,700 Vornado Realty Trust, Series I 6.625% BBB- 5,263,974
2,461,900 Wachovia Preferred Funding Corporation 7.250% A2 68,785,486
156,500 Weingarten Realty Trust, Series E 6.950% A- 3,998,575
-----------------------------------------------------------------------------------------------------------------------------------
Total Real Estate 371,231,342
-----------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.1%
50,900 Sherwin Williams Company, Series III (CORTS) 7.250% A+ 1,324,418
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 1.5%
4,600 Countrywide Capital Trust II, Series II (CORTS) 8.000% BBB+ 117,300
1,043,000 Countrywide Capital Trust IV 6.750% BBB+ 26,314,890
-----------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 26,432,190
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Agency - 1.7%
2,800 Fannie Mae,(3) 4.750% AA- 114,292
20,300 Fannie Mae,(3) 5.810% AA- 1,015,000
70,200 Fannie Mae,(3) 5.125% AA- 3,101,436
83,500 Fannie Mae,(3) 6.129% AA- 4,188,778
34,000 Federal Home Loan Mortgage Corporation 5.300% AA- 1,514,064
124,200 Federal Home Loan Mortgage Corporation,(3) 6.000% AA- 6,023,700
58,700 Federal Home Loan Mortgage Corporation,(3) 6.140% Aa3 2,923,260
60,000 Federal Home Loan Mortgage Corporation,(3) 5.100% AA- 2,568,750
84,600 Federal Home Loan Mortgage Corporation,(3) 5.000% AA- 3,671,640
107,900 Federal Home Loan Mortgage Corporation,(3) 5.100% AA- 4,639,700
-----------------------------------------------------------------------------------------------------------------------------------
Total U.S. Agency 29,760,620
-----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 2.2%
164,900 Telephone and Data Systems Inc. 7.600% A- 4,134,043
1,319,200 United States Cellular Corporation 8.750% A- 34,576,232
-----------------------------------------------------------------------------------------------------------------------------------
Total Wireless Telecommunication Services 38,710,275
-----------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $1,429,627,569) 1,451,912,272
---------------------------------------------------------------------------------------------------------------------
26
Principal
Amount (000) Description(1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds - 0.7% (0.5% of Total Investments)
Commercial Banks - 0.1%
$ 2,000 HBOS plc, Series 144A 6.413% 9/29/49 A1 $ 2,030,000
-----------------------------------------------------------------------------------------------------------------------------------
Household Durables - 0.4%
7,000 Stanley Works Capital Trust I, 144A 5.902% 12/01/45 Baa1 6,967,576
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.2%
3,500 AIG Capital Trust I, 144A 5.900% 12/21/65 A 3,517,490
-----------------------------------------------------------------------------------------------------------------------------------
12,500 Total Corporate Bonds (cost $12,421,048) 12,515,066
-----------------------------------------------------------------------------------------------------------------------------------
Principal
Amount (000)/
Shares Description(1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Capital Preferred Securities - 57.3%
(39.8% of Total Investments)
Capital Markets - 7.3%
15,000 Ahmanson Capital Trust I, 144A 8.360% 12/01/26 Baa1 15,881,850
1,465 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 1,558,353
4,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 4,227,204
2,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 2,114,600
500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 531,049
5,000 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 5,184,770
18,600 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 19,239,282
5,050 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A- 5,439,390
1,000 First Security Capital I 8.410% 12/15/26 Aa2 1,067,636
17,095 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 21,755,285
25,000 Mellon Capital Trust I, Series A 7.720% 12/01/26 A2 26,487,125
3,240 State Street Institutional Capital Trust, 144A 7.940% 12/30/26 A1 3,439,228
19,800 UBS Preferred Funding Trust I 8.622% 10/29/49 AA- 22,671,733
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 129,597,505
-----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 30.5%
19,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 19,468,939
37,250 Abbey National Capital Trust I 8.963% 6/30/50 A2 50,831,238
7,100 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 7,295,349
6,500 Bank One Capital III 8.750% 9/01/30 A1 8,762,786
21,000 BankBoston Capital Trust I, Series B 8.250% 12/15/26 Aa3 22,373,631
5,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 5,305,050
36,000 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 41,578,452
2,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 2,120,678
3,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 4,098,294
1,500 First Empire Capital Trust I 8.234% 2/01/27 Baa1 1,601,266
1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 1,665,264
22,080 Fleet Capital Trust II 7.920% 12/11/26 Aa3 23,431,649
44,010 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 44,753,065
2,400 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 2,811,408
6,250 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 9,575,875
32,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A2 37,037,056
8,000 KeyCorp Capital III 7.750% 7/15/29 A3 9,705,008
2,500 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 2,647,423
13,500 Lloyds TSB Bank plc, Subordinated Note 6.900% 11/22/49 Aa2 13,724,869
25,000 M&I Capital Trust A 7.650% 12/01/26 A2 26,428,500
19,500 NB Capital Trust II 7.830% 12/15/26 Aa3 20,688,408
14,000 Nordbanken AB, 144A 8.950% 11/29/49 A 15,810,032
2,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 A3 2,138,326
8,000 North Fork Capital Trust II 8.000% 12/15/27 A3 8,657,160
2,000 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 2,144,308
290 PFCI Capital Corporation 7.750% 8/17/52 A- 7,828,264
33,085 PNC Institutional Capital Securities, 144A 7.950% 12/15/26 A3 35,088,231
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 2,063,752
13,100 RBS Capital Trust B 6.800% 12/31/49 A1 13,301,989
27
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of Investments December 31, 2005
Principal
Amount (000)/
Shares Description(1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks (continued)
$ 8,000 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R $ 8,726,152
500 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 527,384
17,500 Royal Bank of Scotland Group plc 9.118% 3/31/49 A1 20,065,885
5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 5,038,150
9,000 St. George Funding Company LLC, 144A 8.485% 12/31/47 Baa1 9,816,822
3,400 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 3,905,393
7,500 Union Planters Capital Trust A 8.200% 12/15/26 A2 7,970,100
240 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 26,955,000
10,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 10,680,160
-----------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 536,621,316
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 2.6%
2,750 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 2,823,120
1,000 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A+ 1,158,654
18,800 Citigroup Capital X 6.100% 9/30/33 Aa2 458,532
3,600 JPM Capital Trust I 7.540% 1/15/27 A1 3,802,666
22,085 JPM Capital Trust II 7.950% 2/01/27 A1 23,534,902
13,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 14,515,599
-----------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 46,293,473
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 2.2%
30,250 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 A- 39,192,656
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 10.8%
14,280 Ace Capital Trust II 9.700% 4/01/30 Baa1 19,925,841
2,000 Allstate Financing II 7.830% 12/01/45 A2 2,110,874
28,000 American General Institutional Capital, 144A 8.125% 3/15/46 Aa3 36,455,272
2,000 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 1,991,328
6,000 MIC Financing Trust I 8.375% 2/01/27 A+ 6,149,106
10,250 Prudential plc 6.500% 6/29/49 A 10,171,916
10,000 RenaissanceRe Capital Trust 8.540% 3/01/27 BBB+ 10,418,350
51,700 Sun Life Canada Capital Trust, Capital
Securities, 144A 8.526% 5/06/47 A+ 55,752,815
43,000 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 46,552,617
-----------------------------------------------------------------------------------------------------------------------------------
Total Insurance 189,528,119
-----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 1.3%
3,680 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 3,943,035
10,750 KN Capital Trust III 7.630% 4/15/28 Baa3 11,935,510
7,355 Phillips 66 Capital Trust II 8.000% 1/15/37 A3 7,829,846
-----------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 23,708,391
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 2.4%
5,595 Countrywide Capital Trust I 8.000% 12/15/26 BBB+ 5,725,621
8,460 Countrywide Capital Trust III, Series B 8.050% 6/15/27 BBB+ 10,198,259
11,825 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 12,947,228
13,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 13,885,820
-----------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 42,756,928
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Agency - 0.2%
64,434 Fannie Mae 5.100% 4/15/49 AA- 2,760,597
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $974,714,545) 1,010,458,985
---------------------------------------------------------------------------------------------------------------------
28
Principal
Amount (000) Description(1) Coupon Maturity Value
-----------------------------------------------------------------------------------------------------------------------------------
Short-Term Investments - 2.1% (1.5% of Total Investments)
Repurchase Agreement with State Street Bank,
dated 12/30/05, repurchase price $37,813,726,
$ 37,800 collateralized by $39,095,000 U.S. Treasury
Bonds, 4.000%, due 11/15/12, valued at
$38,557,444 3.250% 1/03/06 $ 37,800,076
============-----------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $37,800,076) 37,800,076
---------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,477,619,478) - 143.8% 2,538,352,882
---------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 27,189,627
---------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (45.3)% (800,000,000)
---------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $1,765,542,509
=====================================================================================================================
Interest Rate Swaps outstanding at December 31, 2005
Fixed Rate
Paid Fixed Rate Floating Rate Floating Rate Unrealized
Notional by the Fund Payment Received Payment Termination Appreciation
Counterparty Amount (annualized) Frequency by the Fund(4) Frequency Date (Depreciation)
---------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $100,000,000 4.604% Monthly 4.320% Monthly 6/06/2006 $ 9,764
Citigroup Inc. 100,000,000 4.713% Monthly 4.320% Monthly 12/06/2006 45,860
Citigroup Inc. 200,000,000 3.375% Monthly 4.320% Monthly 11/06/2007 4,954,070
Citigroup Inc. 200,000,000 3.910% Monthly 4.320% Monthly 11/06/2009 5,944,972
---------------------------------------------------------------------------------------------------------------------
$10,954,666
=====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net
assets applicable to Common shares unless otherwise noted.
(2) Ratings (not covered by the report of independent registered public
accounting firm): Using the higher of Standard & Poor's or Moody's
rating. Ratings below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poor's Group are considered to be below investment grade.
(3) Security is eligible for the Dividends Received Deduction.
(4) Based on LIBOR (London Inter-Bank Offered Rate).
N/R Investment is not rated.
144A Securities are exempt from registration under Rule 144A of the
Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally
those transactions with qualified institutional buyers.
CBTCS Corporate Backed Trust Certificates.
CORTS Corporate Backed Trust Securities.
PCARS Public Credit and Repackaged Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
29
Nuveen Quality Preferred Income Fund 3 (JHP)
Portfolio of
Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Securities - 1.3%
(0.9% of Total Investments)
Diversified Financial Services - 0.1%
9,164 Citigroup Global Markets 2.000% Aa1 $ 449,128
-----------------------------------------------------------------------------------------------------------------------------------
Food & Staples Retailing - 0.0%
5,576 Albertson's, Inc. 7.250% BBB- 125,739
-----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 1.1%
62,052 Dominion Resources Inc. 8.750% Baa1 3,227,325
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 0.1%
20,100 PMI Group Inc. 5.875% A1 495,465
-----------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $3,965,204) 4,297,657
---------------------------------------------------------------------------------------------------------------------
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
$25 Par (or similar) Securities - 90.0%
(61.1% of Total Investments)
Automobiles - 0.1%
8,000 DaimlerChrysler AG (CORTS) 7.875% A3 196,960
-----------------------------------------------------------------------------------------------------------------------------------
Capital Markets - 8.0%
32,000 Bear Stearns Capital Trust III 7.800% A2 814,400
53,600 Compass Capital Trust III 7.350% A3 1,357,152
39,900 CSFB USA, Series 2002-10 (SATURNS) 7.000% Aa3 1,003,485
23,100 First Union Capital II, Series II (CORTS) 7.500% A1 600,138
11,300 First Union Institutional Capital II (CORTS) 8.200% A1 305,213
5,200 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 121,680
1,200 Goldman Sachs Group Inc., Series GSG-1 (PPLUS) 6.000% Aa3 28,404
4,500 Goldman Sachs Group Incorporated (SATURNS) 5.750% Aa3 100,890
355,900 Lehman Brothers Holdings Capital Trust III, Series 6.375% A2 8,929,531
8,000 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 191,360
22,000 Merrill Lynch Capital Trust II 8.000% A1 569,360
36,300 Merrill Lynch Preferred Capital Trust 7.750% A1 929,280
1,700 Merrill Lynch Preferred Capital Trust III 7.000% A1 43,554
20,400 Merrill Lynch Preferred Capital Trust IV 7.120% A1 524,892
81,100 Merrill Lynch Preferred Capital Trust V 7.280% A1 2,118,332
41,400 Morgan Stanley (PPLUS) 7.050% Aa3 1,057,770
80,000 Morgan Stanley Capital Trust II 7.250% A1 2,037,600
212,600 Morgan Stanley Capital Trust III 6.250% A1 5,185,314
10,100 Morgan Stanley Capital Trust V 5.750% A+ 229,674
33,600 Washington Mutual Capital Trust I, Series
2001-22, Class A-1 (CORTS) 7.650% Baa1 848,400
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 26,996,429
-----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 17.1%
83,300 Abbey National plc, Series B 7.250% A1 2,115,820
17,300 Abbey National plc, Series B 7.375% A 456,547
105,898 ABN AMRO Capital Trust Fund VII 6.080% A 2,583,911
38,000 ASBC Capital I 7.625% Baa1 973,560
65,594 BAC Capital Trust I 7.000% Aa3 1,663,464
38,700 BAC Capital Trust II 7.000% Aa3 985,302
99,500 BAC Capital Trust III 7.000% Aa3 2,538,245
6,000 BAC Capital Trust IV 5.875% Aa3 143,400
65,600 BAC Capital Trust V 6.000% Aa3 1,582,272
8,900 BAC Capital Trust VIII 6.000% Aa3 214,223
34,800 Banco Santander 6.410% A2 873,480
37,300 Banco Totta & Acores Finance, Series A 8.875% A3 955,813
30
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks (continued)
2,600 BancorpSouth Capital Trust I 8.150% Baa2 $ 66,144
222,200 Banesto Holdings, Series A, 144A 10.500% A2 6,666,000
33,200 Bank One Capital Trust VI 7.200% A1 847,928
4,800 BankNorth Capital Trust II 8.000% A3 123,744
24,600 Chittenden Capital Trust I 8.000% Baa1 631,482
44,500 Cobank ABC, 144A, (3) 7.000% N/R 2,301,585
57,400 Comerica Capital Trust I 7.600% A3 1,449,350
164,700 Fleet Capital Trust VII 1.800% Aa3 4,153,734
35,316 Fleet Capital Trust VIII 7.200% Aa3 897,733
136,700 HSBC Finance Corporation 6.875% A1 3,551,466
5,000 HSBC Finance Corporation 6.000% A1 121,800
7,400 KeyCorp (PCARS) 7.500% A3 187,960
7,400 KeyCorp Capital Trust V 5.875% A3 173,530
7,200 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 187,560
13,000 KeyCorp, Series B (CORTS) 8.250% A3 326,430
22,900 National Commerce Capital Trust II 7.700% A1 583,950
30,400 National Westminster Bank plc, Series A 7.875% Aa2 772,464
16,500 National Westminster Bank plc, Series B 7.875% Aa3 420,090
21,400 PNC Capital Trust 6.125% A3 516,382
40,000 Royal Bank of Scotland Group plc, Series M 6.400% A1 1,016,800
104,465 Royal Bank of Scotland Group plc, Series N 6.350% A1 2,625,205
17,000 SunTrust Capital Trust IV 7.125% A1 429,590
25,500 SunTrust Capital Trust V 7.050% A1 645,405
110,300 USB Capital Trust III 7.750% Aa3 2,810,444
102,000 USB Capital Trust IV 7.350% Aa3 2,604,060
59,000 USB Capital Trust V 7.250% Aa3 1,495,650
16,100 USB Capital Trust VII 5.875% Aa3 375,452
19,000 VNB Capital Trust I 7.750% Baa1 484,120
16,000 Wells Fargo Capital Trust IX 5.625% Aa2 366,080
51,000 Wells Fargo Capital Trust V 7.000% Aa2 1,289,280
12,600 Wells Fargo Capital Trust VI 6.950% Aa2 318,276
87,900 Wells Fargo Capital Trust VII 5.850% Aa2 2,112,237
80,800 Zions Capital Trust B 8.000% Baa1 2,105,648
-----------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 57,743,616
-----------------------------------------------------------------------------------------------------------------------------------
Computers & Peripherals - 0.0%
1,200 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 30,420
-----------------------------------------------------------------------------------------------------------------------------------
Consumer Finance - 3.3%
14,600 Household Capital Trust VI 8.250% A2 370,840
101,300 Household Capital Trust VII 7.500% A2 2,587,202
120,000 HSBC Finance Corporation 6.360% A3 3,066,000
95,300 SLM Corporation, Series A, (3) 6.970% BBB+ 5,048,994
-----------------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 11,073,036
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 9.4%
10,000 BBVA Preferred Capital Ltd., Series B 7.750% A1 252,250
37,000 CIT Group Inc., Series A, (3) 6.350% BBB+ 956,450
43,800 CIT Group Incorporated (CORTS) 7.750% A3 1,181,724
7,200 Citigroup Capital Trust IX 6.000% Aa2 174,384
28,600 Citigroup Capital Trust VII 7.125% Aa2 725,582
55,900 Citigroup Capital Trust VIII 6.950% Aa2 1,409,798
17,800 Citigroup Capital Trust XI 6.000% Aa2 434,498
16,549 Citigroup Inc., Series F,(3) 6.365% Aa3 852,274
68,500 Citigroup Inc., Series H,(3) 6.231% Aa3 3,589,400
50,901 Citigroup Inc., Series M,(3) 5.864% Aa3 2,603,586
142,900 ING Group N.V. 7.050% A 3,656,811
504,300 ING Group N.V. 7.200% A 12,945,381
42,600 JPMorgan Chase Capital Trust X 7.000% A1 1,083,318
43,800 JPMorgan Chase Capital Trust XVI 6.350% A1 1,095,876
31
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services (continued)
25,800 JPMorgan Chase Trust, Series 2002-6, Class A
(SATURNS) 7.125% A1 $ 665,640
-----------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 31,626,972
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 0.5%
4,900 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 122,647
7,200 BellSouth Corporation, Series BLS (CORTS) 7.000% A 184,356
13,600 BellSouth Inc. (CORTS) 7.000% A 351,424
25,600 Verizon Communications (CORTS) 7.625% A+ 654,336
15,900 Verizon New England Inc., Series B 7.000% A3 405,450
-----------------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 1,718,213
-----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities - 2.6%
53,500 Entergy Louisiana Inc. 7.600% A- 1,358,365
203,447 Entergy Mississippi Inc. 7.250% A- 5,273,346
13,100 Georgia Power Company 5.700% AAA 319,509
12,000 National Rural Utilities Cooperative Finance
Corporation 7.600% A3 302,640
5,300 National Rural Utilities Cooperative Finance
Corporation 7.400% A3 135,680
27,718 National Rural Utilities Cooperative Finance
Corporation 5.950% A3 654,145
18,300 Tennessee Valley Authority, Series D 6.750% AAA 439,200
8,900 Virginia Power Capital Trust 7.375% Baa1 228,018
-----------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 8,710,903
-----------------------------------------------------------------------------------------------------------------------------------
Food Products - 0.7%
23,500 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 2,360,281
-----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities - 0.2%
32,900 AGL Capital Trust II 8.000% BBB 837,305
-----------------------------------------------------------------------------------------------------------------------------------
Health Care Providers & Services - 0.1%
12,500 Aetna Inc. 8.500% BBB+ 318,500
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 20.4%
133,000 Ace Ltd., Series C 7.800% Baa2 3,471,300
406,738 Aegon N.V. 6.375% A- 10,274,202
33,000 Aegon N.V. 6.500% A- 821,040
32,300 AMBAC Financial Group Inc. 5.950% AA 775,200
95,400 AMBAC Financial Group Inc. 5.875% AA 2,281,014
136,300 Delphi Financial Group, Inc. 8.000% BBB 3,556,067
102,600 EverestRe Capital Trust II 6.200% Baa1 2,272,590
305,571 EverestRe Group Limited 7.850% Baa1 7,785,949
151,100 Financial Security Assurance Holdings 6.250% AA 3,825,852
69,200 Hartford Capital Trust III, Series C 7.450% Baa1 1,748,684
106,900 Lincoln National Capital Trust V, Series E 7.650% Baa1 2,716,329
25,400 MetLife Inc. 5.875% A 610,108
193,700 MetLife Inc., Series B, (3) 6.500% Baa1 5,020,704
64,600 PartnerRe Limited 7.900% A3 1,647,300
143,800 PartnerRe Limited, Series C 6.750% BBB+ 3,475,646
3,000 PartnerRe Limited, Series D 6.500% BBB+ 70,290
56,800 PLC Capital Trust III 7.500% BBB+ 1,446,128
15,500 PLC Capital Trust IV 7.250% BBB+ 394,940
4,500 PLC Capital Trust V 6.125% BBB+ 107,055
52,544 Prudential plc 6.750% A 1,354,059
41,500 RenaissanceRe Holdings Ltd., Series A 8.100% BBB+ 1,049,120
133,800 RenaissanceRe Holdings Ltd., Series B 7.300% BBB 3,379,788
15,000 Safeco Capital Trust I (CORTS) 8.700% Baa2 420,300
11,000 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 287,155
32,600 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 841,243
2,500 Saint Paul Capital Trust I 7.600% Baa1 64,125
32,600 W.R. Berkley Capital Trust, Series 2002-1 (CBTCS) 8.125% BBB- 331,216
32
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Insurance (continued)
7,000 W.R. Berkley Corporation 6.750% BBB- $ 175,000
61,800 XL Capital Ltd, Series A 8.000% Baa1 1,572,192
289,400 XL Capital Ltd, Series B 7.625% Baa1 7,379,700
-----------------------------------------------------------------------------------------------------------------------------------
Total Insurance 69,154,296
-----------------------------------------------------------------------------------------------------------------------------------
Media - 0.0%
1,900 The Walt Disney Company 7.000% A- 48,450
-----------------------------------------------------------------------------------------------------------------------------------
Multi-Utilities - 0.3%
17,900 Dominion CNG Capital Trust I 7.800% Baa1 456,808
24,500 Energy East Capital Trust I 8.250% BBB- 628,670
-----------------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 1,085,478
-----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 1.8%
195,200 Nexen, Inc. 7.350% Baa3 5,040,064
34,700 TransCanada Pipeline 8.250% A3 895,607
-----------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 5,935,671
-----------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1%
10,400 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 266,240
3,500 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 89,705
-----------------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 355,945
-----------------------------------------------------------------------------------------------------------------------------------
Real Estate - 19.3%
10,700 AvalonBay Communities, Inc., Series H 8.700% BBB 292,110
135,900 BRE Properties, Series C 6.750% BBB- 3,359,448
8,029 BRE Properties, Series D 6.750% Baa3 196,711
182,209 CarrAmerica Realty Corporation, Series E 7.500% BBB- 4,600,777
26,700 Developers Diversified Realty Corporation,
Series F 8.600% BBB- 685,656
171,200 Developers Diversified Realty Corporation,
Series G 8.000% BBB- 4,391,280
32,000 Developers Diversified Realty Corporation,
Series H 7.375% BBB- 796,800
112,900 Duke Realty Corporation, Series L 6.600% Baa2 2,734,438
60,644 Equity Office Properties Trust, Series G 7.750% BBB- 1,543,996
18,500 Equity Residential Properties Trust, Series C 9.125% BBB 469,530
20,800 Equity Residential Properties Trust, Series D 8.600% BBB 531,232
56,200 Federal Realty Investment Trust 8.500% BBB- 1,448,274
5,100 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 131,019
131,900 HRPT Properties Trust, Series A 9.875% BBB- 3,354,217
246,707 HRPT Properties Trust, Series B 8.750% BBB- 6,389,711
21,000 New Plan Excel Realty Trust, Series D 7.800% BBB- 1,078,875
36,100 New Plan Excel Realty Trust, Series E 7.625% BBB- 907,915
20,000 Prologis Trust, Series G 6.750% BBB 494,000
136,000 PS Business Parks, Inc. 7.000% BBB- 3,291,200
36,900 PS Business Parks, Inc., Series D 9.500% BBB- 936,153
8,300 PS Business Parks, Inc., Series F 8.750% BBB- 211,069
120,000 PS Business Parks, Inc., Series L 7.600% BBB- 3,042,000
3,000 Public Storage, Inc. 7.125% BBB+ 76,350
16,100 Public Storage, Inc., Series F 6.450% BBB+ 371,910
40,900 Public Storage, Inc., Series Q 8.600% BBB+ 1,023,318
133,833 Public Storage, Inc., Series R 8.000% BBB+ 3,387,313
20,800 Public Storage, Inc., Series S 7.875% BBB+ 527,696
26,900 Public Storage, Inc., Series T 7.625% BBB+ 682,184
11,000 Public Storage, Inc., Series U 7.625% BBB+ 278,410
17,000 Public Storage, Inc., Series V 7.500% BBB+ 438,770
3,000 Public Storage, Inc., Series X 6.450% BBB+ 69,540
2,700 Realty Income Corporation 7.375% BBB- 69,255
12,600 Regency Centers Corporation 7.450% BBB- 318,150
84,500 Regency Centers Corporation 7.250% BBB- 2,122,640
25,900 Regency Centers Corporation 6.700% BBB- 634,550
33
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of Investments December 31, 2005
Shares Description(1) Coupon Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Real Estate (continued)
7,500 Simon Property Group, Inc., Series F 8.750% Baa2 $ 190,875
68,600 Simon Property Group, Inc., Series G 7.890% BBB 3,532,900
39,500 United Dominion Realty Trust 8.600% BBB- 1,015,940
61,800 Vornado Realty Trust, Series G 6.625% BBB- 1,441,176
4,500 Vornado Realty Trust, Series I 6.625% BBB- 104,490
252,700 Wachovia Preferred Funding Corporation 7.250% A2 7,060,438
39,600 Weingarten Realty Trust, Series E 6.950% A- 1,011,780
-----------------------------------------------------------------------------------------------------------------------------------
Total Real Estate 65,244,096
-----------------------------------------------------------------------------------------------------------------------------------
Specialty Retail - 0.2%
20,900 Sherwin Williams Company, Series III (CORTS) 7.250% A+ 543,818
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 1.9%
18,100 Countrywide Capital Trust II, Series II (CORTS) 8.000% BBB+ 461,550
241,430 Countrywide Capital Trust IV 6.750% BBB+ 6,091,279
-----------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 6,552,829
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Agency - 1.9%
43,800 Fannie Mae, (3) 6.129% AA- 2,197,227
7,000 Federal Home Loan Mortgage Corporation 5.300% AA- 311,719
9,000 Federal Home Loan Mortgage Corporation 5.810% Aa3 427,500
20,800 Federal Home Loan Mortgage Corporation, (3) 5.000% AA- 902,720
20,900 Federal Home Loan Mortgage Corporation, (3) 6.000% AA- 1,013,650
9,000 Federal Home Loan Mortgage Corporation, (3) 6.140% Aa3 448,200
5,000 Federal Home Loan Mortgage Corporation, (3) 5.100% AA- 214,063
19,900 Federal Home Loan Mortgage Corporation, (3) 5.100% AA- 855,700
-----------------------------------------------------------------------------------------------------------------------------------
Total U.S. Agency 6,370,779
-----------------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services - 2.1%
116,901 Telephone and Data Systems Inc. 7.600% A- 2,930,705
157,500 United States Cellular Corporation 8.750% A- 4,128,075
5,300 United States Cellular Corporation 7.500% A- 133,560
-----------------------------------------------------------------------------------------------------------------------------------
Total Wireless Telecommunication Services 7,192,340
-----------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities
(cost $305,287,314) 304,096,337
---------------------------------------------------------------------------------------------------------------------
Principal
Amount (000) Description(1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds - 0.6% (0.4% of Total Investments)
Household Durables - 0.4%
$ 1,400 Stanley Works Capital Trust I, 144A 5.902% 12/01/45 Baa1 1,393,515
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 0.2%
700 AIG Capital Trust I, 144A 5.900% 12/21/65 A 703,498
-----------------------------------------------------------------------------------------------------------------------------------
2,100 Total Corporate Bonds (cost $2,084,166) 2,097,013
-----------------------------------------------------------------------------------------------------------------------------------
Principal
Amount (000)/
Shares Description(1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Capital Preferred Securities - 53.2%
(36.1% of Total Investments)
Capital Markets - 7.4%
5,000 Ahmanson Capital Trust I, 144A 8.360% 12/01/26 Baa1 5,293,950
1,000 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 1,063,722
1,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 1,056,801
1,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 1,057,300
34
Principal
Amount (000)/
Shares Description(1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Capital Markets (continued)
500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 $ 531,049
250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 259,239
3,750 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 3,878,888
1,000 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A- 1,077,107
8,485 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 10,798,104
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 25,016,160
-----------------------------------------------------------------------------------------------------------------------------------
Commercial Banks - 22.7%
2,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 2,049,362
1,000 Abbey National Capital Trust I 8.963% 6/30/50 A2 1,364,597
1,900 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 1,952,277
1,000 BankAmerica Capital II, Series 2 8.000% 12/15/26 Aa3 1,062,330
1,500 BankBoston Capital Trust II, Series B 7.750% 12/15/26 Aa3 1,589,753
1,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 1,061,010
6,200 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 7,160,733
900 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 996,882
1,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 1,058,388
1,000 First Empire Capital Trust I 8.234% 2/01/27 Baa1 1,067,511
500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 555,088
9,100 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 9,253,644
1,430 HSBC USA Capital Trust II, 144A 8.380% 5/15/27 A- 1,540,377
2,500 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A2 2,893,520
1,000 KeyCorp Capital II 6.875% 3/17/29 A3 1,105,898
2,500 Lloyds TSB Bank plc, Subordinated Note 6.900% 11/22/49 Aa2 2,541,642
4,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 A3 4,276,652
1,500 North Fork Capital Trust II 8.000% 12/15/27 A3 1,623,218
3,150 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 3,377,285
5,000 PNC Institutional Capital Trust B, 144A 8.315% 5/15/27 A3 5,375,705
1,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 1,031,876
4,500 RBS Capital Trust B 6.800% 12/31/49 A1 4,569,386
2,500 St. George Funding Company LLC, 144A 8.485% 12/31/47 Baa1 2,726,895
655 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 752,362
4,600 Union Planters Capital Trust A 8.200% 12/15/26 A2 4,888,328
70 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 7,861,875
3,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 3,204,048
-----------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 76,940,642
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial Services - 4.1%
1,000 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 1,026,589
1,000 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 1,056,966
10,300 Citigroup Capital X 6.100% 9/30/33 Aa2 251,217
9,000 JPM Capital Trust I 7.540% 1/15/27 A1 9,506,664
1,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 1,893,339
-----------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 13,734,775
-----------------------------------------------------------------------------------------------------------------------------------
Diversified Telecommunication Services - 2.0%
5,260 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 A- 6,814,988
-----------------------------------------------------------------------------------------------------------------------------------
Insurance - 12.8%
3,450 Ace Capital Trust II 9.700% 4/01/30 Baa1 4,814,016
500 Allstate Financing II 7.830% 12/01/45 A2 527,719
750 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 746,748
10,000 MIC Financing Trust I 8.375% 2/01/27 A+ 10,248,510
1,500 Prudential plc 6.500% 6/29/49 A 1,488,573
3,000 RenaissanceRe Capital Trust 8.540% 3/01/27 BBB+ 3,125,505
10,000 Sun Life Canada Capital Trust, Capital
Securities, 144A 8.526% 5/06/47 A+ 10,783,910
10,500 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 11,367,500
-----------------------------------------------------------------------------------------------------------------------------------
Total Insurance 43,102,481
-----------------------------------------------------------------------------------------------------------------------------------
35
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of Investments December 31, 2005
Principal
Amount (000)/
Shares Description (1) Coupon Maturity Ratings(2) Value
-----------------------------------------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels - 2.4%
3,000 KN Capital Trust III 7.630% 4/15/28 Baa3 $ 3,330,840
4,500 Phillips 66 Capital Trust II 8.000% 1/15/37 A3 4,790,525
-----------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 8,121,365
-----------------------------------------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance - 1.7%
1,000 Countrywide Capital Trust I 8.000% 12/15/26 BBB+ 1,023,346
4,225 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 4,625,965
-----------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 5,649,311
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Agency - 0.1%
6,700 Fannie Mae 5.100% 4/15/49 AA- 287,053
-----------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities
(cost $177,335,449) 179,666,775
---------------------------------------------------------------------------------------------------------------------
Principal
Amount (000) Description (1) Coupon Maturity Value
-----------------------------------------------------------------------------------------------------------------------------------
Short-Term Investments - 2.2%
(1.5% of Total Investments)
Repurchase Agreement with State Street Bank,
dated 12/30/05, repurchase price $7,475,919,
collateralized by $7,730,000 U.S. Treasury Bonds,
4.000%, due 11/15/12,
$ 7,473 valued at $7,623,713 3.250% 1/03/06 7,473,220
============-----------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $7,473,220) 7,473,220
---------------------------------------------------------------------------------------------------------------------
Total Investments (cost $496,145,353) - 147.3% 497,631,002
---------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.8% 6,226,662
---------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (49.1)% (166,000,000)
---------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 337,857,664
=====================================================================================================================
Interest Rate Swap Contracts Outstanding at December 31, 2005:
Fixed Rate
Paid Fixed Rate Floating Rate Floating Rate Unrealized
Notional by the Fund Payment Received Payment Termination Appreciation
Counterparty Amount (annualized) Frequency by the Fund(4) Frequency Date (Depreciation)
---------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $42,000,000 2.413% Monthly 4.320% Monthly 3/06/2006 $ 203,839
Citigroup Inc. 42,000,000 3.255% Monthly 4.320% Monthly 3/06/2008 1,322,173
Citigroup Inc. 42,000,000 3.815% Monthly 4.320% Monthly 3/06/2010 1,506,796
---------------------------------------------------------------------------------------------------------------------
$ 3,032,808
=====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net
assets applicable to Common shares unless otherwise noted.
(2) Ratings (not covered by the report of independent registered public
accounting firm): Using the higher of Standard & Poor's or Moody's
rating. Ratings below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poor's Group are considered to be below investment grade.
(3) Security is eligible for the Dividends Received Deduction.
(4) Based on LIBOR (London Inter-Bank Offered Rate).
N/R Investment is not rated.
144A Securities are exempt from registration under Rule 144A of the
Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally
those transactions with qualified institutional buyers.
CBTCS Corporate Backed Trust Certificates.
CORTS Corporate Backed Trust Securities.
PCARS Public Credit and Repackaged Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
36
Statement of
Assets and Liabilities December 31, 2005
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
------------------------------------------------------------------------------------------------------------------
Assets
Investments, at value (cost $1,318,535,020, $2,477,619,478
and $496,145,353, respectively) $ 1,342,619,630 $ 2,538,352,882 $ 497,631,002
Unrealized appreciation on interest rate swaps 3,011,102 10,954,666 3,032,808
Receivables:
Dividends 2,447,827 3,593,038 824,521
Interest 8,532,353 12,466,203 2,417,872
Investments sold 1,043,564 2,169,024 399,407
Reclaims -- 40,864 7,211
Other assets 74,448 137,423 14,469
------------------------------------------------------------------------------------------------------------------
Total assets 1,357,728,924 2,567,714,100 504,327,290
------------------------------------------------------------------------------------------------------------------
Liabilities
Payable for investments purchased 944,577 80,213 32,386
Accrued expenses:
Management fees 627,585 1,131,305 243,511
Other 356,508 626,382 123,678
FundPreferred share dividends payable 202,530 333,691 70,051
------------------------------------------------------------------------------------------------------------------
Total liabilities 2,131,200 2,171,591 469,626
------------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000
------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 915,597,724 $ 1,765,542,509 $ 337,857,664
==================================================================================================================
Common shares outstanding 64,462,104 119,541,842 23,642,721
==================================================================================================================
Net asset value per Common share outstanding
(net assets applicable to Common shares, divided
by Common shares outstanding) $ 14.20 $ 14.77 $ 14.29
==================================================================================================================
Net assets applicable to Common shares consist of:
------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 644,621 $ 1,195,418 $ 236,427
Paid-in surplus 911,539,984 1,693,035,834 334,356,632
Undistributed (Over-distribution of) net investment income 8,725,182 12,953,839 1,949,002
Accumulated net realized gain (loss) from investments
and derivative transactions (32,407,775) (13,330,652) (3,202,854)
Net unrealized appreciation (depreciation) of investments
and derivative transactions 27,095,712 71,688,070 4,518,457
------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 915,597,724 $ 1,765,542,509 $ 337,857,664
==================================================================================================================
Authorized shares:
Common Unlimited Unlimited Unlimited
FundPreferred shares Unlimited Unlimited Unlimited
==================================================================================================================
See accompanying notes to financial statements.
37
Statement of
Operations Year Ended December 31, 2005
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
------------------------------------------------------------------------------------------------------------------
Investment Income
Dividends (net of foreign tax withheld of $8,366,
$11,731 and $4,093, respectively) $ 50,776,468 $ 101,881,541 $ 21,190,442
Interest 42,452,437 75,760,522 13,702,264
------------------------------------------------------------------------------------------------------------------
Total investment income 93,228,905 177,642,063 34,892,706
------------------------------------------------------------------------------------------------------------------
Expenses
Management fees 11,946,853 22,017,335 4,576,378
FundPreferred shares - auction fees 1,091,225 1,986,947 410,083
FundPreferred shares - dividend disbursing agent fees 26,082 38,501 13,462
Shareholders' servicing agent fees and expenses 11,499 13,868 2,743
Custodian's fees and expenses 314,871 566,887 130,776
Trustees' fees and expenses 26,237 50,116 9,830
Professional fees 64,571 102,260 26,725
Shareholders' reports - printing and mailing expenses 226,225 432,052 80,787
Stock exchange listing fees 25,069 46,238 10,463
Investor relations expense 203,091 327,484 72,873
Other expenses 41,529 67,882 26,699
------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and
expense reimbursement 13,977,252 25,649,570 5,360,819
Custodian fee credit (706) (1,575) (256)
Expense reimbursement (4,404,201) (8,403,718) (1,645,255)
------------------------------------------------------------------------------------------------------------------
Net expenses 9,572,345 17,244,277 3,715,308
------------------------------------------------------------------------------------------------------------------
Net investment income 83,656,560 160,397,786 31,177,398
------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments 10,256,942 29,542,155 2,801,561
Futures -- 626,810 --
Interest rate swaps (1,997,325) (1,219,301) (22,484)
Change in net unrealized appreciation (depreciation) of:
Investments (58,087,700) (120,450,106) (21,236,219)
Futures -- 313,500 --
Interest rate swaps 6,484,892 9,852,715 2,007,568
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (43,343,191) (81,334,227) (16,449,574)
------------------------------------------------------------------------------------------------------------------
Distributions to FundPreferred Shareholders
From net investment income (13,746,475) (21,967,419) (4,959,898)
From accumulated net realized gains -- (2,969,505) (324,959)
------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (13,746,475) (24,936,924) (5,284,857)
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to
Common shares from operations $ 26,566,894 $ 54,126,635 $ 9,442,967
==================================================================================================================
See accompanying notes to financial statements.
38
Statement of
Changes in Net Assets
Quality Preferred Income (JTP)
-----------------------------------------------------
Five Months
Year Ended Ended Year Ended
12/31/05 12/31/04 7/31/04
-----------------------------------------------------------------------------------------------------------------
Operations
Net investment income $ 83,656,560 $ 38,406,778 $ 88,172,724
Net realized gain (loss) from:
Investments 10,256,942 (789,063) 6,457,519
Futures -- -- --
Interest rate swaps (1,997,325) (2,754,561) (8,829,243)
Change in net unrealized appreciation (depreciation) of:
Investments (58,087,700) 34,446,726 15,444,743
Futures -- -- --
Interest rate swaps 6,484,892 (130,099) 3,409,919
Distributions to FundPreferred shareholders:
From net investment income (13,746,475) (3,338,840) (5,266,011)
From accumulated net realized gains -- -- --
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from operations 26,566,894 65,840,941 99,389,651
-----------------------------------------------------------------------------------------------------------------
Distributions to Common Shareholders
From net investment income (72,552,099) (32,291,619) (80,656,204)
From accumulated net realized gains -- -- --
-----------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (72,552,099) (32,291,619) (80,656,204)
-----------------------------------------------------------------------------------------------------------------
Capital Share Transactions
Common shares:
Offering costs adjustments -- -- (2,071)
Net proceeds from shares issued to
shareholders due to
reinvestment of distributions -- 141,543 1,421,340
FundPreferred shares offering costs
adjustments -- 92 (7,166)
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares from
capital share transactions -- 141,635 1,412,103
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares (45,985,205) 33,690,957 20,145,550
Net assets applicable to Common shares
at the beginning of period 961,582,929 927,891,972 907,746,422
-----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares
at the end of period $ 915,597,724 $ 961,582,929 $ 927,891,972
=================================================================================================================
Undistributed (Over-distribution of) net
investment income at the end of period $ 8,725,182 $ 6,133,164 $ 3,356,845
=================================================================================================================
Quality Preferred Income 2 (JPS)
-----------------------------------------------------
Five Months
Year Ended Ended Year Ended
12/31/05 12/31/04 7/31/04
-----------------------------------------------------------------------------------------------------------------
Operations
Net investment income $ 160,397,786 $ 71,895,333 $ 169,356,410
Net realized gain (loss) from:
Investments 29,542,155 35,993 24,882,646
Futures 626,810 -- --
Interest rate swaps (1,219,301) (4,109,979) (12,395,021)
Change in net unrealized appreciation (depreciation) of:
Investments (120,450,106) 66,169,186 28,917,818
Futures 313,500 (313,500) --
Interest rate swaps 9,852,715 (1,229,256) 2,018,167
Distributions to FundPreferred shareholders:
From net investment income (21,967,419) (4,886,184) (9,136,215)
From accumulated net realized gains (2,969,505) (1,197,900) (408,401)
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from operations 54,126,635 126,363,693 203,235,404
-----------------------------------------------------------------------------------------------------------------
Distributions to Common Shareholders
From net investment income (138,788,080) (62,896,099) (157,519,666)
From accumulated net realized gains (22,079,378) (22,062,289) (4,944,168)
-----------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (160,867,458) (84,958,388) (162,463,834)
-----------------------------------------------------------------------------------------------------------------
Capital Share Transactions
Common shares:
Offering costs adjustments -- -- (3,114)
Net proceeds from shares issued to
shareholders due to
reinvestment of distributions -- -- 302,695
FundPreferred shares offering costs
adjustments -- 92 (2,071)
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares from
capital share transactions -- 92 297,510
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares (106,740,823) 41,405,397 41,069,080
Net assets applicable to Common shares
at the beginning of period 1,872,283,332 1,830,877,935 1,789,808,855
-----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares
at the end of period $ 1,765,542,509 $ 1,872,283,332 $ 1,830,877,935
=================================================================================================================
Undistributed (Over-distribution of) net
investment income at the end of period $ 12,953,839 $ 7,485,948 $ 3,372,898
=================================================================================================================
See accompanying notes to financial statements.
39
Statement of
Changes in Net Assets (continued)
Quality Preferred Income 3 (JHP)
-----------------------------------------------------
Five Months
Year Ended Ended Year Ended
12/31/05 12/31/04 7/31/04
-----------------------------------------------------------------------------------------------------------------
Operations
Net investment income $ 31,177,398 $ 14,203,151 $ 32,619,507
Net realized gain (loss) from:
Investments 2,801,561 (292,843) 1,610,865
Futures -- -- --
Interest rate swaps (22,484) (785,894) (2,431,397)
Change in net unrealized appreciation (depreciation) of:
Investments (21,236,219) 12,474,854 10,205,143
Futures -- -- --
Interest rate swaps 2,007,568 (494,654) (63,791)
Distributions to FundPreferred shareholders:
From net investment income (4,959,898) (1,232,711) (1,783,707)
From accumulated net realized gains (324,959) (79,282) (225,856)
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from operations 9,442,967 23,792,621 39,930,764
-----------------------------------------------------------------------------------------------------------------
Distributions to Common Shareholders
From net investment income (27,602,875) (12,158,797) (29,147,305)
From accumulated net realized gains (2,179,859) (1,336,468) (2,968,711)
-----------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (29,782,734) (13,495,265) (32,116,016)
-----------------------------------------------------------------------------------------------------------------
Capital Share Transactions
Common shares:
Offering costs adjustments -- -- 101,605
Net proceeds from shares issued to
shareholders due to
reinvestment of distributions -- -- 489,296
FundPreferred shares offering costs
adjustments -- -- (4,237)
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares from
capital share transactions -- -- 586,664
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares (20,339,767) 10,297,356 8,401,412
Net assets applicable to Common shares
at the beginning of period 358,197,431 347,900,075 339,498,663
-----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares
at the end of period $ 337,857,664 $ 358,197,431 $ 347,900,075
=================================================================================================================
Undistributed (Over-distribution of) net
investment income at the end of period $ 1,949,002 $ 2,985,426 $ 2,173,783
=================================================================================================================
See accompanying notes to financial statements.
40
Notes to
Financial Statements
1. General Information and Significant Accounting Policies
The funds (the "Funds") covered in this report and their corresponding Common
share New York Stock Exchange symbols are Nuveen Quality Preferred Income Fund
(JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred
Income Fund 3 (JHP). The Funds are registered under the Investment Company Act
of 1940, as amended, as non-diversified, closed-end management investment
companies.
Each Fund seeks to provide high current income consistent with capital
preservation by investing primarily in a portfolio of preferred securities, debt
securities including convertible debt securities and convertible preferred
securities.
The Board of Trustees of the Funds approved a change in the Funds' fiscal year
end from July 31 to December 31 upon completion of the Funds' July 31, 2004
fiscal year.
Effective January 1, 2005, Nuveen Institutional Advisory Corp. ("NIAC"), the
Funds' previous Adviser, and its affiliate, Nuveen Advisory Corp. ("NAC"), were
merged into Nuveen Asset Management ("NAM"), each wholly owned subsidiaries of
Nuveen Investments, Inc. ("Nuveen"). As a result of the merger, NAM is now the
Adviser to all funds previously advised by either NIAC or NAC.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities and instruments, other than futures, are generally
valued at the last sales price on the exchange on which such securities or
instruments are primarily traded. Securities or instruments traded on an
exchange for which there are no transactions on a given day or securities or
instruments not listed on an exchange are valued at the mean of the closing bid
and asked prices. Securities traded on Nasdaq are valued at the Nasdaq Official
Closing Price. Futures contracts are valued using the closing settlement price
or, in the absence of such a price, at the mean of the bid and asked prices.
Prices of the other derivative instruments are provided by an independent
pricing service approved by the Funds' Board of Trustees. The prices of
fixed-income securities are generally also provided by an independent pricing
service approved by the Funds' Board of Trustees and based on the mean between
the bid and asked prices. When price quotes are not readily available, the
pricing service or, in the absence of a pricing service for a particular
security or instrument, the Board of Trustees of the Funds, or its designee, may
establish fair market value using a wide variety of market data including yields
or prices of securities of comparable quality, type of issue, coupon, maturity
and rating, market quotes or indications of value from security dealers,
evaluations of anticipated cash flows or collateral, general market conditions
and other information and analysis, including the obligor's credit
characteristics considered relevant by the pricing service or the Board of
Trustee's designee. Short-term investments are valued at amortized cost, which
approximates market value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. Investments purchased on a when-issued or delayed
delivery basis may have extended settlement periods. Any investments so
purchased are subject to market fluctuation during this period. The Funds have
instructed the custodian to segregate assets with a current value at least equal
to the amount of the when-issued and delayed delivery purchase commitments. At
December 31, 2005, the Funds' had no such outstanding purchase commitments.
41
Notes to
Financial Statements (continued)
Investment Income
Dividend income is recorded on the ex-dividend date or, for foreign securities,
when information is available. Interest income, which includes the amortization
of premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis.
Professional Fees
Professional fees presented in the Statement of Operations consist of legal fees
incurred in the normal course of operations, audit fees, tax consulting fees
and, in some cases, workout expenditures. Workout expenditures are incurred in
an attempt to protect or enhance an investment, or to pursue other claims or
legal actions on behalf of Fund shareholders.
Federal Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to distribute substantially all net investment income and net capital
gains to shareholders and to otherwise comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no federal income tax provision is required.
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
Distributions to Common shareholders are declared monthly. With respect to the
Real Estate Investment Trust ("REIT") securities held in the Funds' Portfolio of
Investments, distributions received by the Funds are generally comprised of
ordinary income, long-term and short-term capital gains, and a return of REIT
capital. The actual character of amounts received during the period is not known
until after the fiscal year-end. For the fiscal year ended December 31, 2005,
the character of distributions to the Funds from the REITs was as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------
Ordinary income 77.28% 74.67% 78.86%
Long-term and short-term capital gains 22.72 25.33 21.14
Return of REIT capital -- -- --
================================================================================
For the fiscal year ended December 31, 2004, the character of distributions to
the Funds from the REITs was as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------
Ordinary income 91.42% 91.38% 84.61%
Long-term and short-term capital gains 8.37 7.83 14.31
Return of REIT capital .21 .79 1.08
================================================================================
For the fiscal year ended July 31, 2004, the character of distributions to the
Funds from the REITs was as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------
Ordinary income 88.48% 90.38% 79.75%
Long-term and short-term capital gains 11.31 8.93 19.20
Return of REIT capital .21 .69 1.05
================================================================================
42
For the fiscal year ended December 31, 2005, and the fiscal period ended
December 31, 2004, each Fund applied the actual character of distributions
reported by the REITs in which the Fund invests to its receipts from the REITS.
If a REIT held in the portfolio of investments did not report the actual
character of its distributions during the period, the Fund treated the
distributions as ordinary income.
For fiscal year ended July 31, 2004, each Fund applied a percentage estimate for
the breakdown of income type, to its receipts from the REITs and treated as
income in the Statement of Operations only the amount of ordinary income so
calculated. Each Fund adjusted that estimated breakdown of income type (and
consequently its net investment income) as necessary in the following calendar
year when the REITs informed their shareholders of the actual breakdown of
income type.
For the fiscal year ended December 31, 2005, and the fiscal period ended
December 31, 2004, each Fund applied the actual character of distributions
reported by the REITs in which the Fund invests to the distributions paid to
each Funds shareholders.
With respect to the portion of each Fund's monthly distribution to its
shareholders derived from the Fund's investments in REIT securities for the
fiscal year ended July 31, 2004, each Fund treated that portion of its
distribution as being entirely from net investment income. The Funds
recharacterized those distributions as being from ordinary income, long-term and
short-term capital gains, and return of capital, if necessary, in the subsequent
calendar year, based upon the income type breakdown information conveyed at that
time by the REITs whose securities were held in each Fund's portfolio.
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 Fund 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 shares outstanding, by Series and in total, for each Fund is as
follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------
Number of shares:
Series M 3,520 4,800 3,320
Series T 3,520 4,800 --
Series T2 -- 4,000 --
Series W 3,520 4,800 --
Series TH 3,520 4,800 3,320
Series TH2 -- 4,000 --
Series F 3,520 4,800 --
--------------------------------------------------------------------------------
Total 17,600 32,000 6,640
================================================================================
Interest Rate Swap Transactions
The Funds may invest in certain derivative financial 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.
43
Notes to
Financial Statements (continued)
Due to clarification provided by the SEC to regulated investment companies,
effective with the July 31, 2004 reporting period, the Funds changed the way
they present net interest expense on interest rate swap transactions in the
financial statements. Net interest expense amounts paid during the year are
included in "Net realized gain (loss) from interest rate swap transactions". Net
interest expense amounts accrued, but not yet paid, at the end of the fiscal
year, are included in "Change in net unrealized appreciation (depreciation) of
interest rate swap transactions". Previously, net interest expense was presented
in "Expenses" and reported as "Net interest expense on interest rate swap
transactions". This reclassification does not alter the tax treatment of
interest rate payments on swap transactions which is to include such payments as
an operating expense for tax purposes.
For the fiscal year ended July 31, 2004, this reclassification, for financial
reporting purposes only, resulted in increases to net investment income,
decreases to net realized gain (loss) from interest rate swap transactions and
decreases to change in net unrealized appreciation (depreciation) of interest
rate swap transactions as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
----------------------------------------------------------------------------------------------------------
Net investment income $ 8,892,767 $ 13,237,853 $ 2,595,268
Net realized gain (loss) from interest rate swap transactions (8,829,243) (12,395,021) (2,431,397)
Change in net unrealized appreciation (depreciation) of
interest rate swap transactions (63,524) (842,832) (163,871)
==========================================================================================================
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 December 31, 2005, there were no open futures contracts
in any of the Funds.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Funds'
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on each Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
44
Indemnifications
Under the Funds' organizational documents, their Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Funds. In addition, in the normal course of business, the Funds
enter into contracts that provide general indemnifications to other parties. The
Funds' maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Funds that have not yet
occurred. However, the Funds have not had prior claims or losses pursuant to
these contracts and expect the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. Fund Shares
Transactions in Common shares were as follows:
Quality Preferred Quality Preferred
Income (JTP) Income 2 (JPS)
---------------------------------- -----------------------------------
Year Five Months Year Year Five Months Year
Ended Ended Ended Ended Ended Ended
12/31/05 12/31/04 7/31/04 12/31/05 12/31/04 7/31/04
--------------------------------------------------------------------------------------------------------------
Common shares issued to
shareholders due to
reinvestment of distributions -- 9,641 95,759 -- -- 18,570
==============================================================================================================
Quality Preferred
Income 3 (JHP)
-----------------------------------
Year Five Months Year
Ended Ended Ended
12/31/05 12/31/04 7/31/04
--------------------------------------------------------------------------------------------------------------
Common shares issued to
shareholders due to
reinvestment of distributions -- -- 32,020
==============================================================================================================
3. Investment Transactions
Purchases and sales (including maturities but excluding short-term investments
and derivative transactions) during the fiscal year ended December 31, 2005,
were as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------
Purchases $ 255,175,849 $ 425,983,525 $82,060,124
Sales and maturities 269,429,029 493,256,057 90,943,826
==============================================================================================================
45
Notes to
Financial Statements (continued)
4. Income Tax Information
The following information is presented on an income tax basis based on the
information currently available to the Funds. Differences between amounts for
financial statement and federal income tax purposes are primarily due to timing
differences in the recognition of income and timing differences in recognizing
certain gains and losses on investment transactions.
At December 31, 2005, the cost of investments was as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------
Cost of investments $1,325,016,071 $2,485,900,712 $496,769,283
==============================================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments
at December 31, 2005, were as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 38,901,473 $ 87,309,497 $ 9,159,989
Depreciation (21,297,914) (34,857,327) (8,298,270)
--------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $ 17,603,559 $ 52,452,170 $ 861,719
==============================================================================================================
The tax components of undistributed net ordinary income and net realized gains
at July 31, 2005, the Funds' last tax year end, were as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------
Undistributed net ordinary income * $3,556,793 $ 8,682,726 $1,603,497
Undistributed net long-term capital gains -- 19,370,073 1,521,742
==============================================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
46
The tax character of distributions paid during the tax years ended July 31, 2005
and July 31, 2004, was designated for purposes of the dividends paid deduction
as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
July 31, 2005 (JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $86,458,729 $168,985,896 $32,675,994
Distributions from net long-term capital gains -- 19,485,262 1,415,750
==============================================================================================================
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
July 31, 2004 (JTP) (JPS) (JHP)
--------------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $86,134,890 $171,962,461 $34,119,989
Distributions from net long-term capital gains -- -- --
==============================================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
At July 31, 2005, the Funds' last tax year end, Quality Preferred Income (JTP)
had unused capital loss carryforwards of $22,268,801 available for federal
income tax purposes to be applied against future capital gains, if any. If not
applied, the carryforwards will expire in the year 2012.
Calculation of certain of the amounts presented above (namely, undistributed net
ordinary income for tax purposes) involves the application of complex aspects of
the Internal Revenue Code to certain securities held by the Funds. In
calculating the amount of taxable income derived from these securities,
management made assumptions as to the correct tax treatment of certain of those
securities and made estimates about the tax characteristics of income received
from those securities, based on information currently available to the Funds.
The use of these assumptions and estimates will not affect the qualification of
the Funds as regulated investment companies under Subchapter M of the Internal
Revenue Code, nor is it expected that these assumptions and estimates will be
used in computing taxable income for purposes of preparing the federal and state
income and excise tax returns.
5. Management Fee and Other Transactions with Affiliates
Each Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by the
Adviser, and a specific fund-level component, based only on the amount of assets
within each individual fund. This pricing structure enables Nuveen fund
shareholders to benefit from growth in the assets within each individual fund as
well as from growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly, for each Fund is based upon the
average daily Managed Assets of each Fund as follows:
Average Daily Managed Assets Fund-Level Fee Rate
--------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
================================================================================
47
Notes to
Financial Statements (continued)
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the table below. As
of December 31, 2005, the complex-level fee rate was .1895%.
Complex-Level Assets(1) Complex-Level Fee Rate
--------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion(2) .1400
================================================================================
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds
in the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level
fee rate for such complex-wide Managed Assets shall be .1400% until such
time as a different rate or rates is determined.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with Spectrum Asset Management, Inc. ("Spectrum"),
under which Spectrum manages the investment portfolios of the Funds. Spectrum is
compensated for its services to the Funds from the management fees paid to the
Adviser. Spectrum also receives compensation on certain portfolio transactions
for providing brokerage services to the Funds.
The Funds pay no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its officers, all of whom receive remuneration
for their services to the Funds from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
48
For the first eight years of Quality Preferred Income's (JTP) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
Year Ending Year Ending
June 30, June 30,
--------------------------------------------------------------------------------
2002* .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income (JTP) for any
portion of its fees and expenses beyond June 30, 2010.
For the first eight years of Quality Preferred Income 2's (JPS) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
Year Ending Year Ending
September 30, September 30,
--------------------------------------------------------------------------------
2002* .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income 2 (JPS) for any
portion of its fees and expenses beyond September 30, 2010.
For the first eight years of Quality Preferred Income 3's (JHP) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
Year Ending Year Ending
December 31, December 31,
--------------------------------------------------------------------------------
2002* .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income 3 (JHP) for any
portion of its fees and expenses beyond December 31, 2010.
49
Notes to
Financial Statements (continued)
6. Announcement Regarding Parent Company of Adviser
In early April, 2005, The St. Paul Travelers Companies, Inc. ("St. Paul
Travelers"), which owned 79% of Nuveen, (A) completed a public offering of a
substantial portion of its equity stake in Nuveen, (B) sold Nuveen $200 million
of its Nuveen shares, (C) entered into an agreement with Nuveen to sell an
additional $400 million of its Nuveen shares on a "forward" basis with payment
for and settlement of these shares delayed for several months, and (D) entered
into agreements with two unaffiliated investment banking firms to sell an amount
equal to most or all of its remaining Nuveen shares for current payment but for
future settlement. Transactions (C) and (D) above were settled in late July,
which effectively reduced St. Paul Travelers' controlling stake in Nuveen and
was deemed an "assignment" (as defined in the 1940 Act) of the investment
management agreements between the Funds and the Adviser, which resulted in the
automatic termination of each agreement under the 1940 Act. In anticipation of
such deemed assignment, the Board of Trustees had approved new ongoing
investment management agreements for each Fund and the submission of those
agreements for approval by each respective Fund's shareholders, which
shareholder approval was received prior to the settlement of transactions (C)
and (D). The new ongoing management agreements took effect upon such settlement.
7. Subsequent Events - Distributions to Common Shareholders
The Funds declared Common share distributions which were paid on February 1,
2006, to shareholders of record on January 15, 2006, as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
July 31, 2005 (JTP) (JPS) (JHP)
--------------------------------------------------------------------------------
Distributions per share $.0900 $.0930 $.0945
================================================================================
50
Financial
Highlights
51
Financial
Highlights
Selected data for a Common share outstanding throughout each period:
Investment Operations
------------------------------------------------------------------
Distributions Distributions
from Net from
Beginning Investment Capital
Common Net Income to Gains to
Share Net Realized/ FundPreferred FundPreferred
Net Asset Investment Unrealized Share- Share-
Value Income(a) Gain (Loss) holders+ holders+ Total
-----------------------------------------------------------------------------------------------------------
Quality Preferred Income (JTP)
-----------------------------------------------------------------------------------------------------------
Year ended 12/31:
2005 $ 14.92 $ 1.30 $ (.68) $ (.21) $ -- $ .41
8/1/04-12/31/04 14.40 .60 .47 (.05) -- 1.02
Year Ended 7/31:
2004(b) 14.10 1.37 .26 (.08) -- 1.55
2003 14.12 1.31 .16 (.09) -- 1.38
2002(c) 14.33 .06 (.25) -- -- (.19)
Quality Preferred Income 2 (JPS)
-----------------------------------------------------------------------------------------------------------
Year ended 12/31:
2005 15.66 1.34 (.69) (.18) (.02) .45
8/1/04-12/31/04 15.32 .60 .50 (.04) (.01) 1.05
Year Ended 7/31:
2004(b) 14.97 1.42 .37 (.08) -- 1.71
2003(d) 14.33 1.02 .79 (.07) -- 1.74
Quality Preferred Income 3 (JHP)
-----------------------------------------------------------------------------------------------------------
Year ended 12/31:
2005 15.15 1.32 (.70) (.21) (.01) .40
8/1/04-12/31/04 14.71 .60 .46 (.05) -- 1.01
Year Ended 7/31:
2004(b) 14.38 1.38 .40 (.08) (.01) 1.69
2003(e) 14.33 .67 .22 (.04) -- .85
===========================================================================================================
Less Distributions
-------------------------------------
Offering
Net Capital Costs and Ending
Investment Gains to FundPreferred Common
Income to Common Share Share Ending
Common Share- Underwriting Net Asset Market
Shareholders holders Total Discounts Value Value
---------------------------------------------------------------------------------------------------------------
Quality Preferred Income (JTP)
---------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2005 $ (1.13) $ -- $ (1.13) $ -- $ 14.20 $ 12.40
8/1/04-12/31/04 (.50) -- (.50) -- 14.92 14.00
Year Ended 7/31:
2004(b) (1.25) -- (1.25) -- 14.40 13.96
2003 (1.25) -- (1.25) (.15) 14.10 14.59
2002(c) -- -- -- (.02) 14.12 15.15
Quality Preferred Income 2 (JPS)
---------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2005 (1.16) (.18) (1.34) -- 14.77 12.80
8/1/04-12/31/04 (.53) (.18) (.71) -- 15.66 14.40
Year Ended 7/31:
2004(b) (1.32) (.04) (1.36) -- 15.32 14.61
2003(d) (.95) -- (.95) (.15) 14.97 14.65
Quality Preferred Income 3 (JHP)
---------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2005 (1.17) (.09) (1.26) -- 14.29 12.92
8/1/04-12/31/04 (.51) (.06) (.57) -- 15.15 14.44
Year Ended 7/31:
2004(b) (1.24) (.12) (1.36) -- 14.71 14.34
2003(e) (.62) -- (.62) (.18) 14.38 14.36
===============================================================================================================
* 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.
++ o Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders.
o Income ratios reflect income earned on assets attributable to
FundPreferred shares.
o For the periods presented below each ratio includes the effect of the
interest expense paid on interest rate swap transactions as follows:
Ratio of Net Interest Expense to Average
Net Assets Applicable to Common Shares
----------------------------------------
Quality Preferred Income (JTP)
Year Ended 7/31:
2003 .80%
2002(c) --
Quality Preferred Income 2 (JPS)
Year Ended 7/31:
2003(d) .58*
Quality Preferred Income 3 (JHP)
Year Ended 7/31:
2003(e) .51*
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) As discussed in the accompanying notes to financial statements the Funds
changed their method of presentation for net interest expense on interest
rate swap transactions. The effect of this reclassification for the fiscal
year ended July 31, 2004, was as follows:
Quality Quality Quality
Preferred Preferred Preferred
Income Income 2 Income 3
(JTP) (JPS) (JHP)
-------------------------------------
Increase of Net Investment Income per share with a
corresponding decrease in Net Realized/Unrealized
Investment Gain (Loss) $ .14 $ .11 $ .11
Decrease in each of the Ratios of Expenses to Average
Net Assets Applicable to Common Shares with a corresponding
increase in each of the Ratios of Net Investment Income
to Average Net Assets Applicable to Common Shares .94% .71% .73%
(c) For the period June 25, 2002 (commencement of operations) through July 31,
2002.
(d) For the period September 24, 2002 (commencement of operations) through
July 31, 2003.
(e) For the period December 18, 2002 (commencement of operations) through July
31, 2003.
52
Total Returns
------------------
Based
on
Based Share
on Net
Market Asset
Value** Value**
--------------------------------------------------------
Quality Preferred Income (JTP)
--------------------------------------------------------
Year ended 12/31:
2005 (3.69)% 2.89%
8/1/04-12/31/04 3.79 7.10
Year Ended 7/31:
2004(b) 4.20 11.17
2003 4.95 9.15
2002(c) 1.00 (1.47)
Quality Preferred Income 2 (JPS)
--------------------------------------------------------
Year ended 12/31:
2005 (2.06) 3.01
8/1/04-12/31/04 3.34 6.94
Year Ended 7/31:
2004(b) 8.98 11.60
2003(d) 4.02 11.22
Quality Preferred Income 3 (JHP)
--------------------------------------------------------
Year ended 12/31:
2005 (2.16) 2.88
8/1/04-12/31/04 4.64 6.81
Year Ended 7/31:
2004(b) 9.36 11.93
2003(e) (.19) 4.62
--------------------------------------------------------
Ratios/Supplemental Data
------------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
------------------------------- -----------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Expenses to Income to Expenses to Income to
Ending Net Average Average Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
-------------------------------------------------------------------------------------------------------------------------------
Quality Preferred Income (JTP)
-------------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2005 $ 915,598 1.49% 8.47% 1.02% 8.94% 19%
8/1/04-12/31/04 961,583 1.49* 9.15* 1.02* 9.62* 8
Year Ended 7/31:
2004(b) 927,892 1.51 8.87 1.04 9.33 18
2003 907,746 2.38 8.84 1.91 9.31 45
2002(c) 880,006 .96* 4.51* .64* 4.83* 1
Quality Preferred Income 2 (JPS)
-------------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2005 1,765,543 1.40 8.32 .94 8.78 17
8/1/04-12/31/04 1,872,283 1.40* 8.69* .94* 9.14* 6
Year Ended 7/31:
2004(b) 1,830,878 1.41 8.64 .95 9.10 19
2003(d) 1,789,809 1.99* 7.59* 1.54* 8.04* 35
Quality Preferred Income 3 (JHP)
-------------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2005 337,858 1.54 8.48 1.07 8.96 16
8/1/04-12/31/04 358,197 1.54* 9.03* 1.07* 9.50* 7
Year Ended 7/31:
2004(b) 347,900 1.55 8.75 1.08 9.22 17
2003(e) 339,499 1.97* 7.14* 1.53* 7.58* 57
-------------------------------------------------------------------------------------------------------------------------------
FundPreferred Shares at End of Period
--------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
--------------------------------------------------------------------------------
Quality Preferred Income (JTP)
--------------------------------------------------------------------------------
Year ended 12/31:
2005 $ 440,000 $ 25,000 $ 77,023
8/1/04-12/31/04 440,000 25,000 79,635
Year Ended 7/31:
2004(b) 440,000 25,000 77,721
2003 440,000 25,000 76,577
2002(c) -- -- --
Quality Preferred Income 2 (JPS)
--------------------------------------------------------------------------------
Year ended 12/31:
2005 800,000 25,000 80,173
8/1/04-12/31/04 800,000 25,000 83,509
Year Ended 7/31:
2004(b) 800,000 25,000 82,215
2003(d) 800,000 25,000 80,932
Quality Preferred Income 3 (JHP)
--------------------------------------------------------------------------------
Year ended 12/31:
2005 166,000 25,000 75,882
8/1/04-12/31/04 166,000 25,000 78,945
Year Ended 7/31:
2004(b) 166,000 25,000 77,395
2003(e) 166,000 25,000 76,129
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
53
Board Members
and Officers
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board
Members of the Funds. The number of board members of the Fund is currently set
at nine. None of the board members who are not "interested" persons of the Funds
has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
Number of Portfolios
Principal Occupation(s) in Fund Complex
Name, Birthdate Position(s) Held Year First Elected Including other Directorships Overseen by
and Address with the Funds or Appointed(2) During Past 5 Years Board Member
------------------------------------------------------------------------------------------------------------------------------------
Board members who is an interested person of the Funds:
------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Chairman of 1994 Chairman (since 1996) and Director of Nuveen 156
Schwertfeger(1) the Board Investments, Inc., Nuveen Investments, LLC,
3/28/49 and Trustee Nuveen Advisory Corp. and Nuveen Institutional
333 W. Wacker Drive Advisory Corp.(3); Director (since 1996) of
Chicago, IL 60606 Institutional Capital Corporation; Chairman and
Director (since 1997) of Nuveen Asset
Management; Chairman and Director of Rittenhouse
Asset Management, Inc. (since 1999); Chairman of
Nuveen Investments Advisers Inc. (since 2002).
Board members who are not interested persons of the Funds:
------------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Board member 1997 Private Investor and Management Consultant. 156
8/22/40
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Board member 1993 Retired (since 1989) as Senior Vice President of 156
7/29/34 The Northern Trust Company; Director (since
333 W. Wacker Drive 2002) Community Advisory Board for Highland Park
Chicago, IL 60606 and Highwood, United Way of the North Shore.
------------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Board member 1999 President, The Hall-Perrine Foundation, a 156
10/22/48 private philanthropic corporation (since 1996);
333 W. Wacker Drive Director and Vice Chairman, United Fire Group, a
Chicago, IL 60606 publicly held company; Adjunct Faculty Member,
University of Iowa; Director, Gazette Companies;
Life Trustee of Coe College and Iowa College
Foundation; formerly, Director, Alliant Energy;
formerly, Director, Federal Reserve Bank of
Chicago; formerly, President and Chief Operating
Officer, SCI Financial Group, Inc., a regional
financial services firm.
------------------------------------------------------------------------------------------------------------------------------------
William C. Hunter Board member 2004 Dean and Distinguished Professor of Finance, 156
3/6/48 School of Business at the University of
333 W. Wacker Drive Connecticut (since 2002); previously, Senior
Chicago, IL 60606 Vice President and Director of Research at the
Federal Reserve Bank of Chicago (1995-2003);
Director (since 1997), Credit Research Center at
Georgetown University; Director (since 2004) of
Xerox Corporation; Director SS&C Technologies,
Inc. (May 2005-October 2005).
------------------------------------------------------------------------------------------------------------------------------------
David J. Kundert Board member 2005 Retired (since 2004) as Chairman, JPMorgan 154
10/28/42 Fleming Asset Management, President and CEO,
333 W. Wacker Drive Banc One Investment Advisors Corporation, and
Chicago, IL 60606 President, One Group Mutual Funds; prior
thereto, Executive Vice President, Banc One
Corporation and Chairman and CEO, Banc One
Investment Management Group; Board of Regents,
Luther College; member of the Wisconsin Bar
Association; member of Board of Directors,
Friends of Boerner Botanical Gardens.
54
Number of Portfolios
Principal Occupation(s) in Fund Complex
Name, Birthdate Position(s) Held Year First Elected Including other Directorships Overseen by
and Address with the Funds or Appointed(2) During Past 5 Years Board Member
------------------------------------------------------------------------------------------------------------------------------------
Board members who are not interested persons of the Funds (continued):
------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Chairman of Miller-Valentine Partners Ltd., a 156
9/24/44 real estate investment company; formerly,
333 W. Wacker Drive Senior Partner and Chief Operating Officer
Chicago, IL 60606 (retired, December 2004), of Miller-Valentine
Group; formerly, Vice President,
Miller-Valentine Realty; Board Member, Chair of
the Finance Committee and member of the Audit
Committee of Premier Health Partners, the
not-for-profit company of Miami Valley
Hospital; Vice President, Dayton Philharmonic
Orchestra Association; Board Member, Regional
Leaders Forum, which promotes cooperation on
economic development issues; Director, Dayton
Development Coalition; formerly, Member,
Community Advisory Board, National City Bank,
Dayton, Ohio and Business Advisory Council,
Cleveland Federal Reserve Bank.
------------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale Board member 1997 Executive Director, Gaylord and Dorothy 156
12/29/47 Donnelley Foundation (since 1994); prior
333 W. Wacker Drive thereto, Executive Director, Great Lakes
Chicago, IL 60606 Protection Fund (from 1990 to 1994).
------------------------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine Board member 2005 Senior Vice President for Business and Finance, 156
1/22/50 Northwestern University (since 1997); Director
333 W. Wacker Drive (since 2003), Chicago Board Options Exchange;
Chicago, IL 60606 Director (since 2003), National Mentor
Holdings, a privately-held, national provider
of home and community-based services; Chairman
(since 1997), Board of Directors, Rubicon, a
pure captive insurance company owned by
Northwestern University; Director (since 1997),
Evanston Chamber of Commerce and Evanston
Inventure, a business development organization.
Number of Portfolios
in Fund Complex
Name, Birthdate Position(s) Held Year First Elected Principal Occupation(s) Overseen
and Address with the Funds or Appointed(4) During Past 5 Years by Officer
------------------------------------------------------------------------------------------------------------------------------------
Officers of the Funds
------------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant 156
9/9/56 Administrative Secretary and Associate General Counsel,
333 W. Wacker Drive Officer formerly, Vice President and Assistant General
Chicago, IL 60606 Counsel, of Nuveen Investments, LLC; Managing
Director (2002-2004), General Counsel
(1998-2004) and Assistant Secretary, formerly,
Vice President of Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.(3);
Managing Director (since 2002) and Assistant
Secretary and Associate General Counsel,
formerly, Vice President (since 1997), of
Nuveen Asset Management; Managing Director
(since 2004) and Assistant Secretary (since
1994) of Nuveen Investments, Inc.; Assistant
Secretary of NWQ Investment Management Company,
LLC. (since 2002); Vice President and Assistant
Secretary of Nuveen Investments Advisers Inc.
(since 2002); Managing Director, Associate
General Counsel and Assistant Secretary of
Rittenhouse Asset Management, Inc. (since
2003); Chartered Financial Analyst.
55
Board Members
and Officers (continued)
Number of Portfolios
in Fund Complex
Name, Birthdate Position(s) Held Year First Elected Principal Occupation(s) Overseen
and Address with the Funds or Appointed(4) During Past 5 Years by Officer
------------------------------------------------------------------------------------------------------------------------------------
Officers of the Funds (continued):
------------------------------------------------------------------------------------------------------------------------------------
Julia L. Antonatos Vice President 2004 Managing Director (since 2005), formerly Vice 156
9/22/63 President (since 2002); formerly, Assistant Vice
333 W. Wacker Drive President (since 2000) of Nuveen Investments,
Chicago, IL 60606 LLC; Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant 156
2/3/66 and Assistant Vice President (since 2000) of Nuveen
333 W. Wacker Drive Secretary Investments, LLC.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 156
11/28/67 and Treasurer 1999); Vice President and Treasurer (since 1999)
333 W. Wacker Drive of Nuveen Investments, Inc.; Vice President and
Chicago, IL 60606 Treasurer (1999-2004) of Nuveen Advisory Corp.
and Nuveen Institutional Advisory Corp.(3); Vice
President and Treasurer of Nuveen Asset
Management (since 2002) and of Nuveen
Investments Advisers Inc. (since 2002);
Assistant Treasurer of NWQ Investment Management
Company, LLC. (since 2002); Vice President and
Treasurer of Nuveen Rittenhouse Asset
Management, Inc. (since 2003); Chartered
Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
John N. Desmond Vice President 2005 Vice President, Director of Investment 156
8/24/61 Operations, Nuveen Investments, LLC (since
333 W. Wacker Drive January 2005); formerly, Director, Business
Chicago, IL 60606 Manager, Deutsche Asset Management (2003-2004),
Director, Business Development and
Transformation, Deutsche Trust Bank Japan
(2002-2003); previously, Senior Vice President,
Head of Investment Operations and Systems,
Scudder Investments Japan, (2000-2002), Senior
Vice President, Head of Plan Administration and
Participant Services, Scudder Investments
(1995-2002).
------------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 1998 Vice President (since 2002), Assistant Secretary 156
9/24/64 and Secretary and Assistant General Counsel (since 1998)
333 W. Wacker Drive formerly, Assistant Vice President (since 1998)
Chicago, IL 60606 of Nuveen Investments, LLC; Vice President
(2002-2004) and Assistant Secretary (1998-2004)
formerly, Assistant Vice President of Nuveen
Advisory Corp. and Nuveen Institutional Advisory
Corp.(3); Vice President and Assistant Secretary
(since 2005) of Nuveen Asset Management.
------------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Managing Director (since 2004), formerly, Vice 156
10/24/45 President of Nuveen Investments, LLC, Managing
333 W. Wacker Drive Director (2004) formerly, Vice President
Chicago, IL 60606 (1998-2004) of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.(3); Managing
Director (since 2005) of Nuveen Asset
Management.
------------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002), formerly, Vice 156
3/2/64 President of Nuveen Investments; Managing
333 W. Wacker Drive Director (1997-2004) of Nuveen Advisory Corp.
Chicago, IL 60606 and Nuveen Institutional Advisory Corp.(3);
Managing Director of Nuveen Asset Management
(since 2001); Vice President of Nuveen
Investments Advisers Inc. (since 2002);
Chartered Financial Analyst.
56
Number of Portfolios
in Fund Complex
Name, Birthdate Position(s) Held Year First Elected Principal Occupation(s) Overseen
and Address with the Funds or Appointed(4) During Past 5 Years by Officer
------------------------------------------------------------------------------------------------------------------------------------
Officers of the Funds (continued):
------------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller 156
5/31/54 and Controller (since 1998) of Nuveen Investments, LLC;
333 W. Wacker Drive formerly, Vice President and Funds Controller
Chicago, IL 60606 (1998-2004) of Nuveen Investments, Inc.;
Certified Public Accountant.
------------------------------------------------------------------------------------------------------------------------------------
James D. Grassi Vice President 2004 Vice President and Deputy Director of Compliance 156
4/13/56 and Chief (since 2004) of Nuveen Investments, LLC, Nuveen
333 W. Wacker Drive Compliance Investments Advisers Inc., Nuveen Asset
Chicago, IL 60606 Officer Management and Rittenhouse Asset Management,
Inc.; previously, Vice President and Deputy
Director of Compliance (2004) of Nuveen Advisory
Corp. and Nuveen Institutional Advisory
Corp.(3); formerly, Senior Attorney (1994-2004),
The Northern Trust Company.
------------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen 156
3/22/63 Investments, LLC; Certified Public Accountant.
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President of Nuveen Investments, LLC (since 156
8/27/61 1999).
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and 156
7/27/51 and Assistant Assistant General Counsel of Nuveen Investments,
333 W. Wacker Drive Secretary LLC; Vice President and Assistant Secretary of
Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp.(3); Vice President (since 2005)
and Assistant Secretary of Nuveen Investments,
Inc.; Vice President (since 2005) and Assistant
Secretary (since 1997) of Nuveen Asset
Management; Vice President (since 2000),
Assistant Secretary and Assistant General
Counsel (since 1998) of Rittenhouse Asset
Management, Inc.; Vice President and Assistant
Secretary of Nuveen Investments Advisers Inc.
(since 2002); Assistant Secretary of NWQ
Investment Management Company, LLC (since 2002).
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and board member
of the Adviser.
(2) Board members serve an indefinite term until his/her successor is elected.
The year first elected or appointed represents the year in which the board
member was first elected or appointed to any fund in the Nuveen Complex.
(3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were
reorganized into Nuveen Asset Management, effective January 1, 2005.
(4) Officers serve one year terms through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
57
Reinvest Automatically
Easily and Conveniently
Nuveen makes
reinvesting easy.
A phone call is
all it takes to
set up your
reinvestment
account
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
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of the shares may increase before
purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
Flexible
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
Call today to start reinvesting dividends and/or distributions
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
58
Other Useful
Information
In April, 2005, The St. Paul Travelers Companies, Inc. ("St. Paul Travelers")
sold the majority of its controlling equity interest in Nuveen Investments, Inc.
("Nuveen") to the general public. Nuveen is the parent of Nuveen Asset
Management ("NAM"), which is each Fund's investment manager. This sale was
deemed to be an "assignment" of the investment management agreement between each
Fund and NAM and, if applicable, of the sub-advisory agreement between NAM and
the Fund's sub-adviser. As required by law, the shareholders of each Fund were
asked to approve a new investment management agreement and, if applicable, a new
subadvisory agreement that reflected this change in ownership. The shareholders
of each Fund voted this approval at a Shareholders' Meeting on July 26, 2005.
There were no changes to the investment objectives or management of any Fund as
a result of these actions.
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, 2005, 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.
CEO Certification Disclosure
Each Fund's Chief Executive Officer has submitted to the New York Stock Exchange
the annual CEO certification as required by Section 303A.12(a) of the NYSE
Listed Company Manual.
Each Fund has filed with the Securities and Exchange Commission the
certification of its Chief Executive Officer and Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act.
Distribution Information
Nuveen Quality Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund
2 (JPS) and Nuveen Quality Preferred Income Fund 3 (JHP) designate 15.22%,
12.12% and 11.60%, respectively, of dividends declared from net investment
income as dividends qualifying for the 70% dividends received deduction for
corporations and 21.15%, 17.41% and 17.85%, respectively, as qualified dividend
income for individuals under the Jobs and Growth Tax Relief Reconciliation Act
of 2003.
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
David J. Kundert
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Eugene S. Sunshine
Fund Manager
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
Custodian
State Street Bank & Trust Company
Boston, MA
Transfer Agent and
Shareholder Services
State Street Bank & Trust Company
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
Legal Counsel
Chapman and Cutler LLP
Chicago, IL
Independent Registered
Public Accounting Firm
Ernst & Young LLP
Chicago, IL
The Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the period covered by this report. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
59
[GRAPHIC OMITTED]
Learn more
about Nuveen Funds at
www.nuveen.com/etf
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 $135 billion in assets, Nuveen Investments offers access to a
number of different asset classes and investing solutions through a variety of
products. Nuveen Investments markets its capabilities under four distinct
brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in
value-style equities; Rittenhouse, a leader in growth-style equities; and
Symphony, a leading institutional manager of market-neutral alternative
investment portfolios.
Find out how we can help you reach your financial goals.
To learn more about the products and services Nuveen Investments offers, talk to
your financial advisor, or call us at (800) 257-8787. Please read the
information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should consider the
investment objective and policies, risk considerations, charges and expenses of
the Fund carefully before investing. The prospectus contains this and other
information relevant to an investment in the Fund. For a prospectus, please
contact your securities representative or Nuveen Investments, 333 W. Wacker Dr.,
Chicago, IL 60606. Please read the prospectus carefully before you invest or
send money.
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[LOGO]
NUVEEN
Investments
EAN-E-1205D
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. There were no amendments to or waivers
from the Code during the period covered by this report. The registrant has
posted the code of ethics on its website at www.nuveen.com/etf. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then click on Code of Conduct.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors or Trustees determined that the registrant
has at least one "audit committee financial expert" (as defined in Item 3 of
Form N-CSR) serving on its Audit Committee. The registrant's audit committee
financial expert is Jack B. Evans, Chairman of the Audit Committee, who is
"independent" for purposes of Item 3 of Form N-CSR.
Mr. Evans was formerly President and Chief Operating Officer of SCI Financial
Group, Inc., a full service registered broker-dealer and registered investment
adviser ("SCI"). As part of his role as President and Chief Operating Officer,
Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and
actively supervised the CFO's preparation of financial statements and other
filings with various regulatory authorities. In such capacity, Mr. Evans was
actively involved in the preparation of SCI's financial statements and the
resolution of issues raised in connection therewith. Mr. Evans has also served
on the audit committee of various reporting companies. At such companies, Mr.
Evans was involved in the oversight of audits, audit plans, and the preparation
of financial statements. Mr. Evans also formerly chaired the audit committee of
the Federal Reserve Bank of Chicago.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Nuveen Quality Preferred Income Fund 2
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP the Audit Committee approved in advance all
audit services and non-audit services that Ernst & Young LLP provided to the
Fund, except for those non-audit services that were subject to the pre-approval
exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The
pre-approval exception for services provided directly to the Fund waives the
pre-approval requirement for services other than audit, review or attest
services if: (A) the aggregate amount of all such services provided constitutes
no more than 5% of the total amount of revenues paid by the Fund to its
accountant during the fiscal year in which the services are provided; (B) the
Fund did not recognize the services as non-audit services at the time of the
engagement; and (C) the services are promptly brought to the Audit Committee's
attention, and the Committee (or its delegate) approves the services before the
audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND BILLED TO FUND BILLED TO FUND BILLED TO FUND
-------------------------------------------------------------------------------------------------------------------------------
December 31, 2005 $ 28,211 $ 0 $ 3,823 $ 3,750
-------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
-------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 (1) $ 26,088 $ 0 $ 9,098 $ 3,450
-------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
-------------------------------------------------------------------------------------------------------------------------------
The above "Tax Fees" were billed for professional services for tax advice, tax
compliance, and tax planning.
(1) This fund changed its fiscal year end from July 31 to December 31. For the
stub period ending, 12/31/04 the fund incurred the following fees : Audit
fees of $26,088 ; Tax fees of $3,676 ; and All Other fees of $1,800.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling,
controlled by or under common control with NAM ("Control Affiliate") that
provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for
engagements directly related to the Fund's operations and financial reporting,
during the Fund's last two full fiscal years.
The tables also show the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES
BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER
AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND
SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS
-----------------------------------------------------------------------------------------------------------
December 31, 2005 $ 0 $ 282,575 $ 0
-----------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
-----------------------------------------------------------------------------------------------------------
December 31, 2004 $ 0 $ 0 $ 0
-----------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
-----------------------------------------------------------------------------------------------------------
The above "Tax Fees" are primarily fees billed to the Adviser for Fund tax
return preparation.
NON-AUDIT SERVICES
The following table shows the amount of fees that Ernst & Young LLP billed
during the Fund's last two full fiscal years for non-audit services. For
engagements entered into on or after May 6, 2003, the Audit Committee is
required to pre-approve non-audit services that Ernst & Young LLP provides to
the Adviser and any Affiliated Fund Services Provider, if the engagement related
directly to the Fund's operations and financial reporting (except for those
subject to the de minimis exception described above). The Audit Committee
requested and received information from Ernst & Young LLP about any non-audit
services that Ernst & Young LLP rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating Ernst & Young LLP's independence.
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES
BILLED TO ADVISER AND
AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES
PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND
RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE
TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER
BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL
--------------------------------------------------------------------------------------------------------------------------
December 31, 2005 $ 7,573 $ 282,575 $ 0 $ 290,148
December 31, 2004 (2) $ 12,548 $ 0 $ 0 $ 12,548
The above "Non-Audit Fees billed to Adviser" for 2005 include "Tax-Fees" billed
to Adviser in the amount of $282,575 from previous table.
(2) This fund changed its fiscal year end from July 31 to December 31. For the
stub period ending, 12/31/04 the fund incurred total Non-Audit fees of
$5,476.
Audit Committee Pre-Approval Policies and Procedures. Generally, the Audit
Committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the Audit Committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the Audit Committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the Audit Committee at
the next Audit Committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant's Board of Directors or Trustees has a separately designated
Audit Committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (15 U.S.C. 78c(a)(58)(A)). The
members of the audit committee are Robert P. Bremner, Lawrence H. Brown, Jack B.
Evans, William J. Schneider and Eugene S. Sunshine.
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.
The Adviser has engaged Spectrum Asset Management, Inc. ("Spectrum" or
"Sub-Adviser") as Sub-Adviser to provide discretionary investment advisory
services. As part of these services, the Adviser has also delegated to the
Sub-Adviser the full responsibility for proxy voting and related duties in
accordance with the Sub-Adviser's policy and procedures. The Adviser
periodically will monitor the Sub-Adviser's voting to ensure that they are
carrying out their duties. The Sub-Adviser's proxy voting policies and
procedures are summarized as follows:
Spectrum has adopted a Policy on Proxy Voting for Investment Advisory Clients
(the "Voting Policy"), which provides that Spectrum aims to ensure that, when
delegated proxy voting authority by a client, Spectrum acts (1) solely in the
interest of the client in providing for ultimate long-term stockholder value,
and (2) without undue influence from individuals or groups who may have an
economic interest in the outcome of a proxy vote. Spectrum relies on the
custodian bank to deliver proxies to Spectrum for voting.
Spectrum has selected Institutional Shareholder Services, Inc. ("ISS") to assist
with Spectrum's proxy voting responsibilities. Spectrum generally follows ISS
standard proxy voting guidelines which embody the positions and factors Spectrum
considers important in casting proxy votes. In connection with each proxy vote,
ISS prepares a written analysis and recommendation based on its guidelines. In
order to avoid any conflict of interest for ISS, the CCO will require ISS to
deliver additional information or certify that ISS has adopted policies and
procedures to detect and mitigate such conflicts of interest in issuing voting
recommendations. Spectrum also may obtain voting recommendations from two proxy
voting services as an additional check on the independence of ISS' voting
recommendations.
Spectrum may, on any particular proxy vote, diverge from ISS' guidelines or
recommendations. In such a case, Spectrum's Voting Policy requires that: (i) the
requesting party document the reason for the request; (ii) the approval of the
Chief Investment Officer; (iii) notification to appropriate compliance
personnel; (iv) a determination that the decision is not influenced by any
conflict of interest; and (v) a written record of the process.
When Spectrum determines not to follow ISS' guidelines or recommendations,
Spectrum classifies proxy voting issues into three broad categories: (1) Routine
Administrative Items; (2) Special Interest Issues; and (3) Issues having the
Potential for Significant Economic Impact, and casts proxy votes in accordance
with the philosophy and decision guidelines developed for that category in the
Voting Policy.
o Routine Administrative Items. Spectrum is willing to defer to
management on matters of a routine administrative nature. Examples
of issues on which Spectrum will normally defer to management's
recommendation include selection of auditors, increasing the
authorized number of common shares and the election of unopposed
directors.
o Special Interest Issues. In general, Spectrum will abstain from
voting on shareholder social, political, environmental proposals
because their long-term impact on share value cannot be calculated
with any reasonable degree of confidence.
o Issues Having the Potential for Significant Economic Impact.
Spectrum is not willing to defer to management on proposals which
have the potential for major economic impact on the corporation
and value of its shares and believes such issues should be
carefully analyzed and decided by shareholders. Examples of such
issues are classification of board of directors' cumulative voting
and supermajority provisions, defensive strategies (e.g.,
greenmail prevention), business combinations and restructurings
and executive and director compensation.
Conflicts of Interest. There may be a material conflict of interest when
Spectrum votes, on behalf of a client, a proxy that is solicited by an
affiliated person of Spectrum or another Spectrum client. To avoid such
conflicts, Spectrum has established procedures under its Voting Policy to seek
to ensure that voting decisions are based on a client's best interests and are
not the product of a material conflict. In addition to employee monitoring for
potential conflicts, the CCO reviews Spectrum's and its affiliates' material
business relationships and personal and financial relationships of senior
personnel of Spectrum and its affiliates to monitor for conflicts of interest.
If a conflict of interest is identified, Spectrum considers both financial and
non-financial materiality to determine if a conflict of interest is material. If
a material conflict of interest is found to exist, the CCO discloses the
conflict to affected clients and obtains consent from each client in the manner
in which Spectrum proposed to vote.
Spectrum clients can obtain a copy of the Voting Policy or information on how
Spectrum voted their proxies by calling Spectrum's Compliance Department at
(203) 322-0189.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
SPECTRUM ASSET MANAGEMENT
A. PORTFOLIO MANAGER BIOGRAPHY
BERNARD M. SUSSMAN is Chief Investment Officer and Chairman of Spectrum's
Investment Committee. Prior to joining Spectrum in 1995, Mr. Sussman was with
Goldman Sachs & Co. for nearly 18 years.
MARK A. LIEB is Chief Financial Officer and is responsible for business
development. Prior to founding Spectrum in 1987, Mr. Lieb was a Founder,
Director and Partner of DBL Preferred Management, Inc., a wholly owned corporate
cash management subsidiary of Drexel Burnham Lambert, Inc.
L. PHILLIP JACOBY, IV is a Senior Vice President and joined Spectrum in 1995.
From 1989-1995, Mr. Jacoby was a Senior Investment Officer at USL Capital
Corporation (a subsidiary of Ford Motor Corporation) and was co-portfolio
manager of a $600 million preferred stock portfolio.
B. OTHER ACCOUNTS MANAGED BY SPECTRUM
------------------------------------------------------------------------------------------------------------------------------------
(a)(1) (a)(2) For each person identified in column (a)(1), provide (a)(3) PERFORMANCE FEE ACCOUNTS. For each of
Identify number of accounts other than the Funds managed by the the categories in column (a)(2), provide number
portfolio person within each category below and the total assets in of accounts and the total assets in the accounts
manager(s) of the accounts managed within each category below with respect to which the ADVISORY FEE IS BASED
the Adviser ON THE PERFORMANCE OF THE ACCOUNT
to be named
in the Fund
prospectus
------------------------------------------------------------------------------------------------------------------------------------
Registered Investment Other Pooled Other Accounts Registered Other Pooled Other Accounts
Companies Investment Investment Investment Vehicles
Vehicles Companies
------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
Number Total Number Total Number Total Number Total Number of Total Number Total
of Assets of Assets of Assets of Assets Accounts Assets of Assets
Accounts ($mills) Accounts ($mill) Accounts ($mill) Accounts Accounts ($mill)
------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
Bernard M.
Sussman 10 $8.12 16 $2.52 42 $2.58 - - - - - -
------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
Mark A. Lieb 10 $8.12 16 $2.52 42 $2.58 - - - - - -
------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
Phil Jacoby 10 $8.12 16 $2.52 38 $2.57 - - - - - -
------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
C. POTENTIAL MATERIAL CONFLICTS OF INTEREST
As described above, the portfolio manager may manage other accounts
with investment strategies similar to the Fund, including other
investment companies and separately managed accounts. Fees earned by
the sub-advisers may vary among these accounts and the portfolio
managers may personally invest in some but not all of these accounts.
These factors could create conflicts of interest because a portfolio
manager may have incentives to favor certain accounts over others,
resulting in other accounts outperforming the Fund. A conflict may also
exist if a portfolio manager identified a limited investment
opportunity that may be appropriate for more than one account, but the
Fund is not able to take full advantage of that opportunity due to the
need to allocate that opportunity among multiple accounts. In addition,
the portfolio manager may execute transactions for another account that
may adversely impact the value of securities held by the Fund. However,
the sub-advisers believe that these risks are mitigated by the fact
that accounts with like investment strategies managed by a particular
portfolio manager are generally managed in a similar fashion, subject
to exceptions to account for particular investment restrictions or
policies applicable only to certain accounts, differences in cash flows
and account sizes, and similar factors. In addition, each sub-adviser
has adopted trade allocation procedures that require equitable
allocation of trade orders for a particular security among
participating accounts.
D. FUND MANAGER COMPENSATION
All employees of Spectrum Asset Management are paid a base salary and
discretionary bonus. The bonus is paid quarterly and may represent a significant
proportion of an individual's total annual compensation. Discretionary bonuses
are determined by management after consideration of several factors including
but not necessarily limited to:
o Changes in overall firm assets under management (employees have no
direct incentive to increase assets)
o Portfolio performance relative to benchmarks
o Contribution to client servicing
o Compliance with firm and/or regulatory policies and procedures
o Work ethic
o Seniority and length of service
o Contribution to overall functioning of organization
E. OWNERSHIP OF JPS SECURITIES AS DECEMBER 31, 2005.
-------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Portfolio Manager None $1-$10,000 $10,001-$50,000 $50,001-$100,000 $100,001-$500,000 $500,001 - over
$1,000,000 $1,000,000
-------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Bernard M. Sussman X
-------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Mark A. Lieb X
-------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Phil Jacoby X
-------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board during the reporting period and
implemented after the registrant last provided disclosure in response to this
Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
(17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because the code is posted on registrant's website at www.nuveen.com/etf and
there were no amendments during the period covered by this report. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then Code of Conduct.)
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
Attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Quality Preferred Income Fund 2
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By (Signature and Title)* /s/ Jessica R. Droeger
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Jessica R. Droeger
Vice President and Secretary
Date: March 8, 2006
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
----------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: March 8, 2006
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By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: March 8, 2006
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* Print the name and title of each signing officer under his or her signature.