N-CSR/A 1 file001.txt NUVEEN QUALITY PREFERRED INCOME FUND 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 811-21082 --------------------- Nuveen Quality Preferred Income Fund ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Jessica R. Droeger Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 ------------------------------------------------------------------------------ (Name and address of agent for service) Registrant's telephone number, including area code: (312) 917-7700 ------------------- Date of fiscal year end: July 31 ------------------ Date of reporting period: July 31, 2004 ------------------ Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. ANNUAL REPORT July 31, 2004 Nuveen Investments Closed-End Exchange-Traded Funds NUVEEN QUALITY PREFERRED INCOME FUND JTP NUVEEN QUALITY PREFERRED INCOME FUND 2 JPS NUVEEN QUALITY PREFERRED INCOME FUND 3 JHP Photo of: Man and woman sitting on porch. Photo of: 2 children sitting in the grass. HIGH CURRENT INCOME FROM A PORTFOLIO OF INVESTMENT-GRADE PREFERRED SECURITIES Logo: NUVEEN Investments Photo of: Woman Photo of: Man and child Photo of: Woman NOW YOU CAN RECEIVE YOUR NUVEEN FUND REPORTS FASTER. NO MORE WAITING. SIGN UP TODAY TO RECEIVE NUVEEN FUND INFORMATION BY E-MAIL. It only takes a minute to sign up for E-Reports. Once enrolled, you'll receive an e-mail as soon as your Nuveen Investments Fund information is ready -- no more waiting for delivery by regular mail. Just click on the link within the e-mail to see the report, and save it on your computer if you wish. ------------------ DELIVERY DIRECT TO YOUR E-MAIL INBOX ------------------ IT'S FAST, EASY & FREE: WWW.INVESTORDELIVERY.COM if you get your Nuveen Fund dividends and statements from your financial advisor or brokerage account. OR WWW.NUVEEN.COM/CORPORATE/ENROLLMENT if you get your Nuveen Fund dividends and statements directly from Nuveen. (Be sure to have the address sheet that accompanied this report handy. You'll need it to complete the enrollment process.) Logo: NUVEEN Investments Photo of: Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board Chairman's LETTER TO SHAREHOLDERS I am very pleased to report that over the fiscal year ended July 31, 2004, your Fund continued to provide you with attractive monthly income through a diversified portfolio of quality preferred securities. In addition to regular monthly income, we believe that your Fund also may provide an opportunity to reduce the overall risk of your entire investment portfolio. This is because the value of your Fund's holdings may move differently than the prices of the other investments, like common stocks, bonds or mutual funds that you may own. Through adequate diversification, some parts of your portfolio may be going -------------------------------------------------------------------------------- IN ADDITION TO REGULAR MONTHLY INCOME, WE BELIEVE THAT YOUR FUND ALSO MAY PROVIDE AN OPPORTUNITY TO REDUCE THE OVERALL RISK OF YOUR ENTIRE INVESTMENT PORTFOLIO. -------------------------------------------------------------------------------- up when others are going down. This potential counterbalancing may reduce your overall risk over time. Your financial advisor can explain the advantages of portfolio diversification in more detail. I urge you to contact him or her soon for more information on this important investment strategy. I also urge you to consider receiving future Fund reports and other Fund information by e-mail and the Internet. Not only will you be able to receive the information faster, but this also may help lower your Fund's expenses. Sign up is quick and easy -- see the inside front cover of this report for step-by-step instructions. For more than 100 years, Nuveen has specialized in offering quality investments such as your Fund to those seeking to accumulate and preserve wealth. Our commitment to careful research, constant surveillance and judicious trading by seasoned portfolio managers has never been stronger. Our mission continues to be to assist you and your financial advisor by offering the investment solutions and services that can help you secure your long-term financial goals. We thank you for choosing us as a partner as you work toward that objective. Sincerely, /s/ Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board September 15, 2004 Nuveen Closed-End Exchange-Traded Funds (JTP, JPS, JHP) Portfolio Managers' PERSPECTIVE The Nuveen Quality Preferred Income Funds are managed by a team of specialists at Spectrum Asset Management, Inc., an affiliate of Principal CapitalSM. Mark Lieb, Bernie Sussman and Phil Jacoby, who have more than 50 years of combined experience in the preferred securities markets, lead the team. Here Mark, Bernie and Phil talk about general economic conditions, their management strategy and the performance of each Fund for the fiscal year ended July 31, 2004. WHAT WERE THE CONDITIONS IN THE FIXED-INCOME MARKETS GENERALLY, AND THE PREFERRED SECURITIES MARKET IN PARTICULAR, DURING THE FISCAL YEAR ENDED JULY 31, 2004? While the 10-year U. S. Treasury note yield of 4.45% at the end of the period was virtually unchanged from 12 months earlier, this fiscal year was marked by quite a bit of volatility in both the preferred securities market as well as in the fixed-income market generally. Prices in the U. S. Treasury market peaked on March 16, 2004, with the 10-year note yielding 3.68% as a sluggish economy, slow employment growth, Federal Reserve caution and concerns over terrorism combined to keep interest rates near record lows. In early April, an unexpectedly strong employment report brought the bond market rally to an abrupt end. As concerns focused on the possibility that the Federal Reserve might start to raise short-term interest rates, market interest rates spiked upward along the entire yield curve and the 10 year U. S. Treasury note reached a high yield of 4.87% on June 14, 2004. The preferred securities market's reaction to this April sell-off was even stronger, especially in the $25 par sector, as many individual investors seemed to take the news of possibly rising interest rates as a signal to get out of fixed-income investments. Overall, the second quarter of 2004 was the worst period for preferred securities since 1999. However, both the general fixed-income market and the preferred securities market enjoyed a nice rebound during the second half of June and through July as investors seemed to conclude that the economy wasn't robust enough to spark inflation and to sense that the Fed's tightening would be very gradual. The prospect for a continued steep yield curve also was a positive for preferred securities. In total, the preferred securities market, as measured by the Merrill Lynch Preferred Stock Hybrid Securities Index, was up 6.34% for the 12 months ending July 31, 2004, compared with a 4.84% over the same period for the Lehman Aggregate Bond Index (a general measure of the overall bond market). New issuance in the preferred securities market totaled $36.5 billion over the 12-month period, but the overall growth of the market was contained by a strong pace of redemptions as issuers called the higher-coupon preferred securities they had issued during the 1990's. As of July 31, 2004, the hybrid preferred securities market had outstanding issues totaling approximately $225 billion. 4 One positive development during the period for parts of the preferred securities market was a recommendation by the National Association of Insurance Commissioners to reduce the risk-based capital requirements for preferred stock. This has the potential to increase the demand by insurance companies for certain preferred issues, especially some of the non-U.S. issues owned by the Funds, and may help the Fund holdings perform well in the future. DURING THIS PERIOD WHAT WERE YOUR PRIMARY MANAGEMENT STRATEGIES AND FOCUSES? Over this fiscal year, the focus of our investing activities was on finding and owning high quality preferred securities that offered what we judged to be good current yields and yields-to-call. The average credit quality within each of the Funds was maintained at a ratings level of A3/BBB+/A- from Moody's, S&P and Fitch, respectively. Given the large number of redemptions, much of the trading activity also was targeted toward replacing the current income on issues that were called out of the portfolio. In addition, we believed that higher coupon preferred securities with call dates in 2006 and 2007 were relatively more attractive than the lower, current coupon issues available during most of the year. These higher coupon securities also helped to keep the duration, or interest rate sensitivity, of the portfolio lower than if we had been more focused on new issues. Diversification among issuers and sectors within the preferred securities market also was an important part of our strategy. Each of the Funds now contains over 100 distinct issuers. The weightings between $25 par preferred stock and preferred capital securities, and to a lesser extent among convertible securities and corporate bonds, were altered slightly over the period depending on where we felt we could find the best relative value. HOW DID THE FUNDS PERFORM OVER THIS PERIOD? Each of the Funds performed well during the 12 months ended July 31, 2004. Their performance, as well as the performance of several widely followed market indexes, is shown in the accompanying chart. Total Return on Net Asset Value For 12 months ended July 31, 2004 JTP 11.17% ------------------------------------------------------------------- JPS 11.60% ------------------------------------------------------------------- JHP 11.93% ------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index1 4.84% ------------------------------------------------------------------- Merrill Lynch Preferred Stock Hybrid Securities Index2 6.34% ------------------------------------------------------------------- Past performance does not guarantee future results. For more information, please see the individual Performance Overview pages in this report. 1 The Lehman Brothers Aggregate Bond Index is an unmanaged index that includes all investment-grade, publicly issued, fixed-rate, dollar-denominated, nonconvertible debt issues and commercial mortgage backed securities with maturities of at least one year and outstanding par values of $150 million or more. 2 The Merrill Lynch Preferred Stock Hybrid Securities Index, is an unmanaged index of investment-grade, exchange-traded preferred stocks with outstanding market values of at least $30 million and at least one year to maturity. 5 For the 12 months ended July 31, 2004, all of these Funds outperformed the Lehman Brothers and Merrill Lynch indexes. While the parts of each portfolio performed well, the $1000 par capital preferred securities held by each Fund were their best performing sector during the 12-month reporting period. These issues are not part of the Merrill Lynch index. The Funds' $1000 par capital securities benefited from the general tightening of spreads in the corporate market over the reporting period and from the strong demand for yield from insurance companies and other institutional investors. The better call protection afforded by these securities also helped their performance during the months when rates were falling. Two $1000 par capital securities that were among the best performers for all three Funds were Zurich Americas and Centaur Funding. Zurich benefited from a more positive feeling in the market about European insurers as an improved equity market allowed them to do a rights offering and improve their capital position. Centaur, a part of Vodafone, was a subordinated issue that we considered to be very undervalued relative to the issuer's senior debt, and these securities performed well over the period. Another top performer for all three Funds was a GMAC debt instrument that we bought because it was trading cheaper than their more subordinated preferred. Purchased at yield spreads ranging from 300 to 320 basis points above comparable U. S. Treasuries, the prices of these GMAC securities improved so that they were trading at yields about 245 basis points higher than the comparable U. S. Treasuries by the end of the reporting period. Of course it is important to note that Treasuries are backed by the full faith and credit of the U.S. Government while these par capital securities are not. Within the $25 par market of listed preferred securities, one strategy that worked well during this period was trading to take advantage of what we thought were mispricings of the securities' embedded call options. In many cases we were able to sell issues trading at a premium where the yield-to-call was very low, and then were able to replace these securities with other, higher coupon issuers with higher current yields and more attractive yields-to-call at the time of investment. At the same time, two $25 par issues, Verizon (in JTP) and Converium (in all three Funds), did not perform as well as we had hoped they would. The Verizon issue was originally a series of $1000 par capital securities that were repackaged into exchange-listed $25 par preferreds that were bought during the first quarter of 2004, just before rates rose significantly. Converium, a Swiss reinsurance company, was put on downgrade review by the rating agencies following a surprise announcement that they were taking a $400 6 million reserve charge in the second quarter of 2004. Several other issues in all three Funds that happened to be bought in February and early March when interest rates were at their lows for the period turned out to be relatively weak performers over this reporting period. WHAT ABOUT THE FUNDS' DIVIDENDS AND SHARE PRICES? With short-term interest rates remaining near historically low levels during this reporting period, the leveraged structures of these Funds continued to support their dividend-paying capabilities. The extent of this benefit is tied in part to the short-term rates the Funds pay their FundPreferred(R) shareholders. During periods of low short-term rates, the Funds generally pay relatively lower dividends to their FundPreferred shareholders, which can leave more earnings to support common share dividends. As a result, despite losing some of their higher-coupon securities to calls, JPS and JHP made no changes in their monthly dividends over the course of this 12-month fiscal year. JTP made one reduction in its monthly dividend, reflecting a lower earnings rate resulting from calls. All of these Funds seek to pay stable dividends at rates that reflect each Fund's past results and projected future performance. During certain periods, each Fund may pay dividends at a rate that may be more or less than the amount of net investment income actually earned by the Fund during the period. If a Fund has cumulatively earned more than it has paid in dividends, it holds the excess in reserve as undistributed net investment income (UNII) as part of the Fund's NAV. Conversely, if a Fund has cumulatively paid dividends in excess of its earnings, the excess constitutes negative UNII that is likewise reflected in the Fund's NAV. Each Fund will, over time, pay all of its net investment income as dividends to shareholders. As of July 31, 2004, all three Funds in this report had positive UNII balances. As of July 31, 2004, all of these Funds were trading at discounts to their net asset values. In each case, these discounts were greater than the average discount or premium exhibited by the Fund over the course of the entire 12-month reporting period. 7 Nuveen Quality Preferred Income Fund JTP Performance OVERVIEW As of July 31, 2004 Pie Chart: PORTFOLIO ALLOCATION (as a % of total investments) $25 Par (or similar) Securities 44.4% Capital Preferred Securities 38.4% Capital Preferred-Euro-market listed securities 5.6% Convertible Preferred Securities 5.3% Other 6.3% Bar Chart: 2003-2004 MONTHLY DIVIDENDS PER SHARE Aug 0.105 Sep 0.105 Oct 0.105 Nov 0.105 Dec 0.105 Jan 0.105 Feb 0.105 Mar 0.105 Apr 0.105 May 0.105 Jun 0.101 Jul 0.101 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 8/1/03 14.13 14.7 14.06 14.28 14.61 14.86 14.9 14.86 14.9 15.09 15 15.18 15.49 15.47 15.52 15.42 15.51 15.6 15.55 15.8 15.96 15.97 15.8 15.87 15.87 15.88 15.75 16 16.04 16.1 16.01 15.97 15.58 15.29 14.62 13.91 14.23 12.91 13.39 13.57 14.04 13.82 13.41 13.34 13.33 13.69 13.9 13.83 13.74 7/31/04 13.96 PORTFOLIO STATISTICS ------------------------------------ Share Price $13.96 ------------------------------------ Common Share Net Asset Value $14.40 ------------------------------------ Premium/Discount to NAV -3.06% ------------------------------------ Latest Dividend $.1010 ------------------------------------ Market Yield 8.68% ------------------------------------ Net Assets Applicable to Common Shares ($000) $927,892 ------------------------------------ INDUSTRIES (as a % of total investments) ------------------------------------ Commercial Banks 40.7% ------------------------------------ Insurance 19.1% ------------------------------------ Real Estate 14.3% ------------------------------------ Diversified Financial Services 4.6% ------------------------------------ Electric Utilities 4.4% ------------------------------------ Automobiles 3.2% ------------------------------------ Other 13.7% ------------------------------------ TOP FIVE ISSUERS (EXCLUDING REPURCHASE AGREEMENTS) (as a % of total investments) ------------------------------------ Wachovia Corporation 3.4% ------------------------------------ ING Groep NV 3.1% ------------------------------------ Abbey National Public Limited 3.0% ------------------------------------ Zurich Financial Services 2.9% ------------------------------------ HSBC Holding Public Limited 2.7% ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 6/25/02) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 4.20% 11.17% ------------------------------------ Since Inception 4.86% 8.88% ------------------------------------ 8 Nuveen Quality Preferred Income Fund 2 JPS Performance OVERVIEW As of July 31, 2004 Pie Chart: PORTFOLIO ALLOCATION (as a % of total investments) $25 Par (or similar) Securities 45.5% Capital Preferred Securities 37.9% Capital Preferred-Euro-market listed securities 4.2% Convertible Preferred Securities 5.0% Other 7.4% Bar Chart: 2003-2004 MONTHLY DIVIDENDS PER SHARE Aug 0.105 Sep 0.105 Oct 0.105 Nov 0.105 Dec 0.105 Jan 0.105 Feb 0.105 Mar 0.105 Apr 0.105 May 0.105 Jun 0.105 Jul 0.105 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 8/1/03 14.39 14.83 14.21 14.66 14.7 14.87 14.96 14.95 14.96 15.17 15.13 15.2 15.43 15.49 15.53 15.54 15.6 15.72 15.68 15.94 16 16 15.84 15.89 15.97 15.9 15.83 16.07 16.11 16.3 16.39 16.31 15.8 15.4 14.89 14.22 14.38 13.3 13.55 13.67 14.14 14.14 13.91 13.84 13.8 14.32 14.48 14.6 14.43 7/31/04 14.61 PORTFOLIO STATISTICS ------------------------------------ Share Price $14.61 ------------------------------------ Common Share Net Asset Value $15.32 ------------------------------------ Premium/Discount to NAV -4.63% ------------------------------------ Latest Dividend $.1050 ------------------------------------ Market Yield 8.62% ------------------------------------ Net Assets Applicable to Common Shares ($000) $1,830,878 ------------------------------------ INDUSTRIES (as a % of total investments) ------------------------------------ Commercial Banks 40.4% ------------------------------------ Insurance 22.0% ------------------------------------ Real Estate 10.3% ------------------------------------ Electric Utilities 5.6% ------------------------------------ Diversified Financial Services 5.5% ------------------------------------ Diversified Telecommunication Services 3.4% ------------------------------------ Automobiles 3.3% ------------------------------------ Other 9.5% ------------------------------------ TOP FIVE ISSUERS (EXCLUDING REPURCHASE AGREEMENTS) (as a % of total investments) ------------------------------------ Wachovia Corporation 3.5% ------------------------------------ Abbey National Public Limited 3.1% ------------------------------------ ING Groep NV 2.9% ------------------------------------ Everest Reinsurance Holdings 2.9% ------------------------------------ FleetBoston Financial Corporation 2.3% ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 9/24/02) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 8.98% 11.60% ------------------------------------ Since Inception 7.00% 12.37% ------------------------------------ 9 Nuveen Quality Preferred Income Fund 3 JHP Performance OVERVIEW As of July 31, 2004 Pie Chart: PORTFOLIO ALLOCATION (as a % of total investments) $25 Par (or similar) Securities 50.0% Capital Preferred Securities 34.1% Convertible Preferred Securities 5.2% Capital Preferred-Euro-market listed securities 3.5% Other 7.2% Bar Chart: 2003-2004 MONTHLY DIVIDENDS PER SHARE Aug 0.103 Sep 0.103 Oct 0.103 Nov 0.103 Dec 0.103 Jan 0.103 Feb 0.103 Mar 0.103 Apr 0.103 May 0.103 Jun 0.103 Jul 0.103 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 8/1/03 14.07 14.6 14.18 14.25 14.56 14.68 14.71 14.75 14.61 14.9 14.99 15.15 15.14 15.32 15.12 15.31 15.21 15.42 15.21 15.85 15.89 15.73 15.74 15.48 15.7 15.58 15.6 15.87 15.86 15.92 15.89 15.93 15.57 15.05 14.59 14.02 13.85 12.76 13.21 13.27 13.89 13.92 13.73 13.4 13.45 13.89 14.28 14.37 14.22 7/31/04 14.34 PORTFOLIO STATISTICS ------------------------------------ Share Price $14.34 ------------------------------------ Common Share Net Asset Value $14.71 ------------------------------------ Premium/Discount to NAV -2.52% ------------------------------------ Latest Dividend $.1030 ------------------------------------ Market Yield 8.62% ------------------------------------ Net Assets Applicable to Common Shares ($000) $347,900 ------------------------------------ INDUSTRIES (as a % of total investments) ------------------------------------ Commercial Banks 35.2% ------------------------------------ Insurance 27.2% ------------------------------------ Real Estate 9.2% ------------------------------------ Diversified Financial Services 7.3% ------------------------------------ Electric Utilities 3.8% ------------------------------------ Diversified Telecommunication Services 3.2% ------------------------------------ Automobiles 3.2% ------------------------------------ Other 10.9% ------------------------------------ TOP FIVE ISSUERS (EXCLUDING REPURCHASE AGREEMENTS) (as a % of total investments) ------------------------------------ Wachovia Corporation 3.5% ------------------------------------ ING Groep NV 3.3% ------------------------------------ Zurich Financial Services 3.0% ------------------------------------ Union Planters Corporation 2.5% ------------------------------------ SAFECO Corporation 2.5% ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 12/18/02) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 9.36% 11.93% ------------------------------------ Since Inception 5.57% 10.23% ------------------------------------ 10 Report of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF TRUSTEES AND SHAREHOLDERS NUVEEN QUALITY PREFERRED INCOME FUND NUVEEN QUALITY PREFERRED INCOME FUND 2 NUVEEN QUALITY PREFERRED INCOME FUND 3 We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 as of July 31, 2004, and the related statements of operations, changes in net assets and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of investments owned as of July 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 at July 31, 2004, and the results of their operations, the changes in their net assets and the financial highlights for the periods indicated therein in conformity with U.S. generally accepted accounting principles. /s/Ernst & Young LLP Chicago, Illinois September 15, 2004 11 Nuveen Quality Preferred Income Fund (JTP) Portfolio of INVESTMENTS July 31, 2004
MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ $25 PAR (OR SIMILAR) SECURITIES - 65.3% (44.4% OF TOTAL INVESTMENTS) AUTOMOBILES - 0.2% 32,900 Ford Motor Company, Series F, 8.000% (CORTS) $ 835,660 51,600 General Motors Acceptance Corporation, 7.350% 1,301,868 ------------------------------------------------------------------------------------------------------------------------------------ AUTO COMPONENTS - 2.5% 510,000 Delphi Trust I, 8.250% 13,132,500 382,050 Magna International Inc., Series B, 8.875% 9,662,044 ------------------------------------------------------------------------------------------------------------------------------------ BEVERAGES - 1.5% 535,800 Grand Metropolitan Delaware LP, 9.420% 13,620,036 ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL BANKS - 12.0% 22,900 Abbey National plc, 7.250% 592,423 67,800 Abbey National plc, Series B, 7.375% 1,779,750 100,000 ABN AMRO Capital Fund Trust V, 5.900% 2,319,000 102,800 ASBC Capital I, 7.625% 2,734,480 7,200 BAC Capital Trust I, 7.000% 186,336 64,300 BAC Capital Trust II, 7.000% 1,662,155 145,000 BAC Capital Trust III, 7.000% 3,796,100 52,300 Banco Totta & Acores Finance, Series A, 8.875% 1,349,993 68,300 Bank One Capital II, 8.500% 1,842,734 59,400 Bank One Capital Trust VI, 7.200% 1,544,400 17,000 BBVA Preferred Capital Ltd., Series B, 7.750% 447,100 122,000 BCH Capital Ltd., Series B, 9.430% 3,258,010 31,100 BNY Capital Trust V, Series F, 5.950% 742,357 270,650 BSCH Finance Ltd., Series Q, 8.625% 7,172,225 25,200 Chase Capital Trust VIII, Series H, 8.300% 666,540 198,200 Chittenden Capital Trust I, 8.000% 5,240,408 30,176 CIT Group Incorporated, 7.750% (CORTS) 829,840 15,000 Citigroup Capital Trust VI, 6.875% 378,150 131,700 Citigroup Capital Trust VII, 7.125% 3,447,906 61,700 Citigroup Capital Trust VIII, 6.950% 1,590,009 66,300 Citigroup Inc., Series H, 6.231% (a) 3,404,505 116,800 Cobank ABC, 144A, 7.000% (a) 6,213,760 123,800 Comerica Capital Trust I, 7.600% 3,268,320 224,795 Compass Capital Trust III, 7.350% 5,869,397 37,000 Espirito Santo Overseas, 8.500% 951,595 28,500 First Union Capital II, Series II, 7.500% (CORTS) 743,850 11,300 First Union Institutional Capital II, 8.200% (CORTS) 317,247 87,000 Fleet Capital Trust VI, 8.800% 2,316,810 33,900 Fleet Capital Trust VII, 7.200% 883,773 12 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL BANKS (continued) 57,900 Harris Preferred Capital Corporation, Series A, 7.375% $ 1,460,238 32,600 JPM Capital Trust I, Series 2001-1, Class A-1, 7.850% (CORTS) 870,094 81,500 JPMorgan Chase Capital Trust IX, Series I, 7.500% 2,166,270 70,500 JPMorgan Chase Capital Trust X, 7.000% 1,840,050 20,000 JPMorgan Chase Trust, Series 2002-6, Class A, 7.125% (SATURNS) 512,200 62,900 KeyCorp, 7.500% (PCARS) 1,626,279 18,000 KeyCorp, Series 2001-7, 7.750% (CORTS) 466,740 29,800 KeyCorp, Series B, 8.250% (CORTS) 777,780 62,800 National Commerce Capital Trust II, 7.700% 1,661,060 55,300 National Westminster Bank plc, Series A, 7.875% 1,411,256 29,200 Regions Finance Trust I, 8.000% 764,456 13,800 SunTrust Capital Trust IV, 7.125% 358,110 60,700 SunTrust Capital Trust V, 7.050% 1,574,558 174,400 USB Capital Trust III, 7.750% 4,621,600 418,405 USB Capital Trust IV, 7.350% 11,004,051 40,100 USB Capital Trust V, 7.250% 1,052,625 26,200 VNB Capital Trust I., 7.750% 693,776 23,200 Washington Mutual Capital Trust I, Series 2001-22, Class A-1, 7.650% (CORTS) 598,560 9,500 Wells Fargo Capital Trust IV, 7.000% 248,045 115,100 Wells Fargo Capital Trust V, 7.000% 2,982,241 5,600 Wells Fargo Capital Trust VI, 6.950% 144,592 340,000 Zions Capital Trust B, 8.000% 9,139,200 ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER FINANCE - 0.6% 127,000 Household Capital Trust V, Series X, 10.000% 3,403,600 60,200 Household Capital Trust VI, 8.250% 1,603,126 20,200 Household Capital Trust VII, 7.500% 534,088 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES - 4.9% 60,000 Bear Stearns Capital Trust III, 7.800% 1,581,000 40,800 Citigroup Inc., Series M, 5.864% (a) 2,055,300 586,800 Countrywide Capital Trust IV, 6.750% 14,640,660 108,149 Lehman Brothers Holdings Capital Trust, 6.375% 2,687,502 40,500 Lehman Brothers Holdings Capital Trust, 6.375% 995,085 46,000 Merrill Lynch Capital Trust II, 8.000% 1,260,400 60,000 Merrill Lynch Capital Trust, 7.000% 1,555,800 35,300 Merrill Lynch Preferred Capital Trust, 7.120% 923,448 64,300 Merrill Lynch Preferred Capital Trust V, 7.280% 1,695,591 192,500 Merrill Lynch Preferred Capital Trust, 7.750% 5,159,000 125,000 Morgan Stanley Capital Trust II, 7.250% 3,225,000 146,000 Morgan Stanley Capital Trust III, 6.250% 3,591,600 249,095 Morgan Stanley Capital Trust IV, 6.250% 6,115,282 10,800 Morgan Stanley Capital Trust V, 5.750% 250,560 13 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of INVESTMENTS July 31, 2004 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 0.1% 18,100 SBC Communications Inc, 7.000% $ 472,591 12,000 Verizon New England Inc., Series B, 7.000% 309,840 ------------------------------------------------------------------------------------------------------------------------------------ ELECTRIC UTILITIES - 2.8% 93,400 Dominion CNG Capital Trust I, 7.800% 2,440,542 57,600 Dominion Resources Capital Trust II, 8.400% 1,527,552 77,740 DTE Energy Trust I, 7.800% 2,039,120 95,205 Entergy Louisiana Inc, 7.600% 2,506,747 117,951 Georgia Power Company, 5.900% 2,839,080 251,220 Interstate Power & Light Company, 8.375% (a) 8,089,284 64,700 OGE Energy Capital Trust I, 8.375% 1,649,850 6,800 Tennessee Valley Authority, Series D, 6.750% 166,532 187,000 Virginia Power Capital Trust, 7.375% 4,890,050 ------------------------------------------------------------------------------------------------------------------------------------ FOOD PRODUCTS - 0.7% 65,000 Dairy Farmers of America Inc., 144A, 7.875% (a) 6,650,312 ------------------------------------------------------------------------------------------------------------------------------------ GAS UTILITIES - 0.4% 32,300 AGL Capital Trust II, 8.000% 839,477 108,500 TransCanada Pipeline, 8.250% 2,762,410 ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES - 0.1% 19,400 General Electric Company, 6.800% 514,100 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 15.2% 14,900 ACE Capital Trust I, Series 1999, 8.875% 385,910 758,700 Ace Ltd., Series C, 7.800% 20,189,007 21,500 AMBAC Financial Group Inc, 5.950% 503,530 18,700 American General Capital III, 8.050% 504,900 20,700 American General Capital Trust I, 7.875% 524,538 760,000 Converium Finance, 8.250% 17,966,400 185,300 Delphi Financial Group Inc, 8.000% 4,771,475 35,400 Everest RE Capital Trust II, 6.200% 801,810 69,700 EverestRe Group Limited, 7.850% 1,856,808 136,600 Great-West L&A Capital Trust I, Series A, 7.250% 3,438,222 119,100 Hartford Capital Trust III, Series C, 7.450% 3,126,375 43,800 Hartford Life Capital Trust II, Series B, 7.625% 1,147,122 30,300 ING Capital Funding Trust II, 9.200% 811,434 563,900 ING Group NV, 7.050% 14,509,147 1,015,458 ING Group NV, 7.200% 26,533,917 77,100 Lincoln National Capital Trust V, Series E, 7.650% 2,037,753 26,900 Lincoln National Capital Trust VI, 6.750% 673,845 26,100 MBIA Inc, 8.000% 716,445 250,000 PartnerRe Limited, Series C, 6.750% 6,200,000 113,700 PartnerRe Limited, 7.900% 3,007,365 70,900 PLC Capital Trust III, 7.500% 1,847,654 410,000 PLC Capital Trust IV, 7.250% 10,680,500 107,750 RenaissanceRe Holdings Ltd., Series A, 8.100% 2,867,227 14 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE (continued) 53,800 RenaissanceRe Holdings Ltd., Series B, 7.300% $ 1,417,630 34,600 SafeCo Capital Trust I, 8.700% (CORTS) 915,170 31,000 SafeCo Capital Trust I, Series 2001-4, 8.750% (CORTS) 812,510 58,600 Torchmark Capital Trust I, 7.750% 1,533,562 391,854 XL Capital Ltd., Series A, 8.000% 10,615,324 39,400 XL Capital Ltd., Series B, 7.625% 1,046,858 ------------------------------------------------------------------------------------------------------------------------------------ MEDIA - 0.3% 119,000 Viacom Inc, 7.300% 3,113,040 ------------------------------------------------------------------------------------------------------------------------------------ MULTI-UTILITIES & UNREGULATED POWER - 0.3% 94,800 Energy East Capital Trust I, 8.250% 2,476,176 ------------------------------------------------------------------------------------------------------------------------------------ OIL & GAS - 1.3% 46,100 EnCana Corporation, 9.500% 1,177,394 411,032 Nexen Inc, 7.350% 10,542,970 ------------------------------------------------------------------------------------------------------------------------------------ PHARMACEUTICALS - 0.2% 20,000 Bristol Myers Squibb Company, 6.250% (CORTS) 513,000 54,300 Rhone-Poulenc Overseas, Series A, 8.125% 1,387,365 ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE - 20.8% 49,658 AMB Property Corporation, Series M, 6.750% 1,214,634 8,500 Archstone-Smith Trust, Series D, 8.750% 214,200 13,400 AvalonBay Communities, Inc., Series H, 8.700% 371,314 608,700 BRE Properties, Series B, 8.080% 15,963,157 533,545 CarrAmerica Realty Corporation, Series E, 7.500% 13,669,422 119,000 Developers Diversified Realty Corporation, Series H, 7.375% 2,936,920 29,000 Developers Diversified Realty Corporation, Series G, 8.000% 755,450 55,600 Developers Diversified Realty Corporation, Series F, 8.600% 1,484,520 114,179 Duke-Weeks Realty Corporation, Series B, 7.990% 6,226,329 10,800 Duke-Weeks Realty Corporation, Series I, 8.450% 285,984 1,097,400 Equity Office Properties Trust, Series G, 7.750% 28,576,296 23,100 Equity Residential Properties Trust, Series D, 8.600% 637,560 30,400 Equity Residential Properties Trust, Series B, 9.125% 808,640 10,600 First Industrial Realty Trust, Inc., Series C, 8.625% 284,080 19,000 Firstar Realty LLC, 144A, 8.875% 22,990,000 218,300 HRPT Properties Trust, Series A, 9.875% 5,811,146 1,096,700 HRPT Properties Trust, Series B, 8.750% 29,139,319 22,000 New Plan Excel Realty Trust, Series D, 7.800% 1,159,125 416,000 New Plan Excel Realty Trust, Series E, 7.625% 10,728,640 101,000 Prologis Trust, Series G, 6.750% 2,444,200 50,000 PS Business Park Inc., Series I, 6.875% 1,164,500 204,400 PS Business Parks Inc, 7.000% 4,782,960 7,000 Public Storage Inc., Series D, 9.500% 181,650 16,200 Public Storage Inc., Series E, 10.000% 434,160 22,800 Public Storage Inc., Series F, 9.750% 598,500 25,100 Public Storage Inc., Series Q, 8.600% 664,397 15 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of INVESTMENTS July 31, 2004 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE (continued) 99,000 Public Storage Inc., Series R, 8.000% $ 2,594,790 200,000 Public Storage Inc., Series S, 7.875% 5,238,000 32,680 Public Storage Inc., Series U, 7.625% 849,026 345,600 Public Storage Inc., Series V, 7.500% 9,054,720 47,500 Regency Centers Corporation, 7.450% 1,223,125 20,500 Simon Property Group, Inc., Series F, 8.750% 553,500 176,200 Simon Property Group, Inc., Series G, 7.890% 9,324,504 47,700 Vornado Realty Trust, Series C, 8.500% 1,225,890 315,000 Wachovia Preferred Funding Corporation, 7.250% 8,413,650 ------------------------------------------------------------------------------------------------------------------------------------ WIRELESS TELECOMMUNICATION SERVICES - 1.4% 262,846 Telephone and Data Systems Inc, 7.600% 6,865,537 156,300 United States Cellular Corporation, 8.750% 4,321,695 77,000 United States Cellular Corporation, 7.500% 1,966,580 ------------------------------------------------------------------------------------------------------------------------------------ Total $25 Par (or similar) Securities (cost $588,995,225) 604,860,094 -------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED SECURITIES - 7.8% (5.3% OF TOTAL INVESTMENTS) DIVERSIFIED FINANCIAL SERVICES - 0.6% 154,000 Citigroup Global Markets, 2.000% 5,906,824 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 1.4% 263,200 Alltel Corporation, 7.750% 13,186,320 ------------------------------------------------------------------------------------------------------------------------------------ ELECTRIC UTILITIES - 3.6% 266,200 Ameren Corporation, 9.750% 7,272,584 10,000 American Electric Power, 9.250% 429,500 260,200 Dominion Resources Inc, 8.750% 13,933,710 60,000 DTE Energy Company, 8.750% 1,529,400 30,000 FPL Group Inc, 8.000% 1,681,500 153,600 Public Service Enterprise Group, 10.250% 8,540,160 ------------------------------------------------------------------------------------------------------------------------------------ GAS UTILITIES - 1.7% 299,400 Keyspan Corporation, 8.750% 15,383,172 ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE EQUIPMENT & SUPPLIES - 0.3% 54,500 Baxter International Inc, 7.000% 2,804,025 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 0.2% 8,900 PartnerRe Limited, 8.000% 451,230 50,000 XL Capital Limited, 6.500% 1,196,000 ------------------------------------------------------------------------------------------------------------------------------------ Total Convertible Preferred Securities (cost $69,031,457) 72,314,425 -------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED - HYBRID SECURITIES - 2.9% (2.0% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 1.1% 10 BBVA Privanza International Gibraltar, 144A, 7.764% 10,350,000 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 1.8% 13,250 Centaur Funding Corporation, 144A, Series B, 9.080% 16,728,125 ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Hybrid Securities (cost $21,548,162) 27,078,125 -------------------------------------------------------------------------------------------------------------------- 16 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED SECURITIES - 56.3% (38.4% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 39.3% $ 30,000 Abbey National Capital Trust I, 8.963%, 12/30/49 $38,470,020 9,000 AB Svensk Exportkredit, 6.375%, 10/27/49 8,811,783 3,100 AgFirst Farm Credit Bank, 7.300%, 12/15/53 3,118,869 2,500 Bank of New York Capital I, Series B, 7.970%, 12/31/26 2,747,887 2,500 Bank One Capital III, 8.750%, 9/01/30 3,247,885 2,500 BankAmerica Capital II, Series 2, 8.000%, 12/15/26 2,777,100 2,000 BankAmerica Institutional Capital Trust, Series B, 7.700%, 12/31/26 2,168,926 1,000 BankAmerica Institutional Trust, 8.070%, 12/31/26 1,116,371 5,700 BankBoston Capital Trust II, Series B, 7.750%, 12/15/26 6,124,843 1,000 BanPonce Trust I, Series A, 8.327%, 2/01/27 1,088,053 7,200 Barclays Bank plc, 144A, 8.550%, 6/15/49 8,622,950 6,000 Barnett Capital I, 8.060%, 12/01/26 6,653,856 1,500 BNP Paribas Capital Trust, 144A, 9.003%, 12/29/49 1,825,603 2,000 BT Capital Trust, Series B1, 7.900%, 1/15/27 2,182,920 1,000 BT Institutional Capital Trust, 144A , Series B, 7.750%, 12/01/26 1,072,112 7,900 BT Preferred Capital Trust II, 7.875%, 2/25/27 8,554,933 3,000 Centura Capital Trust I, 144A, 8.845%, 6/01/27 3,383,604 5,000 Chase Capital Trust I, Series A, 7.670%, 12/01/26 5,368,900 3,000 Corestates Capital Trust I, 144A, 8.000%, 12/15/26 3,325,248 8,500 Dime Capital Trust I, Series A, 9.330%, 5/06/27 9,956,194 2,500 Dresdner Funding Trust I, 8.151%, 6/30/31 2,846,440 1,800 Farm Credit Bank of Texas, 7.561%, 11/05/49 1,824,541 1,000 First Chicago NBD Institutional Capital, 7.950%, 12/01/26 1,090,780 1,000 First Empire Capital Trust II, 8.277%, 6/01/27 1,116,020 1,500 First Midwest Bancorp Inc, 6.950%, 12/01/33 1,522,479 26,463 First Union Institutional Capital Securities, 8.040%, 12/01/26 29,415,662 5,000 Great Western Financial Trust II, Series A, 8.206%, 2/01/27 5,479,130 19,750 HSBC Capital Funding LP, Debt, 10.176%, 6/30/50 28,039,746 5,750 HSBC Capital Funding LP, 144A, 9.547%, 12/31/49 7,080,199 19,500 JPM Capital Trust II, 7.950%, 2/01/27 21,512,224 5,000 KBC Bank Fund Trust III, 144A, 9.860%, 11/02/49 6,138,045 2,000 KeyCorp Institutional Capital Trust A, 7.826%, 12/01/26 2,154,060 11,150 NB Capital Trust II, 7.830%, 12/15/26 12,267,475 7,655 Nordbanken AB, 144A, 8.950%, 11/29/49 9,112,435 1,000 North Fork Capital Trust I, Capital Securities, 8.700%, 12/15/26 1,102,310 8,000 Peoples Heritage Capital Trust I, Series B, 9.060%, 2/01/27 9,079,608 19,000 PNC Institutional Capital Securities, 7.950%, 12/15/26 20,392,624 17,500 Reliance Capital Trust I, Series B, 8.170%, 5/01/28 19,350,660 1,400 Republic New York Capital II, Capital Securities, 7.530%, 12/04/26 1,491,229 1,500 SocGen Real Estate Company LLC, 144A, 7.640%, 12/29/49 1,662,699 5,000 Sparebanken Rogaland, 144A, Notes, 6.443%, 5/01/49 4,925,000 23,000 Summit Capital Trust I, Capital Securities, 8.400%, 3/15/27 25,695,186 7,000 UBS Preferred Funding Trust I, 8.622%, 10/29/49 8,338,750 17 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of INVESTMENTS July 31, 2004 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL BANKS (continued) $ 6,676 Union Planters Capital Trust A, 8.200%, 12/15/26 $ 7,427,624 4,000 Wachovia Capital Trust I, Capital Securities, 144A, 7.640%, 1/15/27 4,273,236 5,000 Washington Mutual Capital Trust I, 8.375%, 6/01/27 5,574,130 1,050 Wells Fargo Capital Securities, 7.950%, 12/01/26 1,164,211 3,000 Zions Institutional Capital Trust, Series A, 8.536%, 12/15/26 3,372,963 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES - 0.2% 2,000 Keycorp Capital III, 7.750%, 7/15/29 2,271,356 ------------------------------------------------------------------------------------------------------------------------------------ GAS UTILITIES - 1.5% 4,000 KN Capital Trust I, Preferred Securities, 8.560%, 4/15/27 4,515,368 8,860 KN Capital Trust III, 7.630%, 4/15/28 9,414,520 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 12.5% 7,570 Ace Capital Trust II, 9.700%, 4/01/30 10,124,466 7,500 Berkeley Capital Trust, 8.197%, 12/15/45 8,081,227 4,000 MIC Financing Trust I, 8.375%, 2/01/27 4,363,688 2,000 RenaissanceRe Capital Trust, 8.540%, 3/01/27 2,229,214 20,525 SAFECO Capital Trust I, Capital Securities, 8.072%, 7/15/37 22,739,626 26,211 Sun Life Canada Capital Trust, Capital Securities, 8.526%, 5/06/47 29,275,773 35,095 Zurich Capital Trust I, 8.376%, 6/01/37 39,149,735 ------------------------------------------------------------------------------------------------------------------------------------ OIL & GAS - 2.5% 20,900 Phillips 66 Capital Trust II, 8.000%, 1/15/37 22,902,324 ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE - 0.3% 3,000 Mangrove Bay, 144A, Class 3, 6.102%, 7/15/33 2,992,008 ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred Securities (cost $500,148,511) 522,126,828 -------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 8.2% (5.6% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 7.3% 3,000 BNP Paribas Capital Trust, 7.200%, 12/31/49 3,102,873 10,750 C.A. Preferred Funding Trust, 7.000%, 1/30/49 10,844,299 2,750 C.A. Preferred Fund Trust II, 7.000%, 10/30/49 2,781,850 25,500 HBOS Capital Funding LP, Notes, 6.850%, 3/01/49 25,607,151 8,850 Lloyds TSB Bank plc, Subordinate Note, 6.900%, 11/22/49 9,024,601 17,000 RBS Capital Trust B, 6.800%, 12/31/49 17,106,199 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES - 0.9% 8,100 Old Mutual Capital Funding, Notes, 8.000%, 6/22/53 8,079,231 ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Euro-Market Listed Securities (cost $78,983,079) 76,546,204 -------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 4.5% (3.1% OF TOTAL INVESTMENTS) AUTOMOBILES - 4.5% 5,000 Ford Motor Company, 8.900%, 1/15/32 5,428,780 3,400 Ford Motor Company, 7.400%, 11/1/46 3,073,308 5,700 Ford Motor Company, 7.700%, 5/15/97 5,221,012 18 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ AUTOMOBILES (continued) $ 2,760 General Motors Corporation, Senior Debentures, 8.375%, 7/15/33 $ 2,893,510 24,500 General Motors Acceptance Corporation, Notes, 8.000%, 11/01/31 24,947,665 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 0.0% 500 Zurich Reinsurance Centre Holdings Inc, Senior Notes, 7.125%, 10/15/23 438,375 ------------------------------------------------------------------------------------------------------------------------------------ Total Corporate Bonds (cost $38,496,312) 42,002,650 -------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS - 1.7% (1.2% OF TOTAL INVESTMENTS) $ 15,837 State Street Bank, 1.250%, dated 7/30/04, due 8/02/04, repurchase price $15,838,344, 15,836,694 collateralized by $14,520,000 U.S. Treasury Bonds, 6.000%, due 2/15/26, value $16,153,500 ============= -------------------------------------------------------------------------------------------------------------------- Total Repurchase Agreements (cost $15,836,694) 15,836,694 -------------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,313,039,440) - 146.7% 1,360,765,020 -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 0.7% 7,126,952 -------------------------------------------------------------------------------------------------------------------- FundPreferred Shares, at Liquidation Value - (47.4)% (440,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $927,891,972 ====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (a) Security is eligible for the Dividends Received Deduction. 144A 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. (CORTS) Corporate Backed Trust Securities. (PCARS) Public Credit and Repackaged Securities. (SATURNS) Structured Asset Trust Unit Repackaging. See accompanying notes to financial statements. 19 Nuveen Quality Preferred Income Fund 2 (JPS) Portfolio of INVESTMENTS July 31, 2004
MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ $25 PAR (OR SIMILAR) SECURITIES - 65.0% (45.5% OF TOTAL INVESTMENTS) AUTOMOBILES - 0.1% 38,000 Ford Motor Company, Series F, 8.000% (CORTS) $ 965,200 14,500 Ford Motor Company, 0.000% 369,895 ------------------------------------------------------------------------------------------------------------------------------------ AUTO COMPONENTS - 1.4% 916,800 Delphi Trust I, 8.250% 23,607,600 45,100 Magna International Inc., Series B, 8.875% 1,140,579 ------------------------------------------------------------------------------------------------------------------------------------ BEVERAGES - 0.1% 106,100 Grand Metropolitan Delaware LP, 9.420% 2,697,062 ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL BANKS - 13.0% 152,060 ASBC Capital I, 7.625% 4,044,796 135,900 BAC Capital Trust I, 7.000% 3,517,092 168,500 BAC Capital Trust II, 7.000% 4,355,725 218,300 BAC Capital Trust III, 7.000% 5,715,094 680,000 Banco Santander SA, 144A, 6.410% 16,549,840 38,600 Banco Totta & Acores Finance, Series A, 8.875% 996,362 81,600 BancWest Capital I, 9.500% 2,231,760 621,000 Banesto Holdings, Series A, 144A, 10.500% 19,115,187 9,400 Bank One Capital I, 8.000% 240,828 85,800 Bank One Capital II, 8.500% 2,314,884 198,500 Bank One Capital Trust VI, 7.200% 5,161,000 47,400 Bank One Capital V, 8.000% 1,265,580 55,400 BankNorth Capital Trust II, 8.000% 1,471,424 42,900 BBVA Preferred Capital Ltd., Series B, 7.750% 1,128,270 340,500 BCH Capital Ltd., Series B, 9.430% 9,093,052 19,300 BNY Capital Trust IV, Series E, 6.875% 485,974 29,200 BNY Capital Trust V, Series F, 5.950% 697,004 446,100 BSCH Finance Ltd., Series Q, 8.625% 11,821,650 73,800 Chase Capital Trust VIII, Series H, 8.300% 1,952,010 104,200 Chittenden Capital Trust I, 8.000% 2,755,048 33,200 CIT Group Incorporated, 7.750% (CORTS) 913,000 1,800 Citigroup Capital Trust IX, 6.000% 43,650 32,300 Citigroup Capital Trust VI, 6.875% 814,283 217,800 Citigroup Capital Trust VII, 7.125% 5,702,004 396,700 Citigroup Capital Trust VIII, 6.950% 10,222,959 36,900 Citigroup Inc., Series H, 6.231% (a) 1,894,815 225,500 Cobank ABC, 144A, 7.000% (a) 11,996,600 239,700 Comerica Capital Trust I, 7.600% 6,328,080 380,125 Compass Capital Trust III, 7.350% 9,925,063 20 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL BANKS (continued) 24,300 CSFB USA, Series 2002-10, 7.000% (SATURNS) $ 619,650 50,335 Espirito Santo Overseas, 8.500% 1,294,555 85,800 Fannie Mae, 5.125% (a) 3,837,405 63,300 First Union Capital II, Series II, 7.500% (CORTS) 1,652,130 31,300 First Union Institutional Capital II, 8.200% (CORTS) 878,747 128,300 Fleet Capital Trust VI, 8.800% 3,416,629 16,800 Harris Preferred Capital Corporation, Series A, 7.375% 423,696 43,900 HSBC USA Inc., Series F, 2.860% (a) 2,227,925 10,600 JPM Capital Trust I, Series 2001-1, Class A-1, 7.850% (CORTS) 282,914 88,300 JPM Capital Trust, 7.200% (CORTS) 2,261,363 221,100 JPMorgan Chase Capital Trust IX, Series I, 7.500% 5,876,838 113,100 JPMorgan Chase Capital Trust X, 7.000% 2,951,910 49,600 JPMorgan Chase Trust, Series 2002-6, Class A, 7.125% (SATURNS) 1,270,256 34,400 KeyCorp, 7.500% (PCARS) 889,412 30,400 KeyCorp, Series 2001-7, 7.750% (CORTS) 788,272 91,300 KeyCorp, Series B, 8.250% (CORTS) 2,382,930 239,800 National Commerce Capital Trust II, 7.700% 6,342,710 112,200 National Westminster Bank plc, Series A, 7.875% 2,863,344 38,100 Regions Finance Trust I, 8.000% 997,458 135,800 SunTrust Capital Trust IV, 7.125% 3,524,010 107,600 SunTrust Capital Trust V, 7.050% 2,791,144 658,100 USB Capital Trust III, 7.750% 17,439,650 219,700 USB Capital Trust IV, 7.350% 5,778,110 85,000 USB Capital Trust V, 7.250% 2,231,250 90,800 VNB Capital Trust I, 7.750% 2,404,384 41,400 Washington Mutual Capital Trust I, Series 2001-22, Class A-1, 7.650% (CORTS) 1,068,120 5,100 Well Fargo Capital Trust IX, 5.625% 115,158 16,700 Wells Fargo Capital Trust IV, 7.000% 436,037 120,500 Wells Fargo Capital Trust V, 7.000% 3,122,155 25,700 Wells Fargo Capital Trust VI, 6.950% 663,574 539,200 Zions Capital Trust B, 8.000% 14,493,696 ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER FINANCE - 1.8% 528,700 Household Capital Trust V, Series X, 10.000% 14,169,160 620,196 Household Capital Trust VI, 8.250% 16,515,819 61,200 Household Capital Trust VII, 7.500% 1,618,128 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES - 6.1% 101,400 Bear Stearns Capital Trust III, 7.800% 2,671,890 40,490 Citigroup Inc., Series M, 5.864% (a) 2,039,683 1,043,000 Countrywide Capital Trust IV, 6.750% 26,022,850 80,000 Federal Home Loan Mortgage Corporation, 5.000% (a) 3,400,000 464,746 General Electric Capital Corporation, 6.100% 11,781,311 199,700 General Electric Capital Corporation, 6.625% 5,240,128 360,600 Household Finance Corporation, 6.875% 9,317,904 21 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS July 31, 2004 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES (continued) 278,100 Lehman Brothers Holdings Capital Trust III, Series K, 6.375% $ 6,910,785 102,900 Lehman Brothers Holdings Capital Trust IV, Series L, 6.375% 2,528,253 42,000 Lehman Brothers Holdings Inc., Series C, 5.940% (a) 2,032,800 117,500 Merrill Lynch Capital Trust II, 8.000% 3,219,500 156,200 Merrill Lynch Capital Trust, 7.000% 4,050,266 77,800 Merrill Lynch Preferred Capital Trust IV, 7.120% 2,035,248 131,200 Merrill Lynch Preferred Capital Trust V, 7.280% 3,459,744 103,500 Merrill Lynch Preferred Capital Trust, 7.750% 2,773,800 122,608 Morgan Stanley Capital Trust II, 7.250% 3,163,286 455,000 Morgan Stanley Capital Trust III, 6.250% 11,193,000 380,000 Morgan Stanley Capital Trust IV, 6.250% 9,329,000 10,000 Morgan Stanley Capital Trust V, 5.750% 232,000 43,000 Morgan Stanley, 7.050% (PPLUS) 1,112,410 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 0.2% 4,000 BellSouth Capital Funding Corporation, 7.375% 100,000 9,800 BellSouth Corporation, 7.125% 250,341 10,100 BellSouth Inc., 7.000% (CORTS) 254,116 3,000 BellSouth Telecommunications, 7.300% (PPLUS) 77,610 31,800 SBC Communications Inc., 7.000% 830,298 17,500 Verizon Communications, 7.625% (CORTS) 461,125 55,200 Verizon Global Funding Corporation, 7.500% (SATURNS) 1,472,184 4,000 Verizon South Inc., Series F, 7.000% 103,720 ------------------------------------------------------------------------------------------------------------------------------------ ELECTRIC UTILITIES - 4.7% 189,500 Alabama Power Company, 5.830% (a) 4,680,650 17,200 Consolidated Edison Company of New York Inc., 7.500% 460,100 1,000 Detroit Edison Company, 7.540% 25,240 9,500 Detroit Edison Company, 7.625% 240,350 92,500 Dominion CNG Capital Trust I, 7.800% 2,417,025 46,200 Dominion Resources Capital Trust II, 8.400% 1,225,224 27,400 DTE Energy Trust I, 7.800% 718,702 5,500 Entergy Arkansas Inc., 6.700% 143,220 49,000 Entergy Louisiana Inc., 7.600% 1,290,170 1,298,000 Entergy Mississippi Inc., 7.250% 33,488,400 3,000 Georgia Power Capital Trust V, 7.125% 78,180 942,120 Interstate Power & Light Company, Series B, 8.375% (a) 30,336,264 41,000 OGE Energy Capital Trust I, 8.375% 1,045,500 51,000 Public Service Company of Oklahoma, Series B, 6.000% 1,278,570 56,700 Tennessee Valley Authority, Series D, 6.750% 1,388,583 254,000 Virginia Power Capital Trust, 7.375% 6,642,100 ------------------------------------------------------------------------------------------------------------------------------------ FOOD PRODUCTS - 0.7% 125,000 Dairy Farmers of America Inc., 144A, 7.875% (a) 12,789,062 22 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ GAS UTILITIES - 0.3% 51,700 AGL Capital Trust II, 8.000% $ 1,343,683 151,900 TransCanada Pipeline, 8.250% 3,867,374 ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE PROVIDERS & SERVICES - 0.1% 53,700 Aetna Incorporated, 8.500% 1,443,993 ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL CONGLOMERATES - 0.0% 16,000 Philadelphia Authority for Industrial Development, Pennsylvania, Pension, 6.550% 400,000 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 18.5% 972,600 Ace Ltd., Series C, 7.800% 25,880,886 24,800 AMBAC Financial Group Inc., 5.950% 580,816 33,900 American General Capital III, 8.050% 915,300 28,200 American General Capital Trust I, 7.875% 714,588 1,506,600 Converium Finance, 8.250% 35,616,024 472,557 Delphi Financial Group Inc., 8.000% 12,168,342 2,827,000 EverestRe Group Limited, 7.850% 75,311,280 43,400 Financial Security Assurance Holdings, 6.875% 1,111,040 693,000 Financial Security Assurance Holdings, 6.250% 17,047,800 25,900 Great-West L&A Capital Trust I, Series A, 7.250% 651,903 247,600 Hartford Capital Trust III, Series C, 7.450% 6,499,500 55,900 Hartford Life Capital Trust II, Series B, 7.625% 1,464,021 63,600 ING Capital Funding Trust II, 9.200% 1,703,208 5,000 ING Groep NV, 6.200% 122,000 1,406,955 ING Group NV, 7.050% 36,200,952 1,476,400 ING Group NV, 7.200% 38,578,332 77,000 Lincoln National Capital Trust V, Series E, 7.650% 2,035,110 34,000 Lincoln National Capital Trust VI, 6.750% 851,700 22,200 MBIA Inc., 8.000% 609,390 200 Metlife Inc., 5.875% 4,830 449,720 PartnerRe Limited, Series C, 6.750% 11,153,056 232,381 PartnerRe Limited, 7.900% 6,146,477 96,200 PLC Capital Trust III, 7.500% 2,506,972 440,940 PLC Capital Trust IV, 7.250% 11,486,487 3,700 PLC Capital Trust V, 6.125% 84,730 304,360 RenaissanceRe Holdings Ltd., Series A, 8.100% 8,099,019 138,400 RenaissanceRe Holdings Ltd., Series B, 7.300% 3,646,840 10,400 SafeCo Capital Trust I, 8.750% (CORTS) 302,640 78,900 SafeCo Capital Trust I, 8.700% (CORTS) 2,086,905 59,700 SafeCo Capital Trust I, Series 2001-4, 8.750% (CORTS) 1,564,737 63,200 Torchmark Capital Trust I, 7.750% 1,653,944 16,300 W.R. Berkley, 8.250% (CORTS) 423,637 558,900 XL Capital Ltd., Series A, 8.000% 15,140,601 537,617 XL Capital Ltd., Series B, 7.625% 14,284,483 ------------------------------------------------------------------------------------------------------------------------------------ MEDIA - 0.1% 76,900 Viacom Inc., 7.300% 2,011,704 23 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS July 31, 2004 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ MULTI-UTILITIES & UNREGULATED POWER - 0.2% 108,000 Energy East Capital Trust I, 8.250% $ 2,820,960 ------------------------------------------------------------------------------------------------------------------------------------ OIL & GAS - 1.0% 51,500 EnCana Corporation, 9.500% 1,315,310 694,511 Nexen Inc., 7.350% 17,814,207 ------------------------------------------------------------------------------------------------------------------------------------ PHARMACEUTICALS - 0.1% 14,500 Bristol Myers Squibb Company, 6.250% (CORTS) 371,925 87,800 Rhone-Poulenc Overseas, Series A, 8.125% 2,243,290 ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE - 14.4% 15,700 Archstone-Smith Trust, Series D, 8.750% 395,640 93,900 AvalonBay Communities, Inc., Series H, 8.700% 2,601,969 13,300 BRE Properties, Series B, 8.080% 348,792 38,500 BRE Properties, Series C, 6.750% 916,300 1,002,995 CarrAmerica Realty Corporation, Series E, 7.500% 25,696,731 115,000 Developers Diversified Realty Corporation, Series H, 7.375% 2,838,200 279,800 Developers Diversified Realty Corporation, Series G, 8.000% 7,288,790 101,000 Developers Diversified Realty Corporation, Series F, 8.600% 2,696,700 200,650 Duke-Weeks Realty Corporation, Series B, 7.990% 10,941,705 38,600 Duke-Weeks Realty Corporation, Series I, 8.450% 1,022,128 299,900 Equity Office Properties Trust, Series G, 7.750% 7,809,396 40,000 Equity Residential Properties Trust, Series C, 9.125% 1,094,000 63,250 Equity Residential Properties Trust, Series D, 8.600% 1,745,700 1,000 Equity Residential Properties Trust, Series N, 6.480% 23,800 88,800 Equity Residential Properties Trust, 9.125% 2,362,080 18,600 First Industrial Realty Trust, Inc., Series C, 8.625% 498,480 31,900 Gables Residential Trust, Series D, 7.500% 838,970 219,600 HRPT Properties Trust, Series A, 9.875% 5,845,752 1,539,125 HRPT Properties Trust, Series B, 8.750% 40,894,551 153,000 Kimco Realty Corporation, Series F, 6.650% 3,878,550 147,350 New Plan Excel Realty Trust, Series D, 7.800% 7,763,503 768,000 New Plan Excel Realty Trust, Series E, 7.625% 19,806,720 91,728 Prologis Trust, Series G, 6.750% 2,219,817 103,000 PS Business Parks Inc., Series I, 6.875% 2,398,870 104,470 PS Business Parks Inc., Series H, 7.000% 2,444,598 5,000 Public Storage Inc., Series A, 6.125% 113,100 5,000 Public Storage Inc., Series D, 9.500% 129,750 13,000 Public Storage Inc., Series F, 9.750% 341,250 14,200 Public Storage Inc., Series M, 8.750% 358,266 63,700 Public Storage Inc., Series Q, 8.600% 1,686,139 181,195 Public Storage Inc., Series R, 8.000% 4,749,120 38,300 Public Storage Inc., Series S, 7.875% 1,003,077 81,165 Public Storage Inc., Series T, 7.625% 2,097,303 88,900 Public Storage Inc., Series U, 7.625% 2,309,622 142,300 Public Storage Inc., Series V, 7.500% 3,728,260 24 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE (continued) 32,900 Public Storage Inc., Series Z, 6.250% $ 769,531 300,000 Regency Centers Corporation, 7.450% 7,725,000 5,000 Renaissance Holdings Limited, Series C, 6.080% 113,950 34,500 Simon Property Group, Inc., Series F, 8.750% 931,500 326,041 Simon Property Group, Inc., Series G, 7.890% 17,254,089 40,700 Vornado Realty Trust, Series C, 8.500% 1,045,990 2,461,900 Wachovia Preferred Funding Corporation, Series A, 7.250% 65,757,349 ------------------------------------------------------------------------------------------------------------------------------------ SPECIALTY RETAIL - 0.0% 16,500 Sherwin Williams Company, Series III, 7.250% (CORTS) 422,070 ------------------------------------------------------------------------------------------------------------------------------------ WIRELESS TELECOMMUNICATION SERVICES - 2.2% 154,900 Telephone and Data Systems Inc., 7.600% 4,045,988 1,315,700 United States Cellular Corporation, 8.750% 36,379,105 2,000 Verizon Communications, 7.375% (CORTS) 51,680 ------------------------------------------------------------------------------------------------------------------------------------ Total $25 Par (or similar) Securities (cost $1,150,720,481) 1,189,136,378 -------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED SECURITIES - 7.1% (5.0% OF TOTAL INVESTMENTS) DIVERSIFIED FINANCIAL SERVICES - 0.4% 210,000 Citigroup Global Markets, 2.000% 8,054,760 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 1.5% 546,000 Alltel Corporation, 7.750% 27,354,600 ------------------------------------------------------------------------------------------------------------------------------------ ELECTRIC UTILITIES - 3.3% 357,900 Ameren Corporation, 9.750% 9,777,828 22,100 American Electric Power, 9.250% 949,195 468,500 Dominion Resources Inc., 8.750% 25,088,175 126,500 FPL Group Inc., 8.000% 7,090,325 334,500 Public Service Enterprise Group, 10.250% 18,598,200 ------------------------------------------------------------------------------------------------------------------------------------ GAS UTILITIES - 1.3% 452,500 Keyspan Corporation, 8.750% 23,249,450 ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE EQUIPMENT & SUPPLIES - 0.4% 128,600 Baxter International Inc., 7.000% 6,616,470 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 0.2% 16,100 PartnerRe Limited, 8.000% 816,270 69,700 PMI Group Inc., 5.875% 1,836,595 23,000 XL Capital Limited, 6.500% 550,160 ------------------------------------------------------------------------------------------------------------------------------------ Total Convertible Preferred Securities (cost $120,025,473) 129,982,028 -------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED - HYBRID SECURITIES - 4.5% (3.2% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 1.4% 240 Union Planters Preferred Fund, 144A, 7.750% 25,417,512 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 3.1% 45,250 Centaur Funding Corporation, 144A, Series B, 9.080% 57,128,125 ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Hybrid Securities (cost $62,797,088) 82,545,637 -------------------------------------------------------------------------------------------------------------------- 25 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS July 31, 2004 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED SECURITIES - 54.0% (37.9% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 38.0% $ 62,474 Abbey National Capital Trust I, 8.963%, 12/30/49 $80,112,534 19,000 AB Svensk Exportkredit, 6.375%, 10/27/49 18,602,653 7,400 AgFirst Farm Credit Bank, 7.300%, 12/15/53 7,445,043 15,000 Ahmanson Capital Trust I, 8.360%, 12/01/26 16,682,685 15,000 ABN AMRO North America Holding Capital, 144A, 6.523%, 12/31/49 16,037,445 6,500 Bank One Capital III, 8.750%, 9/01/30 8,444,501 4,780 BankAmerica Institutional Trust, 8.070%, 12/31/26 5,336,253 26,355 BankBoston Capital Trust I, Series B, 8.250%, 12/15/26 29,723,274 3,031 BankBoston Capital Trust II, Series B, 7.750%, 12/15/26 3,256,912 4,000 BanPonce Trust I, Series A, 8.327%, 2/01/27 4,352,212 36,000 Barclays Bank plc, 144A, 8.550%, 6/15/49 43,114,752 5,300 Barnett Capital I, 8.060%, 12/01/26 5,877,572 1,000 BNP Paribas Capital Trust, 144A, 9.003%, 12/29/49 1,217,069 4,000 BT Capital Trust, Series B1, 7.900%, 1/15/27 4,365,840 2,000 BT Institutional Capital Trust B, 144A, 7.750%, 12/01/26 2,144,224 500 BT Preferred Capital Trust II, 7.875%, 2/25/27 541,451 7,750 Chase Capital Trust I, Series A, 7.670%, 12/01/26 8,321,795 2,229 Corestates Capital Trust I, 144A, 8.000%, 12/15/26 2,470,659 11,825 Dime Capital Trust I, Series A, 9.330%, 5/06/27 13,850,823 7,500 Dresdner Funding Trust I, 8.151%, 6/30/31 8,539,320 3,500 Farm Credit Bank of Texas, 7.561%, 11/05/49 3,547,719 5,000 FBS Capital Trust I, 8.090%, 11/15/26 5,591,335 3,500 First Chicago NBD Institutional Capital, 7.950%, 12/01/26 3,817,730 1,500 First Empire Capital Trust I, 8.234%, 2/01/27 1,653,639 4,850 First Hawaiian Capital Trust I, Series B, 8.343%, 7/01/27 5,437,592 1,500 First Midwest Bancorp Inc., 6.950%, 12/01/33 1,522,479 17,095 First Union Capital Trust II, Series A, 7.950%, 11/15/29 20,586,875 22,080 Fleet Capital Trust II, 7.920%, 12/11/26 24,012,264 10,000 Goldman Sachs Group Inc., 6.345%, 2/15/34 9,612,190 13,000 Great Western Financial Trust II, Series A, 8.206%, 2/01/27 14,245,738 8,000 HSBC Capital Funding LP, Debt, 10.176%, 6/30/50 11,357,872 2,400 HSBC Capital Funding LP, 144A, 9.547%, 12/31/49 2,955,213 3,600 JPM Capital Trust I, 7.540%, 1/15/27 3,847,996 22,085 JPM Capital Trust II, 7.950%, 2/01/27 24,363,973 32,000 KBC Bank Fund Trust III, 144A, 9.860%, 11/02/49 39,283,488 2,500 KeyCorp Institutional Capital Trust A, 7.826%, 12/01/26 2,692,575 25,000 M&I Capital Trust A, 7.650%, 12/01/26 26,818,050 25,000 Mellon Capital Trust I, Series A, 7.720%, 12/01/26 27,133,475 19,500 NB Capital Trust II, 7.830%, 12/15/26 21,454,329 14,000 Nordbanken AB, 144A, 8.950%, 11/29/49 16,665,460 2,000 North Fork Capital Trust I, Capital Securities, 8.700%, 12/15/26 2,204,620 8,000 North Fork Capital Trust II, 8.000%, 12/15/27 8,982,672 2,000 Peoples Heritage Capital Trust I, Series B, 9.060%, 2/01/27 2,269,902 26 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL BANKS (continued) $ 33,085 PNC Institutional Capital Securities, 7.950%, 12/15/26 $35,509,998 8,000 Reliance Capital Trust I, Series B, 8.170%, 5/01/28 8,846,016 500 Republic New York Capital II, Capital Securities, 7.530%, 12/04/26 532,582 1,250 Royal Bank of Scotland Group plc, 7.648%, 8/31/49 1,426,525 17,500 Royal Bank of Scotland Group plc, 9.118%, 3/31/49 21,186,655 1,500 SocGen Real Estate Company LLC, 144A, 7.640%, 12/29/49 1,662,699 5,000 Sparebanken Rogaland, 144A, Notes, 6.443%, 5/01/49 4,925,000 9,000 St. George Funding Company LLC., 8.485%, 6/30/47 10,329,417 3,240 State Street Institutional Capital Trust, 144A, 7.940%, 12/30/26 3,577,698 21,000 UBS Preferred Funding Trust I, 8.622%, 10/29/49 25,016,250 7,500 Union Planters Capital Trust A, 8.200%, 12/15/26 8,344,395 1,000 Wells Fargo Capital I, 7.960%, 12/15/26 1,109,997 10,000 Zions Institutional Capital Trust, Series A, 8.536%, 12/15/26 11,243,210 ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER FINANCE - 1.6% 8,595 Countrywide Capital Trust I, 8.000%, 12/15/26 9,153,434 18,460 Countrywide Capital Trust III, Series B, 8.050%, 6/15/27 20,928,212 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES - 0.5% 8,000 Keycorp Capital III, 7.750%, 7/15/29 9,085,424 ------------------------------------------------------------------------------------------------------------------------------------ GAS UTILITIES - 0.6% 10,750 KN Capital Trust III, 7.630%, 4/15/28 11,422,810 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 12.7% 14,280 Ace Capital Trust II, 9.700%, 4/01/30 19,098,728 28,000 American General Institutional Capital, 8.125%, 3/15/46 34,798,904 10,000 Berkeley Capital Trust, 8.197%, 12/15/45 10,774,970 6,000 MIC Financing Trust I, 8.375%, 2/01/27 6,545,532 10,000 RenaissanceRe Capital Trust, Series B, 8.540%, 3/01/27 11,146,070 38,777 SAFECO Capital Trust I, Capital Securities, 8.072%, 7/15/37 42,960,999 51,700 Sun Life Canada Capital Trust, Capital Securities, 8.526%, 5/06/47 57,745,125 44,515 Zurich Capital Trust I, 8.376%, 6/01/37 49,658,085 ------------------------------------------------------------------------------------------------------------------------------------ OIL & GAS - 0.4% 7,355 Phillips 66 Capital Trust II, 8.000%, 1/15/37 8,059,645 ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE - 0.2% 3,000 Mangrove Bay, 144A, Class 3, 6.102%, 7/15/33 2,992,008 ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred Securities (cost $945,632,809) 988,574,591 -------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 6.0% (4.2% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 5.2% 1,500 BNP Paribas Capital Trust, 7.200%, 12/31/49 1,551,436 17,600 C.A. Preferred Funding Trust, 7.000%, 1/30/49 17,754,387 6,000 C.A. Preferred Fund Trust II, 7.000%, 10/30/49 6,069,492 44,010 HBOS Capital Funding LP, Notes, 6.850%, 3/01/49 44,194,930 13,500 Lloyds TSB Bank plc, Subordinate Note, 6.900%, 11/22/49 13,766,341 12,600 RBS Capital Trust B, 6.800%, 12/31/49 12,678,712 27 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS July 31, 2004 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES - 0.8% $ 13,800 Old Mutual Capital Funding, Notes, 8.000%, 6/22/53 $ 13,764,616 ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Euro-Market Listed Securities (cost $113,195,529) 109,779,914 -------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 4.8% (3.4% OF TOTAL INVESTMENTS) AUTOMOBILES - 4.7% 21,500 Ford Motor Company, Debenture, 7.400%, 11/01/46 19,434,157 7,525 Ford Motor Company, 8.900%, 1/15/32 8,170,300 4,000 Ford Motor Company, 7.450%, 7/16/31 3,815,080 600 General Motors Corporation, Senior Debentures, 8.375%, 7/15/33 629,034 52,860 General Motors Acceptance Corporation, Notes, 8.000%, 11/01/31 53,825,857 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 0.1% 2,000 Zurich Reinsurance Centre Holdings Inc, Senior Notes, 7.125%, 10/15/23 1,753,484 ------------------------------------------------------------------------------------------------------------------------------------ Total Corporate Bonds (cost $80,260,756) 87,627,912 -------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS - 1.1% (0.8% OF TOTAL INVESTMENTS) $ 20,597 State Street Bank, 1.250%, dated 7/30/04, due 8/02/04, repurchase price $24,598,701, 20,596,556 collateralized by $18,885,000 U.S. Treasury Bonds, 6.000%, due 2/15/26, value $21,009,563 ============= -------------------------------------------------------------------------------------------------------------------- Total Repurchase Agreements (cost $20,596,556) 20,596,556 -------------------------------------------------------------------------------------------------------------------- Total Investments (cost $2,493,228,692) - 142.5% 2,608,243,016 -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.2% 22,634,919 -------------------------------------------------------------------------------------------------------------------- FundPreferred Shares, at Liquidation Value - (43.7)% (800,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $1,830,877,935 ====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (a) Security is eligible for the Dividends Received Deduction. 144A 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. (CORTS) Corporate Backed Trust Securities. (PCARS) Public Credit and Repackaged Securities. (PPLUS) PreferredPlus Trust. (SATURNS) Structured Asset Trust Unit Repackaging. See accompanying notes to financial statements. 28 Nuveen Quality Preferred Income Fund 3 (JHP) Portfolio of INVESTMENTS July 31, 2004
MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ $25 PAR(OR SIMILAR) SECURITIES - 73.0% (50.0% OF TOTAL INVESTMENTS) AUTO COMPONENTS - 1.1% 132,800 Delphi Trust I, 8.250% $ 3,419,600 14,000 Magna International Inc., Series B, 8.875% 354,060 ------------------------------------------------------------------------------------------------------------------------------------ BEVERAGES - 0.3% 45,000 Grand Metropolitan Delaware LP, 9.420% 1,143,900 ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL BANKS - 16.3% 3,200 Abbey National plc, Series B, 7.375% 84,000 21,400 ASBC Capital I, 7.625% 569,240 40,894 BAC Capital Trust I, 7.000% 1,058,336 32,700 BAC Capital Trust II, 7.000% 845,295 94,500 BAC Capital Trust III, 7.000% 2,474,010 120,000 Banco Santander SA, 144A, 6.410% 2,920,560 37,300 Banco Totta & Acores Finance, Series A, 8.875% 962,806 18,600 BancWest Capital I, 9.500% 508,710 211,000 Banesto Holdings, Series A,144A, 10.500% 6,494,854 8,000 Bank One Capital I, 8.000% 204,960 32,400 Bank One Capital II, 8.500% 874,152 29,100 Bank One Capital Trust VI, 7.200% 756,600 11,000 Bank One Capital V, 8.000% 293,700 10,000 BBVA Preferred Capital Ltd., Series B, 7.750% 263,000 13,000 BCH Capital Ltd., Series B, 9.430% 347,165 47,300 BSCH Finance Ltd., Series Q, 8.625% 1,253,450 16,400 Chittenden Capital Trust I, 8.000% 433,616 42,800 CIT Group Incorporated, 7.750% (CORTS) 1,177,000 25,600 Citigroup Capital Trust VII, 7.125% 670,208 46,600 Citigroup Capital Trust VIII, 6.950% 1,200,882 68,500 Citigroup Inc., Series H, 6.231% 3,517,475 44,500 Cobank ABC, 144A, 7.000% 2,367,400 52,500 Comerica Capital Trust I, 7.600% 1,386,000 41,700 Compass Capital Trust III, 7.350% 1,088,787 37,400 CSFB USA, Series 2002-10, 7.000% (SATURNS) 953,700 26,500 Espirito Santo Overseas, 8.500% 681,548 64,700 Fannie Mae, 5.125% 2,893,707 23,100 First Union Capital II, Series II, 7.500% (CORTS) 602,910 11,300 First Union Institutional Capital II, 8.200% (CORTS) 317,247 37,400 Fleet Capital Trust VI, 8.800% 995,962 149,900 Fleet Capital Trust VII, 7.200% 3,907,893 26,416 Fleet Capital Trust VIII, 7.200% 688,929 29 Nuveen Quality Preferred Income Fund 3 (JHP) (continued) Portfolio of INVESTMENTS July 31, 2004 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL BANKS (continued) 8,000 HSBC USA Inc, Series F, 2.860% $ 406,000 13,000 JPMorgan Chase Capital Trust X, 7.000% 339,300 25,000 JPMorgan Chase Trust, Series 2002-6, Class A, 7.125% (SATURNS) 640,250 5,900 KeyCorp, 7.500% (PCARS) 152,544 6,300 KeyCorp, Series 2001-7, 7.750% (CORTS) 163,359 11,900 KeyCorp, Series B, 8.250% (CORTS) 310,590 21,500 National Commerce Capital Trust II, 7.700% 568,675 30,400 National Westminster Bank plc, Series A, 7.875% 775,808 16,500 National Westminster Bank plc, Series B, 0.000% 424,050 20,000 PNC Capital Trust, 6.125% 479,800 14,000 SunTrust Capital Trust IV, 7.125% 363,300 22,900 SunTrust Capital Trust V, 7.050% 594,026 110,300 USB Capital Trust III, 7.750% 2,922,950 58,100 USB Capital Trust IV, 7.350% 1,528,030 48,800 USB Capital Trust V, 7.250% 1,281,000 18,400 VNB Capital Trust I, 7.750% 487,232 28,400 Washington Mutual Capital Trust I, Series 2001-22, Class A-1, 7.650% (CORTS) 732,720 80,000 Zions Capital Trust B, 8.000% 2,150,400 ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER FINANCE - 3.2% 111,700 Household Capital Trust V, Series X, 10.000% 2,993,560 14,600 Household Capital Trust VI, 8.250% 388,798 100,500 Household Capital Trust VII, 7.500% 2,657,220 95,300 SLM Corporation, Series A, 6.970% 5,162,877 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES - 9.5% 32,000 Bear Stearns Capital Trust III, 7.800% 843,200 16,549 Citigroup Inc., Series F, 6.365% 861,375 52,941 Citigroup Inc., Series M, 5.864% 2,666,902 10,600 Countrywide Capital Trust II, Series II, 8.000% (CORTS) 277,932 112,800 Countrywide Capital Trust IV, 6.750% 2,814,360 23,900 Federal Home Loan Mortgage Corporation, 5.000% 1,015,750 135,000 Household Finance Corporation, 6.875% 3,488,400 355,000 Lehman Brothers Holdings Capital Trust III, Series K, 6.375% 8,821,750 24,000 Merrill Lynch Capital Trust II, 8.000% 657,600 17,900 Merrill Lynch Preferred Capital Trust IV, 7.120% 468,264 75,100 Merrill Lynch Preferred Capital Trust V, 7.280% 1,980,387 36,300 Merrill Lynch Preferred Capital Trust, 7.750% 972,840 80,000 Morgan Stanley Capital Trust II, 7.250% 2,064,000 212,600 Morgan Stanley Capital Trust III, 6.250% 5,229,960 40,900 Morgan Stanley, 7.050% (PPLUS) 1,058,083 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 0.4% 12,900 BellSouth Inc., Series BLS, 7.000% (CORTS) 324,564 24,300 Verizon Communications, 7.625% (CORTS) 640,305 15,300 Verizon New England Inc., Series B, 7.000% 395,046 30 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ ELECTRIC UTILITIES - 2.2% 2,900 Detroit Edison Company, 7.625% $ 73,370 13,200 Dominion CNG Capital Trust I, 7.800% 344,916 53,400 Entergy Louisiana Inc, 7.600% 1,406,022 203,447 Entergy Mississippi Inc, 7.250% 5,248,932 18,300 Tennessee Valley Authority, Series D, 6.750% 448,167 ------------------------------------------------------------------------------------------------------------------------------------ FOOD PRODUCTS - 0.7% 25,000 Dairy Farmers of America Inc., 144A, 7.875% 2,557,812 ------------------------------------------------------------------------------------------------------------------------------------ GAS UTILITIES - 0.5% 32,900 AGL Capital Trust II, 8.000% 855,071 34,700 TransCanada Pipeline, 8.250% 883,462 ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE PROVIDERS & SERVICES - 0.1% 12,500 Aetna Incorporated, 8.500% 336,125 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 22.2% 132,400 Ace Ltd,, Series C, 7.800% 3,523,164 30,700 AMBAC Financial Group Inc., 5.950% 718,994 95,000 AMBAC Financial Group Inc., 5.875% 2,213,500 7,700 American General Capital III, 8.050% 207,900 8,400 American General Capital Trust I, 7.875% 212,856 408,310 Converium Finance, 8.250% 9,652,448 131,000 Delphi Financial Group Inc, 8.000% 3,373,250 258,671 EverestRe Group Limited, 7.850% 6,890,995 151,100 Financial Security Assurance Holdings, 6.250% 3,717,060 3,900 Great-West L&A Capital Trust I, Series A, 7.250% 98,163 51,400 Hartford Capital Trust III, Series C, 7.450% 1,349,250 142,900 ING Group NV, 7.050% 3,676,817 503,600 ING Group NV, 7.200% 13,159,068 103,700 Lincoln National Capital Trust V, Series E, 7.650% 2,740,791 140,000 PartnerRe Limited, Series C, 6.750% 3,472,000 55,700 PartnerRe Limited, 7.900% 1,473,265 54,600 PLC Capital Trust III, 7.500% 1,422,876 8,600 PLC Capital Trust IV, 7.250% 224,030 41,500 RenaissanceRe Holdings Ltd., Series A, 8.100% 1,104,315 255,000 RenaissanceRe Holdings Ltd., Series B, 7.300% 6,719,250 16,400 SafeCo Capital Trust I, 8.700% (CORTS) 433,780 4,600 SafeCo Capital Trust I, Series 2001-4, 8.750% (CORTS) 120,566 32,200 SafeCo Corporation, Series 2001-7, 8.250% (SATURNS) 845,894 61,800 XL Capital Ltd., Series A, 8.000% 1,674,162 289,400 XL Capital Ltd., Series B, 7.625% 7,689,358 ------------------------------------------------------------------------------------------------------------------------------------ MULTI-UTILITIES & UNREGULATED POWER - 0.1% 12,800 Energy East Capital Trust I, 8.250% 334,336 ------------------------------------------------------------------------------------------------------------------------------------ OIL & GAS - 1.2% 30,300 EnCana Corporation, 9.500% 773,862 137,000 Nexen Inc., 7.350% 3,514,050 31 Nuveen Quality Preferred Income Fund 3 (JHP) (continued) Portfolio of INVESTMENTS July 31, 2004 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ PHARMACEUTICALS - 0.1% 10,000 Bristol Myers Squibb Company, 6.250% (CORTS) $ 256,500 8,500 Rhone-Poulenc Overseas, Series A, 8.125% 217,175 ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE - 13.2% 5,200 AvalonBay Communities, Inc., Series H, 8.700% 144,092 201,900 CarrAmerica Realty Corporation, Series E, 7.500% 5,172,678 30,000 Developers Diversified Realty Corporation, Series H, 7.375% 740,400 80,000 Developers Diversified Realty Corporation, Series G, 8.000% 2,084,000 26,200 Developers Diversified Realty Corporation, Series F, 8.600% 699,540 60,144 Equity Office Properties Trust, Series G, 7.750% 1,566,149 18,500 Equity Residential Properties Trust, Series C, 9.125% 505,975 20,800 Equity Residential Properties Trust, Series D, 8.600% 574,080 25,900 Equity Residential Properties Trust, 9.125% 688,940 5,100 First Industrial Realty Trust, Inc., Series C, 8.625% 136,680 161,100 HRPT Properties Trust, Series A, 9.875% 4,288,482 238,607 HRPT Properties Trust, Series B, 8.750% 6,339,787 21,000 New Plan Excel Realty Trust, Series D, 7.800% 1,106,437 31,700 New Plan Excel Realty Trust, Series E, 7.625% 817,543 20,000 Prologis Trust, Series G, 6.750% 484,000 36,300 PS Business Parks Inc., Series D, 9.500% 971,025 53,000 PS Business Parks Inc., 7.000% 1,240,200 8,300 PS Business Parks Inc., Series F, 8.750% 219,120 3,100 Public Storage Inc., Series M, 8.750% 78,213 40,900 Public Storage Inc., Series Q, 8.600% 1,082,623 129,533 Public Storage Inc., Series R, 8.000% 3,395,059 17,600 Public Storage Inc., Series S, 7.875% 460,944 22,000 Public Storage Inc., Series T, 7.625% 568,480 11,000 Public Storage Inc., Series U, 7.625% 285,780 17,000 Public Storage Inc., Series V, 7.500% 445,400 7,500 Simon Property Group, Inc., Series F, 8.750% 202,500 68,600 Simon Property Group, Inc., Series G, 7.890% 3,630,312 32,100 United Dominion Realty Trust, 8.600% 862,527 13,400 Vornado Realty Trust, Series C, 8.500% 344,380 252,700 Wachovia Preferred Funding Corporation, 7.250% 6,749,617 ------------------------------------------------------------------------------------------------------------------------------------ SPECIALTY RETAIL - 0.1% 20,000 Sherwin Williams Company, Series III, 7.250% (CORTS) 511,600 ------------------------------------------------------------------------------------------------------------------------------------ WIRELESS TELECOMMUNICATION SERVICES - 1.8% 69,101 Telephone and Data Systems Inc., 7.600% 1,804,918 157,500 United States Cellular Corporation, 8.750% 4,354,875 ------------------------------------------------------------------------------------------------------------------------------------ Total $25 Par (or similar) Securities (cost $252,443,781) 254,334,777 -------------------------------------------------------------------------------------------------------------------- 32 MARKET SHARES DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONVERTIBLE PREFERRED SECURITIES - 7.6% (5.2% OF TOTAL INVESTMENTS) DIVERSIFIED FINANCIAL SERVICES - 0.7% 61,000 Citigroup Global Markets, 2.000% $ 2,339,716 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 1.7% 118,500 Alltel Corporation, 7.750% 5,936,850 ------------------------------------------------------------------------------------------------------------------------------------ ELECTRIC UTILITIES - 3.3% 81,900 Ameren Corporation, 9.750% 2,237,508 3,900 American Electric Power, 9.250% 167,505 102,400 Dominion Resources Inc., 8.750% 5,483,520 66,500 Public Service Enterprise Group, 10.250% 3,697,400 ------------------------------------------------------------------------------------------------------------------------------------ GAS UTILITIES - 1.5% 100,000 Keyspan Corporation, 8.750% 5,138,000 ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE EQUIPMENT & SUPPLIES - 0.4% 28,000 Baxter International Inc, 7.000% 1,440,600 ------------------------------------------------------------------------------------------------------------------------------------ Total Convertible Preferred Securities (cost $25,132,937) 26,441,099 ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED - HYBRID SECURITIES - 4.8% (3.3% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 2.1% 70 Union Planters Preferred Fund, 144A, 7.750% 7,413,441 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 2.7% 7,260 Centaur Funding Corporation, 144A, Series B, 9.080% 9,165,750 ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Hybrid Securities (cost $14,290,218) 16,579,191 -------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED SECURITIES - 49.9% (34.1% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 28.2% $ 2,000 AB Svensk Exportkredit, 6.375%, 10/27/49 $ 1,958,174 8,000 Abbey National Capital Trust I, 8.963%, 12/30/49 10,258,672 2,000 AgFirst Farm Credit Bank, 7.300%, 10/14/49 2,012,174 5,000 Ahmanson Capital Trust I, 8.360 %, 12/01/26 5,560,895 1,000 Bank of New York Capital I, Series B, 7.970%, 12/31/26 1,099,155 1,000 BankAmerica Capital II, Series 2, 8.000%, 12/15/26 1,110,840 1,500 BankBoston Capital Trust II, Series B, 7.750%, 12/15/26 1,611,801 6,200 Barclays Bank plc, 144A, 8.550%, 9/29/49 7,425,318 1,000 BT Capital Trust, Series B1, 7.900%, 1/15/27 1,091,460 1,000 BT Institutional Capital Trust B, 144A, 7.750%, 12/01/26 1,072,112 500 BT Preferred Capital Trust II, 7.875%, 2/25/27 541,451 4,225 Dime Capital Trust I, Series A, 9.330%, 5/06/27 4,948,814 700 Farm Credit Bank of Texas, 7.561%, 11/05/49 709,543 1,000 First Chicago NBD Institutional Capital, 7.950%, 12/01/26 1,090,780 1,000 First Empire Capital Trust I, 8.234%, 2/01/27 1,102,426 1,000 First Hawaiian Capital Trust I, Series B, 8.343%, 7/01/27 1,121,153 500 First Midwest Bancorp Inc., 6.950%, 12/01/33 507,493 8,485 First Union Capital Trust II, Series A, 7.950%, 11/15/29 10,218,171 33 Nuveen Quality Preferred Income Fund 3 (JHP) (continued) Portfolio of INVESTMENTS July 31, 2004 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL BANKS (continued) $ 1,430 HSBC USA Capital Trust II, 144A, 8.380%, 5/15/27 $ 1,584,625 9,000 JPM Capital Trust I, 7.540%, 1/15/27 9,619,992 1,000 KBC Bank Fund Trust III, 144A, 9.860%, 11/2/49 1,227,609 4,000 North Fork Capital Trust I, Capital Securities, 8.700%, 12/15/26 4,409,240 1,500 North Fork Capital Trust II, 8.000%, 12/15/27 1,684,251 3,150 Peoples Heritage Capital Trust I, Series B, 9.060%, 2/01/27 3,575,095 10,200 PNC Institutional Capital Trust B, 144A, 8.315%, 5/15/27 11,302,895 2,500 St. George Funding Company LLC, 8.485%, 6/30/47 2,869,282 4,600 Union Planters Capital Trust A, 8.200%, 12/15/26 5,117,895 3,000 Zions Institutional Capital Trust, Series A, 8.536%, 12/15/26 3,372,963 ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER FINANCE - 0.3% 1,000 Countrywide Capital Trust I, 8.000%, 12/15/26 1,064,972 ------------------------------------------------------------------------------------------------------------------------------------ GAS UTILITIES - 2.0% 6,500 KN Capital Trust III, 7.630%, 4/15/28 6,906,815 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 17.7% 3,450 Ace Capital Trust II, 9.700%, 4/1/30 4,614,188 5,000 Berkeley Capital Trust, 8.197%, 12/15/45 5,387,490 10,000 MIC Financing Trust I, 8.375%, 2/01/27 10,909,220 3,000 RenaissanceRe Capital Trust, 8.540%, 3/01/27 3,343,823 10,038 SAFECO Capital Trust I, Capital Securities, 8.072%, 7/15/37 11,121,090 10,000 Sun Life Canada Capital Trust, Capital Securities, 8.526%, 5/29/49 11,169,270 13,500 Zurich Capital Trust I, 8.376%, 6/01/37 15,059,736 ------------------------------------------------------------------------------------------------------------------------------------ OIL & GAS -1.4% 4,500 Phillips 66 Capital Trust II, 8.000%, 1/15/37 4,931,123 ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE - 0.3% 1,000 Mangrove Bay, 144A, Class 3, 6.102%, 7/15/33 997,336 ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred Securities (cost $169,006,419) 173,709,342 -------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 5.2% (3.5% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 4.7% 3,750 C.A. Preferred Funding Trust, 7.000%, 1/30/49 3,782,895 250 C.A. Preferred Fund Trust II, 7.000%, 10/30/49 252,895 6,600 HBOS Capital Funding LP, Notes, 6.850%, 3/1/49 6,627,733 2,500 Lloyds TSB Bank plc, Subordinate Note, 6.900%, 11/22/49 2,549,325 3,000 RBS Capital Trust B, 6.800%, 12/31/49 3,018,741 ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES - 0.5% 1,800 Old Mutual Capital Funding, Notes, 8.000%, 6/22/53 1,795,384 ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Euro-Market Listed Securities (cost $18,578,661) 18,026,973 -------------------------------------------------------------------------------------------------------------------- 34 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CORPORATE BONDS - 4.7% (3.2% OF TOTAL INVESTMENTS) AUTOMOBILES - 4.7% $ 5,100 Ford Motor Company, Debenture, 7.400%, 11/01/46 $ 4,609,970 1,000 Ford Motor Company, 7.450%, 7/16/31 953,769 10,500 General Motors Acceptance Corporation, Notes, 8.000%, 11/01/31 10,691,856 ------------------------------------------------------------------------------------------------------------------------------------ Total Corporate Bonds (cost $15,647,947) 16,255,595 -------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS - 1.0% (0.7% OF TOTAL INVESTMENTS) $ 3,456 State Street Bank, 1.250%, dated 7/30/04, due 8/02/04, repurchase price $3,456,007, 3,455,647 collateralized by $3,170,000 U.S. Treasury Bonds, 6.000%, due 2/15/26, value $3,526,625 ============= -------------------------------------------------------------------------------------------------------------------- Total Repurchase Agreements (cost $3,455,647) 3,455,647 -------------------------------------------------------------------------------------------------------------------- Total Investments (cost $498,555,610) - 146.2% 508,802,624 -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.5% 5,097,451 -------------------------------------------------------------------------------------------------------------------- FundPreferred Shares, at Liquidation Value - (47.7)% (166,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $347,900,075 ====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (a) Security is eligible for the Dividends Received Deduction. 144A 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. (CORTS) Corporate Backed Trust Securities. (PCARS) Public Credit and Repackaged Securities. (SATURNS) Structured Asset Trust Unit Repackaging. See accompanying notes to financial statements. 35 Statement of ASSETS AND LIABILITIES July 31, 2004
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at market value (cost $1,313,039,440, $2,493,228,692 and $498,555,610, respectively) $1,360,765,020 $2,608,243,016 $508,802,624 Interest rate swaps, at value -- 2,331,207 1,519,894 Receivables: Dividends 2,611,345 5,742,790 1,122,756 Interest 8,819,443 16,283,196 2,877,832 Investments sold 812,995 1,054,512 549,443 Reclaims -- 40,864 7,211 Other assets 35,831 73,569 17,610 ------------------------------------------------------------------------------------------------------------------------------------ Total assets 1,373,044,634 2,633,769,154 514,897,370 ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Interest rate swaps, at value 3,343,690 -- -- Payable for investments purchased 762,697 1,051,840 605,488 Accrued expenses: Management fees 644,284 1,172,588 251,449 Other 323,304 538,084 113,808 FundPreferred share dividends payable 78,687 128,707 26,550 ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 5,152,662 2,891,219 997,295 ------------------------------------------------------------------------------------------------------------------------------------ FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $ 927,891,972 $1,830,877,935 $347,900,075 ==================================================================================================================================== Common shares outstanding 64,452,463 119,541,842 23,642,721 ==================================================================================================================================== Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 14.40 $ 15.32 $ 14.71 ==================================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: ------------------------------------------------------------------------------------------------------------------------------------ Common shares, $.01 par value per share $ 644,525 $ 1,195,418 $ 236,427 Paid-in surplus 911,398,448 1,693,035,742 334,317,077 Undistributed net investment income 3,356,845 3,372,898 2,173,783 Accumulated net realized gain (loss) from investments (31,889,736) 15,928,346 (594,120) Net unrealized appreciation of investments and interest rate swap transactions 44,381,890 117,345,531 11,766,908 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $ 927,891,972 $1,830,877,935 $347,900,075 ==================================================================================================================================== Authorized shares: Common Unlimited Unlimited Unlimited FundPreferred shares Unlimited Unlimited Unlimited ====================================================================================================================================
See accompanying notes to financial statements. 36 Statement of OPERATIONS Year Ended July 31, 2004
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Dividends (net of foreign tax withheld of $13,889, $0, and $1,230, respectively) $54,016,617 $103,740,227 $21,380,872 Interest 44,023,764 83,319,938 15,041,142 ------------------------------------------------------------------------------------------------------------------------------------ Total investment income 98,040,381 187,060,165 36,422,014 ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Management fees 12,143,659 22,539,893 4,672,478 FundPreferred shares - auction fees 1,101,547 2,002,814 416,138 FundPreferred shares - dividend disbursing agent fees 28,448 39,290 13,538 Shareholders' servicing agent fees and expenses 12,931 14,780 2,564 Custodian's fees and expenses 294,539 541,572 125,031 Trustees' fees and expenses 42,326 88,500 13,804 Professional fees 99,769 161,068 29,518 Shareholders' reports - printing and mailing expenses 207,135 322,106 66,599 Stock exchange listing fees 25,476 63,069 17,621 Investor relations expense 231,418 420,755 81,895 Other expenses 113,706 28,299 27,822 ------------------------------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 14,300,954 26,222,146 5,467,008 Custodian fee credit (2,743) (2,434) (1,419) Expense reimbursement (4,430,554) (8,515,957) (1,663,082) ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 9,867,657 17,703,755 3,802,507 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 88,172,724 169,356,410 32,619,507 ------------------------------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS Net realized gain from investments 6,457,519 24,882,646 1,610,865 Net realized gain (loss) from interest rate swap transactions (8,829,243) (12,395,021) (2,431,397) Change in net unrealized appreciation (depreciation) of investments 15,444,743 28,917,818 10,205,143 Change in net unrealized appreciation (depreciation) of interest rate swap transactions 3,409,919 2,018,167 (63,791) ------------------------------------------------------------------------------------------------------------------------------------ Net gain from investments 16,482,938 43,423,610 9,320,820 ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS From net investment income (5,266,011) (9,136,215) (1,783,707) From accumulated net realized gains from investments -- (408,401) (225,856) ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to FundPreferred shareholders (5,266,011) (9,544,616) (2,009,563) ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from operations $99,389,651 $203,235,404 $39,930,764 ====================================================================================================================================
See accompanying notes to financial statements. 37 Statement of CHANGES IN NET ASSETS
QUALITY PREFERRED QUALITY PREFERRED QUALITY PREFERRED INCOME (JTP) INCOME 2 (JPS) INCOME 3 (JHP) ----------------------------- -------------------------------- ---------------------------- FOR THE FOR THE PERIOD 9/24/02 PERIOD 12/18/02 (COMMENCEMENT (COMMENCEMENT YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS) YEAR ENDED OF OPERATIONS) 7/31/04 7/31/03 7/31/04 THROUGH 7/31/03 7/31/04 THROUGH 7/31/03 ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 88,172,724 $ 83,719,154 $ 169,356,410 $ 120,895,551 $ 32,619,507 $ 15,853,471 Net realized gain (loss) from investments 6,457,519 (30,328,278) 24,882,646 9,651,211 1,610,865 3,540,303 Net realized gain (loss) from interest rate swap transactions (8,829,243) -- (12,395,021) -- (2,431,397) -- Change in net unrealized appreciation (depreciation) of investments 15,444,743 47,552,557 28,917,818 85,994,925 10,205,143 41,871 Change in net unrealized appreciation (depreciation) of interest rate swap transactions 3,409,919 (6,753,609) 2,018,167 313,040 (63,791) 1,583,685 Distributions to FundPreferred shareholders: From net investment income (5,266,011) (6,004,164) (9,136,215) (8,370,051) (1,783,707) (948,183) From accumulated net realized gains from investments -- -- (408,401) -- (225,856) -- ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from operations 99,389,651 88,185,660 203,235,404 208,484,676 39,930,764 20,071,147 ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (80,656,204) (80,491,725) (157,519,666) (112,911,526) (29,147,305) (14,584,390) From accumulated net realized gains from investments -- -- (4,944,168) -- (2,968,711) -- ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (80,656,204) (80,491,725) (162,463,834) (112,911,526) (32,116,016) (14,584,390) ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Common shares: Net proceeds from sale of shares (2,071) (119,042) (3,114) 1,708,927,042 101,605 337,150,050 Net proceeds from shares issued to shareholders due to reinvestment of distributions 1,421,340 29,383,959 302,695 1,703,414 489,296 351,072 FundPreferred shares offering costs (7,166) (9,218,088) (2,071) (16,495,026) (4,237) (3,589,491) ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from capital share transactions 1,412,103 20,046,829 297,510 1,694,135,430 586,664 333,911,631 ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares 20,145,550 27,740,764 41,069,080 1,789,708,580 8,401,412 339,398,388 Net assets applicable to Common shares at the beginning of period 907,746,422 880,005,658 1,789,808,855 100,275 339,498,663 100,275 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of period $927,891,972 $907,746,422 $1,830,877,935 $1,789,808,855 $347,900,075 $339,498,663 ==================================================================================================================================== Undistributed net investment income at the end of period $ 3,356,845 $ 2,145,641 $ 3,372,898 $ 787,896 $ 2,173,783 $ 586,540 ====================================================================================================================================
See accompanying notes to financial statements. 38 Notes to FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES The Funds covered in this report and their corresponding Common share New York Stock Exchange symbols are Nuveen Quality Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred Income Fund 3 (JHP). The Funds are registered under the Investment Company Act of 1940, as amended, as non-diversified, closed-end management investment companies. Prior to the commencement of operations of Quality Preferred Income 2 (JPS) and Quality Preferred Income 3 (JHP), each Fund had no operations other than those related to organizational matters, the initial capital contribution of $100,275 per Fund by Nuveen Institutional Advisory Corp. (the "Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc., and the recording of the organization expenses ($15,000 and $11,500, respectively) and their reimbursement by Nuveen Investments, LLC, also a wholly owned subsidiary of Nuveen Investments, Inc. Each Fund seeks to provide high current income consistent with capital preservation by investing primarily in a portfolio of preferred securities, debt securities including convertible debt securities and convertible preferred securities. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with U.S. generally accepted accounting principles. Securities Valuation Exchange-listed securities are generally valued at the last sales price on the securities exchange on which such securities are primarily traded. Securities traded on a securities exchange for which there are no transactions on a given day or securities not listed on a securities exchange are valued at the mean of the closing bid and asked prices. Securities traded on Nasdaq are valued at the Nasdaq Official Closing Price. The prices of fixed-income securities are generally provided by an independent pricing service approved by the Funds' Board of Trustees and based on the mean between the bid and asked prices. When price quotes are not readily available for fixed income securities, the pricing service establishes fair market value using a wide range of market data including yields or prices of securities of comparable quality, type of issue, coupon, maturity and rating, indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor's credit characteristics considered relevant by the pricing service. If it is determined that market prices for a security are unavailable or inappropriate, the Board of Trustees of the Funds, or its designee, may establish a fair value for the security. Short-term securities are valued at amortized cost, which approximates market value. Securities Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from such transactions are determined on the specific identification method. Securities purchased on a when-issued or delayed delivery basis may have extended settlement periods. Any securities so purchased are subject to market fluctuation during this period. The Funds have instructed the custodian to segregate assets with a current value at least equal to the amount of the when-issued and delayed delivery purchase commitments. At July 31, 2004, there were no such outstanding purchase commitments in any of the Funds. Investment Income Dividend income is recorded on the ex-dividend date. Interest income, which includes the amortization of premiums and accretion of discounts for financial reporting purposes, is recorded on an accrual basis (see Dividends and Distributions to Common Shareholders for REIT income recognition policy). 39 Notes to FINANCIAL STATEMENTS (continued) Income Taxes Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to distribute all income and capital gains to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required. Dividends and Distributions to Common Shareholders Dividends to Common shareholders are declared monthly. With respect to the REIT securities held in the Funds' Portfolio of Investments, each Fund passes through to its shareholders, each month, substantially all REIT distributions it receives, together with other operating income less operating expenses. REIT distributions received by the Funds are generally comprised of investment income, long-term and short-term capital gains, and a return of REIT capital. The actual character of amounts received during the period is not known until after the fiscal year-end. For the twelve months ended December 31, 2003, the character of distributions to the Funds from the REITs was as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) --------------------------------------------------------------------------------------------------------- Ordinary income 84.48% 88.22% 78.93% Long-term and short-term capital gains .25 .80 1.19 Return of REIT capital 15.27 10.98 19.88 =========================================================================================================
Each Fund applies a percentage estimate for the breakdown of income type, to its receipts from the REITs and treats as income in the Statement of Operations only the amount of ordinary income so calculated. Each Fund adjusts that estimated breakdown of income type (and consequently its net investment income) as necessary in the following calendar year when the REITs inform their shareholders of the actual breakdown of income type. Each Fund treats each distribution to its shareholders from the portfolio REITs as being entirely from net investment income. The Funds will recharacterize those distributions as being from ordinary income, long-term and short-term capital gains, and return of capital, if necessary, in the subsequent calendar year, based upon the income type breakdown information conveyed at that time by the REITs whose securities are held in each Fund's portfolio. Consequently, the financial statements may reflect an over-distribution of net investment income that is at least partly attributable to the fact that, as of the date of the financial statements, some of the amounts received by the Funds from the portfolio REITs, but none of the dividends paid by the Fund to shareholders from the portfolio REITs were treated as something other than ordinary income. Distributions to Common shareholders are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. 40 FundPreferred Shares The Funds have issued and outstanding $25,000 stated value FundPreferred shares as a means of effecting financial leverage. Each Fund's FundPreferred shares are issued in more than one Series. The dividend rate on each Series may change every seven days, as set pursuant to a dutch auction process by the auction agent, and is payable at or near the end of each rate period. The number of shares outstanding, by Series and in total, for each Fund is as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) --------------------------------------------------------------------------------------------------------- Number of shares: Series M 3,520 4,800 3,320 Series T 3,520 4,800 -- Series T2 -- 4,000 -- Series W 3,520 4,800 -- Series TH 3,520 4,800 3,320 Series TH2 -- 4,000 -- Series F 3,520 4,800 -- --------------------------------------------------------------------------------------------------------- Total 17,600 32,000 6,640 =========================================================================================================
Interest Rate Swap Transactions The Funds may invest in certain derivative financial investments. The Funds' use of interest rate swap transactions is intended to mitigate the negative impact that an increase in short-term interest rates could have on Common share net earnings as a result of leverage. Interest rate swap transactions involve each Fund's agreement with the counterparty to pay a fixed rate payment in exchange for the counterparty paying the Fund a variable rate payment that is intended to approximate each Fund's variable rate payment obligation on FundPreferred shares or any variable rate borrowing. The payment obligation is based on the notional amount of the interest rate swap contract. Interest rate swaps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the net amount of interest payments that each Fund is to receive. Interest rate swap positions are valued daily. Although there are economic advantages of entering into interest rate swap transactions, there are also additional risks. The Funds help manage the credit risks associated with interest rate swap transactions by entering into agreements only with counterparties the Adviser believes have the financial resources to honor their obligations and by having the Adviser continually monitor the financial stability of the swap counterparties. Due to recent clarification provided by the SEC to regulated investment companies, effective with the current reporting period, the Funds changed the way they present net interest expense on interest rate swap transactions in the financial statements. In the July 31, 2004, financial statements net interest expense amounts paid are included in "Net realized gain (loss) from interest rate swap transactions". Net interest expense amounts accrued, but not yet paid, at July 31, 2004, are included in "Change in net unrealized appreciation (depreciation) of interest rate swap transactions". Previously, net interest expense was presented in "Expenses" and reported as "Net interest expense on interest rate swap transactions". This reclassification does not alter the tax treatment of interest rate payments on swap transactions which is to include such payments as an operating expense for tax purposes. 41 Notes to FINANCIAL STATEMENTS (continued) For the fiscal year ended July 31, 2004, this reclassification, for financial reporting purposes only, resulted in increases to net investment income, decreases to net realized gain (loss) from interest rate swap transactions and decreases to change in net unrealized appreciation (depreciation) of interest rate swap transactions as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) ------------------------------------------------------------------------------------------------------------- Net investment income $ 8,892,767 $ 13,237,853 $ 2,595,268 Net realized gain (loss) from interest rate swap transactions (8,829,243) (12,395,021) (2,431,397) Change in net unrealized appreciation (depreciation) of interest rate swap transactions (63,524) (842,832) (163,871) =============================================================================================================
At July 31, 2004, Quality Preferred Income (JTP) had open interest rate swap agreements with Citibank NA as follows:
UNREALIZED NOTIONAL TERMINATION APPRECIATION AMOUNT FIXED RATE FLOATING RATE* DATE (DEPRECIATION) --------------------------------------------------------------------------------------------------------- $110,000,000 3.1300% 1.4700% 8/29/05 $ (848,564) 110,000,000 3.8600 1.4700 8/29/07 (1,196,645) 110,000,000 4.3500 1.4700 8/29/09 (1,298,481) --------------------------------------------------------------------------------------------------------- $(3,343,690) =========================================================================================================
*Based on LIBOR (London Interbank Offered Rate) At July 31, 2004, Quality Preferred Income 2 (JPS) had open interest rate swap agreements with Citibank NA as follows:
UNREALIZED NOTIONAL TERMINATION APPRECIATION AMOUNT FIXED RATE FLOATING RATE* DATE (DEPRECIATION) --------------------------------------------------------------------------------------------------------- $200,000,000 2.6300% 1.3600% 11/06/05 $ (391,223) 200,000,000 3.3750 1.3600 11/06/07 880,014 200,000,000 3.9100 1.3600 11/06/09 1,842,416 --------------------------------------------------------------------------------------------------------- $2,331,207 =========================================================================================================
*Based on LIBOR (London Interbank Offered Rate) At July 31, 2004, Quality Preferred Income 3 (JHP) had open interest rate swap agreements with Citibank NA as follows:
UNREALIZED NOTIONAL TERMINATION APPRECIATION AMOUNT FIXED RATE FLOATING RATE* DATE (DEPRECIATION) --------------------------------------------------------------------------------------------------------- $42,000,000 2.4125% 1.3600% 3/06/06 $ 209,634 42,000,000 3.2550 1.3600 3/06/08 545,403 42,000,000 3.8150 1.3600 3/06/10 764,857 --------------------------------------------------------------------------------------------------------- $1,519,894 =========================================================================================================
*Based on LIBOR (London Interbank Offered Rate) Repurchase Agreements In connection with transactions in repurchase agreements, it is each Fund's policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral may be delayed or limited. 42 Organization and Offering Costs Nuveen Investments, LLC has agreed to reimburse all organization expenses (approximately $15,000, $15,000 and $11,500, respectively) and pay all Common shares offering costs (other than the sales load) that exceed $.03 per Common share for Quality Preferred Income (JTP), Quality Preferred Income 2 (JPS) and Quality Preferred Income 3 (JHP). Quality Preferred Income's (JTP), Quality Preferred Income 2's (JPS) and Quality Preferred Income 3's (JHP) total share of Common shares offering costs ($1,391,687, $1,481,072 and $531,845, respectively) were recorded as reductions of the proceeds from the sale of the Common shares. Costs incurred by Quality Preferred Income (JTP), Quality Preferred Income 2 (JPS) and Quality Preferred Income 3 (JHP) in connection with their offering of FundPreferred shares ($9,225,254, $16,497,097, and $3,593,728, respectively) were recorded as reductions to paid-in surplus. Custodian Fee Credit Each Fund has an arrangement with the custodian bank whereby certain custodian fees and expenses are reduced by credits earned on each Fund's cash on deposit with the bank. Such deposit arrangements are an alternative to overnight investments. Indemnifications Under the Funds' organizational documents, their Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnifications to other parties. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets applicable to Common shares from operations during the reporting period. Actual results may differ from those estimates. 2. FUND SHARES Transactions in Common and FundPreferred shares were as follows:
QUALITY PREFERRED QUALITY PREFERRED QUALITY PREFERRED INCOME (JTP) INCOME 2 (JPS) INCOME 3 (JHP) --------------------- ------------------------- -------------------------- FOR THE FOR THE PERIOD 9/24/02 PERIOD 12/18/02 YEAR YEAR (COMMENCEMENT YEAR (COMMENCEMENT ENDED YEAR ENDED ENDED OF OPERATIONS) ENDED OF OPERATIONS) 7/31/04 7/31/03 7/31/04 THROUGH 7/31/03 7/31/04 THROUGH 7/31/03 ------------------------------------------------------------------------------------------------------------------ Common shares: Shares sold -- -- -- 119,400,000 -- 23,580,000 Shares issued to shareholders due to reinvestment of distributions 95,759 2,049,704 18,570 116,272 32,020 23,701 ------------------------------------------------------------------------------------------------------------------ 95,759 2,049,704 18,570 119,516,272 32,020 23,603,701 ================================================================================================================== FundPreferred shares sold -- 17,600 -- 32,000 -- 6,640 ==================================================================================================================
43 Notes to FINANCIAL STATEMENTS (continued) 3. SECURITIES TRANSACTIONS Purchases and sales (including maturities but excluding short-term investments) of investment securities and U.S. Government and agency obligations during the fiscal year ended July 31, 2004, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) ----------------------------------------------------------------------------------------------------------- Purchases: Investment securities $249,406,823 $478,312,107 $84,153,612 U.S. Government and agency obligations 1,207,688 9,560,859 1,107,047 Sales and maturities: Investment securities 264,549,282 485,889,589 85,494,898 U.S. Government and agency obligations 1,226,250 28,355,083 1,110,828 ===========================================================================================================
4. INCOME TAX INFORMATION The following information is presented on an income tax basis based on the information currently available to the Funds. Differences between amounts for financial statement and federal income tax purposes are primarily due to the recognition of income on certain securities, which are treated as debt securities for income tax purposes and equity securities for financial statement purposes, and timing differences in recognizing certain gains and losses on security transactions. At July 31, 2004, the cost of investments was as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) ------------------------------------------------------------------------------------------------------------- Cost of investments $1,314,329,443 $2,494,638,389 $498,782,472 =============================================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments at July 31, 2004, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) ------------------------------------------------------------------------------------------------------------- Gross unrealized: Appreciation $ 57,444,148 $130,700,199 $14,237,616 Depreciation (11,008,571) (17,095,572) (4,217,464) ------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments $ 46,435,577 $113,604,627 $10,020,152 =============================================================================================================
44 The tax components of undistributed net ordinary income and net realized gains at July 31, 2004, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) --------------------------------------------------------------------------------------------------------- Undistributed net ordinary income * $7,699,609 $14,357,609 $2,824,035 Undistributed net long-term capital gains -- 20,000,209 1,470,615 =========================================================================================================
* Net ordinary income consists of net taxable income derived from dividends, interest and net short-term capital gains, if any. The tax character of distributions paid during the fiscal years ended July 31, 2004 and July 31, 2003, was designated for purposes of the dividends paid deduction as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 2004 (JTP) (JPS) (JHP) --------------------------------------------------------------------------------------------------------- Distributions from net ordinary income * $86,134,890 $171,962,461 $34,119,989 Distributions from net long-term capital gains -- -- -- =========================================================================================================
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 2003 (JTP) (JPS) (JHP) --------------------------------------------------------------------------------------------------------- Distributions from net ordinary income * $79,694,828 $108,646,966 $13,076,411 Distributions from net long-term capital gains -- -- -- =========================================================================================================
* Net ordinary income consists of net taxable income derived from dividends, interest and net short-term capital gains, if any. At July 31, 2004, Quality Preferred Income (JTP) had unused capital loss carryforwards of $25,060,612 available for federal income tax purposes to be applied against future capital gains, if any. If not applied, $693,161 of the carryforward will expire in the year 2011 and $24,367,451 will expire in 2012. Calculation of certain of the amounts presented above (namely, undistributed net ordinary income for tax purposes) involves the application of complex aspects of the Internal Revenue Code to certain securities held by the Funds. In calculating the amount of taxable income derived from these securities, management made assumptions as to the correct tax treatment of certain of those securities and made estimates about the tax characteristics of income received from those securities, based on information currently available to the Funds. The use of these assumptions and estimates will not affect the qualification of the Funds as regulated investment companies under Subchapter M of the Internal Revenue Code, nor is it expected that these assumptions and estimates will be used in computing taxable income for purposes of preparing the federal and state income and excise tax returns. 5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under the Funds' investment management agreements with the Adviser, each Fund paid through July 31, 2004, an annual management fee, payable monthly, at the rates set forth below, which were based upon each Fund's average daily managed assets. "Managed Assets" means the average daily net assets of each Fund including assets attributable to leverage as follows: AVERAGE DAILY MANAGED ASSETS MANAGEMENT FEE RATE -------------------------------------------------------------------------------- For the first $500 million .9000% For the next $500 million .8750 For the next $500 million .8500 For the next $500 million .8250 For Managed Assets over $2 billion .8000 ================================================================================ 45 Notes to FINANCIAL STATEMENTS (continued) The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Adviser has entered into Sub-Advisory Agreements with Spectrum Asset Management, Inc. ("Spectrum"), under which Spectrum manages the investment portfolios of the Funds. Spectrum is compensated for its services to the Funds from the management fees paid to the Adviser. Spectrum also receives compensation on certain portfolio transactions for providing brokerage services to the Funds. The Funds pay no compensation directly to those of its Trustees who are affiliated with the Adviser or to its officers, all of whom receive remuneration for their services to the Funds from the Adviser or its affiliates. The Board of Trustees has adopted a deferred compensation plan for independent Trustees that enables Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from certain Nuveen advised Funds. Under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of select Nuveen advised Funds. As approved by the Board of Trustees, a complex-wide management fee structure has been adopted by all funds sponsored by the Adviser and its affiliates effective August 1, 2004. This structure separates each fund's management fee into two components - a complex-level component, based on the aggregate amount of all fund assets managed by the Adviser and its affiliates, and a specific fund-level component, based only on the amount of assets managed within each individual fund. This pricing structure enables Nuveen fund shareholders to benefit from growth in the assets within each individual fund as well as from growth in the amount of complex-wide assets managed by the Adviser and its affiliates. Under no circumstances will this pricing structure result in a fund paying management fees at a rate higher than would otherwise have been applicable had the complex-wide management fee structure not been implemented. As a consequence of this new management fee structure, the funds' effective management fees were reduced by approximately .004% starting August 1, 2004. The complex-level fee schedule for all funds in the Nuveen fund complex is as follows: COMPLEX-LEVEL COMPLEX-LEVEL ASSETS (1) FEE RATE -------------------------------------------------------------------------------- For the first $55 billion .2000% For the next $1 billion .1800 For the next $1 billion .1600 For the next $3 billion .1425 For the next $3 billion .1325 For the next $3 billion .1250 For the next $5 billion .1200 For the next $5 billion .1175 For the next $15 billion .1150 For Managed Assets over $91 billion (2) .1400 ================================================================================ (1) The complex-level fee component of the management fee for the funds is calculated based upon the aggregate Managed Assets (which includes assets attributable to leverage used in the Nuveen fund complex) of all funds sponsored by the Adviser or by its affiliates. (2) With respect to the complex-wide Managed Assets over $91 billion, the funds (via their Board of Directors/Trustees) and the Adviser intend that the parties will meet, prior to the time when complex-wide Managed Assets reach that level, to consider and negotiate the fee rate or rates that will apply to such assets. The parties agree that, in the unlikely event that complex-wide Managed Assets reach $91 billion prior to the parties reaching an agreement as to the complex-level fee rate or rates to be applied to Managed Assets in excess of $91 billion, the complex-level fee rate for such complex-wide Managed Assets shall be .1400% until such time as the parties agree to a different rate or rates. 46 For each of the Funds, the fund-level fee, which is additive to the complex-level fee, is based upon the average daily Managed Assets of each Fund as follows: FUND-LEVEL AVERAGE DAILY MANAGED ASSETS FEE RATE -------------------------------------------------------------------------------- For the first $500 million .7000% For the next $500 million .6750 For the next $500 million .6500 For the next $500 million .6250 For Managed Assets over $2 billion .6000 ================================================================================ For the first eight years of Quality Preferred Income's (JTP) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily Managed Assets, for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING JUNE 30, JUNE 30, -------------------------------------------------------------------------------- 2002* .32% 2007 .32% 2003 .32 2008 .24 2004 .32 2009 .16 2005 .32 2010 .08 2006 .32 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Quality Preferred Income (JTP) for any portion of its fees and expenses beyond June 30, 2010. For the first eight years of Quality Preferred Income 2's (JPS) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily Managed Assets, for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING SEPTEMBER 30, SEPTEMBER 30, -------------------------------------------------------------------------------- 2002* .32% 2007 .32% 2003 .32 2008 .24 2004 .32 2009 .16 2005 .32 2010 .08 2006 .32 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Quality Preferred Income 2 (JPS) for any portion of its fees and expenses beyond September 30, 2010. For the first eight years of Quality Preferred Income 3's (JHP) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily Managed Assets, for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING DECEMBER 31, DECEMBER 31, -------------------------------------------------------------------------------- 2002* .32% 2007 .32% 2003 .32 2008 .24 2004 .32 2009 .16 2005 .32 2010 .08 2006 .32 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Quality Preferred Income 3 (JHP) for any portion of its fees and expenses beyond December 31, 2010. 6. SUBSEQUENT EVENTS Distributions to Common Shareholders The Funds declared Common share dividend distributions from their net investment income which were paid on September 1, 2004, to shareholders of record on August 15, 2004: QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) -------------------------------------------------------------------------------- Dividend per share $.1010 $.1050 $.1030 ================================================================================ Change in Fiscal Year End The Board of Trustees of the Funds approved a change in the Funds' fiscal year end from July 31 to December 31 upon completion of the Funds' July 31, 2004 fiscal year. 47 Financial HIGHLIGHTS Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions ------------------------------------------------------------------- ------------------------------- Distributions Distributions from Net from Net Beginning Net Investment Capital Investment Capital Common Realized/ Income to Gains to Income to Gains to Share Net Unrealized FundPreferred FundPreferred Common Common Net Asset Investment Investment Share- Share- Share- Share- Value Income(a) Gain (Loss) holders+ holders+ Total holders holders Total ==================================================================================================================================== QUALITY PREFERRED INCOME (JTP) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2004(b) $14.10 $1.37 $. 26 $(.08) $ -- $1.55 $(1.25) $-- $(1.25) 2003 14.12 1.31 .16 (.09) -- 1.38 (1.25) -- (1.25) 2002(c) 14.33 .06 (.25) -- -- (.19) -- -- -- QUALITY PREFERRED INCOME 2 (JPS) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2004(b) 14.97 1.42 .37 (.08) -- 1.71 (1.32) (.04) (1.36) 2003(d) 14.33 1.02 .79 (.07) -- 1.74 (.95) -- (.95) QUALITY PREFERRED INCOME 3 (JHP) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2004(b) 14.38 1.38 .40 (.08) (.01) 1.69 (1.24) (.12) (1.36) 2003(e) 14.33 .67 .22 (.04) -- .85 (.62) -- (.62) ==================================================================================================================================== Total Returns --------------------- Based Offering on Costs and Ending Common FundPreferred Common Based Share Share Share Ending on Net Underwriting Net Asset Market Market Asset Discounts Value Value Value** Value** =================================================================================== QUALITY PREFERRED INCOME (JTP) ----------------------------------------------------------------------------------- Year Ended 7/31: 2004(b) $ -- $14.40 $13.96 4.20% 11.17% 2003 (.15) 14.10 14.59 4.95 9.15 2002(c) (.02) 14.12 15.15 1.00 (1.47) QUALITY PREFERRED INCOME 2 (JPS) ----------------------------------------------------------------------------------- Year Ended 7/31: 2004(b) -- 15.32 14.61 8.98 11.60 2003(d) (.15) 14.97 14.65 4.02 11.22 QUALITY PREFERRED INCOME 3 (JHP) ----------------------------------------------------------------------------------- Year Ended 7/31: 2004(b) -- 14.71 14.34 9.36 11.93 2003(e) (.18) 14.38 14.36 (.19) 4.62 =================================================================================== Ratios/Supplemental Data --------------------------------------------------------------------------------------------- Before Credit/Reimbursement After Credit/Reimbursement*** ------------------------------ ----------------------------- Ratio of Net Ratio of Net Ratio of Investment Ratio of Investment Ending Expenses Income to Expenses Income to Net to Average Average to Average Average Assets Net Assets Net Assets Net Assets Net Assets Applicable Applicable Applicable Applicable Applicable Portfolio to Common to Common to Common to Common to Common Turnover Shares (000) Shares++ Shares++ Shares++ Shares++ Rate ======================================================================================================================== QUALITY PREFERRED INCOME (JTP) ------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2004(b) $ 927,892 1.51% 8.87% 1.04% 9.33% 18% 2003 907,746 2.38 8.84 1.91 9.31 45 2002(c) 880,006 .96* 4.51* .64* 4.83* 1 QUALITY PREFERRED INCOME 2 (JPS) ------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2004(b) 1,830,878 1.41 8.64 .95 9.10 19 2003(d) 1,789,809 1.99* 7.59* 1.54* 8.04* 35 QUALITY PREFERRED INCOME 3 (JHP) ------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2004(b) 347,900 1.55 8.75 1.08 9.22 17 2003(e) 339,499 1.97* 7.14* 1.53* 7.58* 57 ======================================================================================================================== FundPreferred Shares at End of Period ----------------------------------------- Aggregate Liquidation Amount and Market Asset Outstanding Value Coverage (000) Per Share Per Share ====================================================================== QUALITY PREFERRED INCOME (JTP) ---------------------------------------------------------------------- Year Ended 7/31: 2004(b) $440,000 $25,000 $77,721 2003 440,000 25,000 76,577 2002(c) -- -- -- QUALITY PREFERRED INCOME 2 (JPS) ---------------------------------------------------------------------- Year Ended 7/31: 2004(b) 800,000 25,000 82,215 2003(d) 800,000 25,000 80,932 QUALITY PREFERRED INCOME 3 (JHP) ---------------------------------------------------------------------- Year Ended 7/31: 2004(b) 166,000 25,000 77,395 2003(e) 166,000 25,000 76,129 ======================================================================
* Annualized. ** Total Investment Return on Market Value is the combination of reinvested dividend income, reinvested capital gains distributions, if any, and changes in stock price per share. Total Return on Common Share Net Asset Value is the combination of reinvested dividend income at net asset value, reinvested capital gains distributions at net asset value, if any, and changes in Common share net asset value per share. Total returns are not annualized. *** After custodian fee credit and expense reimbursement, where applicable. + The amounts shown are based on Common share equivalents. ++ o Ratios do not reflect the effect of dividend payments to FundPreferred shareholders. o Income ratios reflect income earned on assets attributable to FundPreferred shares. o For the periods presented below each ratio includes the effect of the interest expense paid on interest rate swap transactions as follows: Ratio of Net Interest Expense to Average Net Assets Applicable to Common Shares --------------------- Quality Preferred Income (JTP) 2003 .80% 2002(c) -- Quality Preferred Income 2 (JPS) 2003(d) .58* Quality Preferred Income 3 (JHP) 2003(e) .51* (a) Per share Net Investment Income is calculated using the average daily shares method. (b) As discussed in the accompanying notes to financial statements the Funds changed their method of presentation for net interest expense on interest rate swap transactions. The effect of this reclassification for the fiscal year ended July 31, 2004, was as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) ------------------------------------------- Increase of Net Investment Income per share with a corresponding decrease in Net Realized/Unrealized Investment Gain (Loss) $.14 $.11 $.11 Decrease in each of the Ratios of Expenses to Average Net Assets Applicable to Common Shares with a corresponding increase in each of the Ratios of Net Investment Income to Average Net Assets Applicable to Common Shares .94% .71% .73%
(c) For the period June 25, 2002 (commencement of operations) through July 31, 2002. (d) For the period September 24, 2002 (commencement of operations) through July 31, 2003. (e) For the period December 18, 2002 (commencement of operations) through July 31, 2003. See accompanying notes to financial statements. 48-49 SPREAD Board Members AND OFFICERS The management of the Funds, including general supervision of the duties performed for the Funds by the Adviser, is the responsibility of the Board Members of the Funds. The number of board members of the Funds is currently set at seven. None of the board members who are not "interested" persons of the Funds has ever been a director or employee of, or consultant to, Nuveen or its affiliates. The names and business addresses of the board members and officers of the Funds, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below.
NUMBER OF PORTFOLIOS IN POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY AND ADDRESS THE FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER ------------------------------------------------------------------------------------------------------------------------------------ BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS: ------------------------------------------------------------------------------------------------------------------------------------ Timothy R. Schwertfeger (1) Chairman of 1994 Chairman and Director (since 1996) of Nuveen Investments, 145 3/28/49 the Board Inc. and Nuveen Investments, LLC; Director (since 1992) and 333 W. Wacker Drive and Trustee Chairman (since 1996) of Nuveen Advisory Corp. and Nuveen Chicago, IL 60606 Institutional Advisory Corp.; Chairman and Director (since 1997) of Nuveen Asset Management, Inc.; Director (since 1996) of Institutional Capital Corporation; Chairman and Director (since 1999) of Rittenhouse Asset Management, Inc.; Chairman of Nuveen Investments Advisers Inc. (since 2002). BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS: ------------------------------------------------------------------------------------------------------------------------------------ Robert P. Bremner Board member 1997 Private Investor and Management Consultant. 145 8/22/40 333 W. Wacker Drive Chicago, IL 60606 ------------------------------------------------------------------------------------------------------------------------------------ Lawrence H. Brown Board member 1993 Retired (1989) as Senior Vice President of The Northern 145 7/29/34 Trust Company; Director, Community Advisory Board for 333 W. Wacker Drive Highland Park and Highwood, United Way of the North Chicago, IL 60606 Shore (since 2002). ------------------------------------------------------------------------------------------------------------------------------------ Jack B. Evans Board member 1999 President, The Hall-Perrine Foundation, a private philanthropic 145 10/22/48 corporation (since 1996); Director and Vice Chairman, United 333 W. Wacker Drive Fire & Casualty Company; formerly Director, Federal Reserve Chicago, IL 60606 Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., a regional financial services firm. ------------------------------------------------------------------------------------------------------------------------------------ William C. Hunter Board member 2004 Dean and Distinguished Professor of Finance, School of 145 3/16/48 Business at the University of Connecticut (since 2003); 333 W. Wacker Drive previously Senior Vice President and Director of Research Chicago, IL 60606 at the Federal Reserve Bank of Chicago (1995-2003); Director, Credit Research Center at Georgetown University; Director of Xerox Corporation (since 2004). 50 NUMBER OF PORTFOLIOS IN POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY AND ADDRESS THE FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER ------------------------------------------------------------------------------------------------------------------------------------ BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED): ------------------------------------------------------------------------------------------------------------------------------------ William J. Schneider Board member 1997 Senior Partner and Chief Operating Officer, Miller-Valentine 145 9/24/44 Group, Vice President, Miller-Valentine Realty, a construction 333 W. Wacker Drive company; Chair, Miami Valley Hospital; Chair, Dayton Chicago, IL 60606 Development Coalition; formerly, Member, Community Advisory Board, National City Bank, Dayton, Ohio and Business Advisory Council, Cleveland Federal Reserve Bank. ------------------------------------------------------------------------------------------------------------------------------------ Judith M. Stockdale Board member 1997 Executive Director, Gaylord and Dorothy Donnelley 145 12/29/47 Foundation (since 1994); prior thereto, Executive Director, 333 W. Wacker Drive Great Lakes Protection Fund (from 1990 to 1994) Chicago, IL 60606 NUMBER OF PORTFOLIOS IN FUND POSITION(S) YEAR FIRST COMPLEX NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS: ------------------------------------------------------------------------------------------------------------------------------------ Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary and 145 9/9/56 Administrative Associate General Counsel, formerly, Vice President and 333 W. Wacker Drive Officer Assistant General Counsel of Nuveen Investments, LLC; Chicago, IL 60606 Managing Director (since 2002), General Counsel and Assistant Secretary, formerly, Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.; Managing Director (since 2002), Assistant Secretary and Associate General Counsel, formerly, Vice President (since 2000), of Nuveen Asset Management, Inc. Assistant Secretary of Nuveen Investments, Inc. (since 1994); Assistant Secretary of NWQ Investment Management Company, LLC (since 2002); Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Managing Director, Associate General Counsel and Assistant Secretary of Rittenhouse Asset Management, Inc. (since 2003); Chartered Financial Analyst. ------------------------------------------------------------------------------------------------------------------------------------ Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant Vice 145 2/3/66 and Assistant President (since 2000), previously, Associate of Nuveen 333 W. Wacker Drive Secretary Investments, LLC. Chicago, IL 60606 51 Board Members AND OFFICERS (CONTINUED) NUMBER OF PORTFOLIOS IN FUND POSITION(S) YEAR FIRST COMPLEX NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS (CONTINUED): ------------------------------------------------------------------------------------------------------------------------------------ Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999), 145 11/28/67 and Treasurer prior thereto, Assistant Vice President (since 1997); Vice 333 W. Wacker Drive President and Treasurer of Nuveen Investments, Inc. (since Chicago, IL 60606 1999); Vice President and Treasurer of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp (since 1999); Vice President and Treasurer of Nuveen Asset Management, Inc. (since 2002) and of Nuveen Investments Advisers Inc. (since 2002); Assistant Treasurer of NWQ Investment Management Company, LLC (since 2002); Vice President and Treasurer of Nuveen Rittenhouse Asset Management, Inc. (since 2003); Chartered Financial Analyst. ------------------------------------------------------------------------------------------------------------------------------------ Jessica R. Droeger Vice President 2000 Vice President (since 2002) and Assistant General Counsel 145 9/24/64 and Secretary (since 1998); formerly, Assistant Vice President (since 1998) 333 W. Wacker Drive of Nuveen Investments, LLC; Vice President (since 2002) Chicago, IL 60606 and Assistant Secretary (since 1998), formerly Assistant Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. ------------------------------------------------------------------------------------------------------------------------------------ Lorna C. Ferguson Vice President 1998 Managing Director (since 2004) formerly, Vice President of 145 10/24/45 Nuveen Investments, LLC; Managing Director (since 2004) 333 W. Wacker Drive formerly, Vice President (since 1998) of Nuveen Advisory Chicago, IL 60606 Corp. and Nuveen Institutional Advisory Corp. ------------------------------------------------------------------------------------------------------------------------------------ William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen Investments, 145 3/2/64 LLC; Managing Director (since 2001), formerly Vice President 333 W. Wacker Drive of Nuveen Advisory Corp. and Nuveen Institutional Advisory Chicago, IL 60606 Corp. (since 1995); Managing Director of Nuveen Asset Management, Inc. (since 2001); Vice President of Nuveen Investment Advisers Inc. (since 2002); Chartered Financial Analyst. ------------------------------------------------------------------------------------------------------------------------------------ Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller (since 1998) 145 5/31/54 and Controller of Nuveen Investments, LLC and Vice President and Funds 333 W. Wacker Drive Controller (since 1998) of Nuveen Investments, Inc.; Chicago, IL 60606 Certified Public Accountant. 52 NUMBER OF PORTFOLIOS IN FUND POSITION(S) YEAR FIRST COMPLEX NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS (CONTINUED): ------------------------------------------------------------------------------------------------------------------------------------ David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, 145 3/22/63 LLC, previously Assistant Vice President (since 1999); 333 W. Wacker Drive prior thereto, Associate of Nuveen Investments, LLC; Chicago, IL 60606 Certified Public Accountant. ------------------------------------------------------------------------------------------------------------------------------------ Tina M. Lazar Vice President 2002 Vice President (since 1999), previously, Assistant Vice 145 8/27/61 President (since 1993) of Nuveen Investments, LLC. 333 W. Wacker Drive Chicago, IL 60606 ------------------------------------------------------------------------------------------------------------------------------------ Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and Assistant General 145 7/27/51 and Assistant Counsel of Nuveen Investments, LLC; Vice President and 333 W. Wacker Drive Secretary Assistant Secretary of Nuveen Advisory Corp. and Nuveen Chicago, IL 60606 Institutional Advisory Corp.; Assistant Secretary of Nuveen Investments, Inc. and (since 1997) Nuveen Asset Management, Inc.; Vice President (since 2000), Assistant Secretary and Assistant General Counsel (since 1998) of Rittenhouse Asset Management, Inc.; Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Assistant Secretary of NWQ Investment Management Company, LLC (since 2002). ------------------------------------------------------------------------------------------------------------------------------------ Edward F. Neild, IV Vice President 1996 Managing Director (since 2002) of Nuveen Investments, LLC; 145 7/7/65 Managing Director (since 1997), formerly Vice President 333 W. Wacker Drive (since 1996) of Nuveen Advisory Corp. and Nuveen Institutional Chicago, IL 60606 Advisory Corp.; Managing Director of Nuveen Asset Management, Inc. (since 1999). Chartered Financial Analyst.
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the Investment Company Act of 1940, because he is an officer and board member of the Adviser. (2) Board members serve an indefinite term until his/her successor is elected. The year first elected or appointed represents the year in which the board member was first elected or appointed to any fund in the Nuveen Complex. (3) Officers serve one year terms through July of each year. The year first elected or appointed represents the year in which the Officer was first elected or appointed to any fund in the Nuveen Complex. 53 Reinvest Automatically EASILY AND CONVENIENTLY SIDEBAR TEXT: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET UP YOUR REINVESTMENT ACCOUNT. NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS DIVIDEND REINVESTMENT PLAN Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest dividends and/or capital gains distributions in additional fund shares. By choosing to reinvest, you'll be able to invest money regularly and automatically, and watch your investment grow through the power of tax-free compounding. Just like dividends or distributions in cash, there may be times when income or capital gains taxes may be payable on dividends or distributions that are reinvested. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market. EASY AND CONVENIENT To make recordkeeping easy and convenient, each month you'll receive a statement showing your total dividends and distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own. HOW SHARES ARE PURCHASED The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the then-current market price. If the shares are trading at less than net asset value, shares for your account will be purchased on the open market. Dividends and distributions received to purchase shares in the open market will normally be invested shortly after the dividend payment date. No interest will be paid on dividends and distributions awaiting reinvestment. Because the market price of the shares may increase before purchases are completed, the average purchase price per share may exceed the market price at the time of valuation, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid by Plan participants. These commissions usually will be lower than those charged on individual transactions. FLEXIBLE You may change your distribution option or withdraw from the Plan at any time, should your needs or situation change. Should you withdraw, you can receive a certificate for all whole shares credited to your reinvestment account and cash payment for fractional shares, or cash payment for all reinvestment account shares, less brokerage commissions and a $2.50 service fee. You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan. The Fund reserves the right to amend or terminate the Plan at any time. Although the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time. CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS For more information on the Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial advisor or call us at (800) 257-8787. 54 Other Useful INFORMATION QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING Each Fund's quarterly portfolio of investments and information regarding how the Funds voted proxies relating to portfolio securities held during the most recent 12-month period ended June 30, 2004, are available without charge, upon request, by calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at www.nuveen.com. You may also obtain this and other Fund information directly from the Securities and Exchange Commission ("SEC"). The SEC may charge a copying fee for this information. Visit the SEC on-line at http://www.sec.gov or in person at the SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours and operation. You may also request Fund information by sending an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section at 450 Fifth Street NW, Washington, D.C. 20549. GLOSSARY OF TERMS USED IN THIS REPORT AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an investment's performance over a particular, usually multi-year time period. It expresses the return (including change in NAV and reinvested dividends) that would have been necessary on an annual basis to equal the investment's actual performance over the time period being considered. NET ASSET VALUE (NAV): A fund's NAV is calculated by subtracting the liabilities of the fund from its total assets and then dividing the remainder by the number of shares outstanding. Fund NAVs are calculated at the end of each business day. UNAUDITED INFORMATION: The Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 designate 11%, 11% and 12% respectively, of dividends declared from net investment income as dividends qualifying for the 70% dividends received deduction for corporations and 11%, 11% and 12% respectively, as qualified dividend income for individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003. BOARD OF TRUSTEES Robert P. Bremner Lawrence H. Brown Jack B. Evans William C. Hunter William J. Schneider Timothy R. Schwertfeger Judith M. Stockdale FUND MANAGER Nuveen Institutional Advisory Corp. 333 West Wacker Drive Chicago, IL 60606 CUSTODIAN State Street Bank & Trust Boston, MA TRANSFER AGENT AND SHAREHOLDER SERVICES State Street Bank & Trust Nuveen Funds P.O. Box 43071 Providence, RI 02940-3071 (800) 257-8787 LEGAL COUNSEL Chapman and Cutler LLP Chicago, IL INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Chicago, IL Each Fund intends to repurchase shares of its own common or preferred stock in the future at such times and in such amounts as is deemed advisable. No shares were repurchased during the fiscal year ended July 31, 2004. Any future repurchases will be reported to shareholders in the next annual or semiannual report. 55 Nuveen Investments: SERVING Investors For GENERATIONS Photo of: 2 women looking at a photo album. Since 1898, financial advisors and their clients have relied on Nuveen Investments to provide dependable investment solutions. For the past century, Nuveen Investments has adhered to the belief that the best approach to investing is to apply conservative risk-management principles to help minimize volatility. Building on this tradition, we today offer a range of high quality equity and fixed-income solutions that are integral to a well-diversified core portfolio. Our clients have come to appreciate this diversity, as well as our continued adherence to proven, long-term investing principles. WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT NEEDS. Managing $100 billion in assets, Nuveen Investments offers access to a number of different asset classes and investing solutions through a variety of products. Nuveen Investments markets its capabilities under four distinct brands: Nuveen, a leader in tax-free investments; NWQ, a leader in value-style equities; Rittenhouse, a leader in growth-style equities; and Symphony, a leading institutional manager of market-neutral alternative investment portfolios. FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS. To learn more about the products and services Nuveen Investments offers, talk to your financial advisor, or call us at (800) 257-8787. Please read the information carefully before you invest. Be sure to obtain a prospectus, where applicable. Investors should consider the investment objective and policies, risk considerations, charges and expenses of the Fund carefully before investing. The prospectus contains this and other information relevant to an investment in the Fund. For a prospectus, please contact your securities representative or Nuveen Investments, 333 W. Wacker Dr., Chicago, IL 60606. Please read the prospectus carefully before you invest or send money. Learn more about Nuveen Funds at WWW.NUVEEN.COM/ETF o Share prices o Fund details o Daily financial news o Investor education o Interactive planning tools Logo: NUVEEN Investments EAN-D-0704D ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The registrant has posted such code of ethics on its website at www.nuveen.com/etf. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's board of directors determined that the registrant had at least one "audit committee financial expert" (as defined in Item 3 of Form N-CSR) serving on its Audit Committee. The registrant's audit committee financial expert was William E. Bennett, who was "independent" for purposes of Item 3 of Form N-CSR. Although Mr. Bennett served as the audit committee financial expert during the reporting period, he unexpectedly resigned from the Board effective April 30, 2004. Since that time, the Audit Committee determined that Jack B. Evans, the Chairman of the Audit Committee, qualifies as an audit committee financial expert and recommended to the full Board that he be designated as such. On July 26, 2004, the full Board voted to so designate Mr. Evans. Accordingly for this reporting period, the registrant did not have a designated "audit committee financial expert" from April 30, 2004 to July 26, 2004. Mr. Evans, who is independent for purposes of Item 3 of Form N-CSR, served as the registrant's audit committee financial expert from July 26, 2004 to the end of the reporting period on July 31, 2004. Mr. Bennett was formerly Executive Vice President and Chief Credit Officer of First Chicago Corporation and its principal subsidiary, The First National Bank of Chicago. As part of his role as Chief Credit Officer, Mr. Bennett set policy as to accrual of assets/loans; designated performing/non-performing assets; set the level of reserves against the credit portfolo; and determined the carrying value of credit related assets and exposure. Among other things, Mr. Bennett was also responsible for the oversight of the internal analysis function including setting ground rules for the review and preparation of financial analysis and financial statements for use in making credit and risk decisions for clients. Mr. Bennett has significant experience reviewing, analyzing and evaluating financial statements of domestic and international companies in a variety of industries with complex accounting issues. Mr. Evans was formerly President and Chief Operating Office of SCI Financial Group, Inc., a full service registered broker-dealer and registered investment adviser ("SCI"). As part of his role as President and Chief Operating Officer, Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and actively supervised the CFO's preparation of financial statements and other filings with various regulatory authorities. In such capacity, Mr. Evans was actively involved in the preparation of SCI's financial statements and the resolution of issues raised in connection therewith. Mr. Evans has also served on the audit committee of various reporting companies. At such companies, Mr. Evans was involved in the oversight of audits, audit plans, and the preparation of financial statements. Mr. Evans also formerly chaired the audit committee of the Federal Reserve Bank of Chicago. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. NUVEEN QUALITY PREFERRED INCOME FUND The following tables show the amount of fees that Ernst & Young LLP, the Fund's auditor, billed to the Fund during the Fund's last two full fiscal years. For engagements with Ernst & Young LLP entered into on or after May 6, 2003, the Audit Committee approved in advance all audit services and non-audit services that Ernst & Young LLP provided to the Fund, except for those non-audit services that were subject to the pre-approval exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The pre-approval exception for services provided directly to the Fund waives the pre-approval requirement for services other than audit, review or attest services if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid by the Fund during the fiscal year in which the services are provided; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee's attention, and the Committee (or its delegate) approves the services before the audit is completed. The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee). SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES FISCAL YEAR ENDED TO FUND BILLED TO FUND BILLED TO FUND BILLED TO FUND ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2004 $ 17,026 $ 0 $ 4,740 $ 3,450 ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved N/A 0% 0% 0% pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2003 $ 30,047 $ 0 $ 2,705 $ 2,400 ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved N/A 0% 0% 0% pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------------------------
The above "Tax Fees" were billed for professional services for tax advice, tax compliance and tax planning. SERVICES THAT THE FUND'S AUDITOR BILLED TO THE ADVISER AND AFFILIATED FUND SERVICE PROVIDERS The following tables show the amount of fees billed by Ernst & Young LLP to Nuveen Institutional Advisory Corp. ("NIAC" or the "Adviser"), and any entity controlling, controlled by or under common control with NIAC ("Control Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for engagements directly related to the Fund's operations and financial reporting, during the Fund's last two full fiscal years. The table also shows the percentage of fees subject to the pre-approval exception. The pre-approval exception for services provided to the Adviser and any Affiliated Fund Service Provider (other than audit, review or attest services) waives the pre-approval requirement if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund Service Providers during the fiscal year in which the services are provided that would have to be pre-approved by the Audit Committee; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee's attention, and the Committee (or its delegate) approves the services before the Fund's audit is completed.
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2004 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved 0% 0% 0% pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2003 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved N/A N/A N/A pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------------------------
NON-AUDIT SERVICES The following table shows the amount of fees that Ernst & Young LLP billed during the Fund's last two full fiscal years for non-audit services. For engagements entered into on or after May 6, 2003, the Audit Committee is required to pre-approve non-audit services that Ernst & Young LLP provides to the Adviser and any Affiliated Fund Services Provider, if the engagement related directly to the Fund's operations and financial reporting (except for those subject to the de minimis exception described above). The Audit Committee requested and received information from Ernst & Young LLP about any non-audit services that Ernst & Young LLP rendered during the Fund's last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating Ernst & Young LLP independence.
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES BILLED TO ADVISER AND AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2004 $ 8,190 $ 0 $ 0 $ 8,190 July 31, 2003 $ 5,105 $ 0 $ 0 $ 5,105
Audit Committee Pre-Approval Policies and Procedures. Generally, the audit committee must approve (i) all non-audit services to be performed for the Fund by the Fund's independent accountants and (ii) all audit and non-audit services to be performed by the Fund's independent accountants for the Affiliated Fund Service Providers with respect to operations and financial reporting of the Fund. Regarding tax and research projects conducted by the independent accountants for the Fund and Affiliated Fund Service Providers (with respect to operations and financial reports of the Fund) such engagements will be (i) pre-approved by the audit committee if they are expected to be for amounts greater than $10,000; (ii) reported to the audit committee chairman for his verbal approval prior to engagement if they are expected to be for amounts under $10,000 but greater than $5,000; and (iii) reported to the audit committee at the next audit committee meeting if they are expected to be for an amount under $5,000. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable at this time. ITEM 6. SCHEDULE OF INVESTMENTS. See Item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. In the rare event that a municipal issuer held by the Fund were to issue a proxy or that the Fund were to receive a proxy issued by a cash management security, the Adviser would either engage an independent third party to determine how the proxy should be voted or vote the proxy with the consent, or based on the instructions, of the Fund's Board of Directors or Trustees or its representative. In the case of a conflict of interest, the proxy would be submitted to the applicable Fund's Board to determine how the proxy should be voted. A member of the Adviser's legal department would oversee the administration of the voting, and ensure that records were maintained in accordance with Rule 204-2(c)(2) under the Investment Advisers Act of 1940 (17 CFR 275.204-2(c)(2)), reports were filed with the SEC on Form N-PX, and the results were provided to the Board of Directors or Trustees and made available to shareholders as required by applicable rules. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable at this time. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. In the event of a vacancy on the Board, the nominating and governance committee receives suggestions from various sources, including shareholders, as to suitable candidates. Suggestions should be sent in writing to Lorna Ferguson, Vice President for Board Relations, Nuveen Investments, 333 West Wacker Drive, Chicago, IL 60606. The nominating and governance committee sets appropriate standards and requirements for nominations for new directors and reserves the right to interview all candidates and to make the final selection of any new directors. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")(17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable because posted on registrant's website at www.nuveen.com/etf. (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT Attached hereto. (a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. (b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR 270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Ex-99.906 CERT attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Nuveen Quality Preferred Income Fund ----------------------------------------------------------- By (Signature and Title)* /s/ Jessica R. Droeger ---------------------------------------------- Jessica R. Droeger Vice President and Secretary Date: October 12, 2004 ------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Gifford R. Zimmerman ---------------------------------------------- Gifford R. Zimmerman Chief Administrative Officer (Principal Executive Officer) Date: October 12, 2004 ------------------------------------------------------------------- By (Signature and Title)* /s/ Stephen D. Foy ---------------------------------------------- Stephen D. Foy Vice President and Controller (Principal Financial Officer) Date: October 12, 2004 ------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.