-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BXEJ5/Kh7PIDdlK1PVE1CoYw5WYkA6TFYjNjPXdPO+jxTqv65s1M0R0q658twdKR Bh4kparToh2ryQoi5i0dmQ== 0000891804-03-002228.txt : 20031008 0000891804-03-002228.hdr.sgml : 20031008 20031008104420 ACCESSION NUMBER: 0000891804-03-002228 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030731 FILED AS OF DATE: 20031008 EFFECTIVENESS DATE: 20031008 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUVEEN QUALITY PREFERRED INCOME FUND 2 CENTRAL INDEX KEY: 0001176433 IRS NUMBER: 431969047 STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-21137 FILM NUMBER: 03932692 BUSINESS ADDRESS: STREET 1: 333 WEST WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129178146 N-CSR 1 file001.txt NUVEEN QUALITY PREFERRED INCOME FUND 2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-21137 --------------------- Nuveen Quality Preferred Income Fund 2 ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Jessica R. Droeger Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------ (Name and address of agent for service) Registrant's telephone number, including area code: (312) 917-7700 ------------------- Date of fiscal year end: July 31, 2003 ------------------ Date of reporting period: July 31, 2003 ----------------- 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. Nuveen Closed-End Exchange-Traded Funds ANNUAL REPORT July 31, 2003 NUVEEN QUALITY PREFERRED INCOME FUNDS JTP JPS JHP Photo of: boy in wheat field Photo of: seaside cabin HIGH CURRENT INCOME FROM A PORTFOLIO OF INVESTMENT-GRADE PREFERRED SECURITIES Logo: NUVEEN Investments FASTER INFORMATION RECEIVE YOUR NUVEEN FUND REPORT ELECTRONICALLY By registering for electronic delivery, you will receive an e-mail as soon as your Nuveen Fund information is available. Click on the link and you will be taken directly to the report. Your Fund report can be viewed and saved on your computer. Your report will arrive faster via e-mail than by traditional mail. Registering is easy and only takes a few minutes (see instructions at right). - -------------------------------------------------------------------------------- SOME COMMON CONCERNS: WILL MY E-MAIL ADDRESS BE DISTRIBUTED TO OTHER COMPANIES? No, your e-mail address is strictly confidential and will not be used for anything other than notification of shareholder information. WHAT IF I CHANGE MY MIND AND WANT TO RECEIVE INVESTOR MATERIALS THROUGH REGULAR MAIL DELIVERY AGAIN? If you decide you do not like receiving your reports electronically, it's a simple process to go back to regular mail delivery. - -------------------------------------------------------------------------------- IF YOUR NUVEEN FUND DIVIDENDS AND STATEMENTS COME FROM YOUR FINANCIAL ADVISOR OR BROKERAGE ACCOUNT, FOLLOW THE STEPS OUTLINED BELOW: 1 Go to WWW.INVESTORDELIVERY.COM 2 Refer to the address sheet that accompanied this report. Enter the personal 13-CHARACTER ENROLLMENT NUMBER imprinted near your name. 3 You'll be taken to a page with several options. Select the NEW ENROLLMENT-CREATE screen. Once there, enter your e-mail address (e.g. yourID@providerID.com), and a personal, 4-digit PIN number of your choice. (Pick a number that's easy to remember.) 4 Click Submit. Confirm the information you just entered is correct, then click Submit again. 5 You should get a confirmation e-mail within 24 hours. If you do not, go back through these steps to make sure all the information is correct. 6 Use this same process if you need to change your registration information or cancel internet viewing. IF YOUR NUVEEN FUND DIVIDENDS AND STATEMENTS COME DIRECTLY TO YOU FROM NUVEEN, FOLLOW THE STEPS OUTLINED BELOW: 1 Go to WWW.NUVEEN.COM 2 Select ACCESS YOUR ACCOUNT. Select the E-REPORT ENROLLMENT section. Click on Enrollment Today. 3 You'll be taken to a screen that asks for your Social Security number and e-mail address. Fill in this information, then click Enroll. 4 You should get a confirmation e-mail within 24 hours. If you do not, go back through these steps to make sure all the information is correct. 5 Use this same process if you need to change your registration information or cancel internet viewing. Logo: NUVEEN Investments Photo of: TIMOTHY R. SCHWERTFEGER CHAIRMAN OF THE BOARD SIDEBAR TEXT:"WE REMAIN CONVINCED THAT MAINTAINING A WELL-BALANCED PORTFOLIO ....... IS AN IMPORTANT WAY TO HELP YOU REDUCE OVERALL INVESTMENT RISK." Dear SHAREHOLDER I am pleased to report that over the period ended July 31, 2003, your Nuveen Quality Preferred Income Funds continued to provide you with an attractive monthly dividend and the opportunity for enhanced diversification within your investment portfolio. For more specific information about the performance of the Fund, please see the Portfolio Managers' Comments and Performance Overview sections of this report. While the oldest of these three Funds was barely more than one year old as of July 31, 2003, all three already have experienced a good deal of market price volatility in their young lives. We know that the ups and downs that come with this volatility may lead some investors to consider increasing or decreasing their investments in their Fund. While we encourage you to take a strong interest in the performance of your investment portfolio, I urge you to discuss any investment changes with your financial advisor before you act. We remain convinced that maintaining a well-balanced portfolio, structured and monitored with the help of an investment professional, is an important way to help you reduce overall investment risk and position yourself to achieve your long-term financial goals. In this context, the preferred securities in your Nuveen Fund can be important building blocks in a portfolio crafted to perform well through a variety of market conditions. I'd also like to direct your attention to the inside front cover of this report, which explains the quick and easy process to begin receiving Fund reports like this via e-mail and the internet. Thousands of Nuveen Fund shareholders already have signed-up, and they are getting their Fund information faster and more conveniently than ever. I urge you to consider joining them. Since 1898, Nuveen Investments has offered financial products and solutions that incorporate careful research, diversification, and the application of conservative risk-management principles. We are grateful that you have chosen us as a partner as you pursue your financial goals. We look forward to continuing to earn your trust in the months and years ahead. Sincerely, /s/ Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board September 15, 2003 1 Nuveen Closed-End Exchange-traded funds (JTP, JPS, JHP) 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 period ended July 31, 2003. WHAT WAS THE GENERAL MARKET ENVIRONMENT FOR PREFERRED SECURITIES OVER THE TWELVE MONTHS ENDED JULY 31, 2003? In our view, it was "a tale of two markets." The first eleven months of the period saw a bull market for most fixed income investments as interest rates declined and prices rose across the entire yield curve. Both the two-year and ten-year U.S. Treasuries saw their yields drop by over 90 basis points to near-record lows by June 2003. Then came July 2003, which was one of the worst single months ever for bonds. By the end of that month the two-year U.S. Treasury had given up about half of the gain achieved over the previous eleven months, and the yield on the ten-year U.S. Treasury was about the same as one year earlier. Despite the weakness exhibited in July, overall it was a very good period for preferred securities. The new issue calendar was active ($37 billion during the twelve months ended July 31, 2003) and despite having many securities called for redemption, the size of the hybrid, or taxable, preferred securities market grew to $211 billion by the end of the reporting period. The demand for preferred securities from both institutional and private client investors remained strong, sparked by the record low yields available in money market instruments, continued volatility in equity markets, and an emphasis on income by insurance companies and others. HOW DID THE FUNDS PERFORM OVER THIS REPORTING PERIOD? The total return on NAV for JTP for the year ended July 31, 2003, was 9.15% This compares with 5.41% for the Lehman Brothers Aggregate Index1, a good measure of the general bond market, and 8.75% for the Merrill Lynch Preferred Stock Hybrid Securities Index.1 JPS and JHP did not yet have one year of performance history as of the end of the reporting period. The performance of all three Funds showed a pattern similar to the general bond market, painting one picture from August 2002 through June 2003, and a very different picture in July 2003. For example, as of June 30, 2003, JTP, JPS and JHP all were trading between 4 - 6% above their original $15 IPO price. After July's bond market decline, their share prices had fallen to below their IPO prices -- $14.59 for JTP, $14.65 for JPS, and $14.36 for JHP. The NAV performance for each Fund followed a different pattern. After the July decline, JTP's NAV ended the reporting period virtually unchanged from one year earlier ($14.10 vs. $14.12). During the periods between their initial public offerings and July 31, 2003, both JPS and JHP saw their NAV's rise. All three funds continued to provide attractive monthly income through the period, with JTP raising its dividend once during this time. 2 For additional performance information, please see the individual Performance Overview pages for your Fund in this report. WHAT STRATEGIES DID YOU EMPLOY IN MANAGING THE FUNDS? The primary strategy for each of the Funds has been to build a high quality, diversified portfolio which maximizes the income available to pay an attractive dividend for a sustained period of time. The emphasis has been on investment-grade preferred securities, many of which are issued by companies with AA or A debt ratings. To enhance diversification, we have tried to keep the holdings of any single issuer within each Fund to about 3% or less of the Fund's total assets. Each of the three Funds had over 120 distinct issuers as of July 31, 2003. In addition, we've striven to balance our investments in issues that afford longer call protection but have a higher duration (i.e. more interest rate risk) with more defensive, higher coupon securities that have attractive yields-to-call. Finally, although income is each Fund's primary objective, we have tried to enhance the total return potential of each portfolio through selective trading to take advantage of inefficiencies in the market. WHAT DO YOU ANTICIPATE YOUR STRATEGY WILL BE GOING FORWARD? While we expect the preferred securities market to continue to perform well relative to other fixed income instruments for the near future, this does not mean that the market will be immune to increases in interest rates. If interest rates continue to increase as the economy and stock markets strengthen, the prices of preferred securities probably will weaken further. Two important developments that we are watching are the passage of the Jobs and Growth Tax Relief Reconciliation Act of 2003 and the FASB rule change requiring Trust preferred securities to be listed as debt instead of equity on the issuer's balance sheet. The cornerstone of the tax legislation was a reduction in the tax rate for individuals on dividend income to the capital gains rate of 15%. The payments made by hybrid preferreds in the Fund's portfolios, do not qualify because they are considered to be interest rather than dividends for tax purposes. While we have not seen any significant impact on the prices of these securities, there may be some implications for future issuance. For example, if the cost of raising capital by selling dividend-paying preferred securities drops enough, it might reduce the number of new hybrid preferred securities that come to market. The FASB change has caused the Fed to review whether to allow banks to continue to count Trust preferred securities as Tier I capital. If the Fed does change its view, the assumption is that extant issues will be "grandfathered," but there might be no further issuance. Moreover, the value to the banks of their outstanding preferred securities would be much greater, causing them to less likely be called. This would be good news for the Fund's large holdings in these types of issues. In this uncertain environment, we will continue to look for higher coupon, "cushioned" securities as a way to mitigate some of the interest rate risk. Although the general credit outlook is more sanguine now than was the case for most of the last two years, we plan to remain vigilant in our credit analysis and will stick with the high quality approach that has served us well in the past. In addition, we will seek opportunities to enhance the diversification of each Fund's portfolio. 1 The Lehman Brothers Aggregate Bond Index is an unmanaged index that includes all investment-grade, publicly issued, fixed-rate, dollar-denominated, noncon vertible debt issues and commercial mortgage backed securities with maturities of at least one year and outstanding par values of $150 million or more. The Merrill Lynch Preferred Stock Hybrid Securities Index, an unmanaged index of investment-grade, exchange-traded preferred stocks with outstanding market values of at least $30 million and at least one year to maturity. 3 NUVEEN QUALITY PREFERRED INCOME FUND Performance OVERVIEW As of July 31, 2003 JTP PORTFOLIO STATISTICS - -------------------------------------------------- Share Price $14.59 - -------------------------------------------------- Common Share Net Asset Value $14.10 - -------------------------------------------------- Net Assets Applicable to Common Shares ($000) $907,746 - -------------------------------------------------- % OF TOTAL TOP 5 ISSUERS INVESTMENTS - -------------------------------------------------- Wachovia Corporation 3.3% - -------------------------------------------------- ING Groep NV 3.2% - -------------------------------------------------- Abbey National Public Limited Company 3.0% - -------------------------------------------------- HSBC Holdings Public Limited Company 2.7% - -------------------------------------------------- Zurich Financial Services 2.6% - -------------------------------------------------- % OF TOTAL TOP 5 INDUSTRIES INVESTMENTS - -------------------------------------------------- Banking 21.1% - -------------------------------------------------- Banking - Foreign 14.7% - -------------------------------------------------- Real Estate Investment Trusts 12.7% - -------------------------------------------------- Utilities 6.6% - -------------------------------------------------- Insurance - P&C - Foreign 6.1% - -------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (INCEPTION 6/25/02) - -------------------------------------------------- Market NAV - -------------------------------------------------- 1-Year 4.95% 9.15% - -------------------------------------------------- Since Inception 5.45% 6.86% - -------------------------------------------------- Bar Chart: 2002-2003 MONTHLY DIVIDENDS PER SHARE Aug 0.103 Sep 0.103 Oct 0.103 Nov 0.103 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. 8/01/02 15.16 15.17 15.25 15.2 15.35 15.33 15.31 15.17 15.48 15.53 15.15 14.84 14.71 14.99 14.99 14.83 14.18 14.7 14.71 14.81 14.94 14.99 15.09 15.16 15.24 15.36 15.42 15.35 15.28 15.29 15.22 15.05 14.98 14.69 14.94 15.11 15.17 15.29 15.14 15.45 15.64 15.68 15.79 15.76 15.73 15.8 16.02 15.79 15.26 14.95 7/31/03 14.59 4 NUVEEN QUALITY PREFERRED INCOME FUND 2 Performance OVERVIEW As of July 31, 2003 JPS PORTFOLIO STATISTICS - ---------------------------------------------------- Share Price $14.65 - ---------------------------------------------------- Common Share Net Asset Value $14.97 - ---------------------------------------------------- Net Assets Applicable to Common Shares ($000) $1,789,809 - ---------------------------------------------------- % OF TOTAL TOP 5 ISSUERS INVESTMENTS - ---------------------------------------------------- Wachovia Corporation 3.5% - ---------------------------------------------------- Abbey National Public Limited Company 3.2% - ---------------------------------------------------- Everest Reinsurance Holdings Inc. 2.9% - ---------------------------------------------------- ING Groep NV 2.9% - ---------------------------------------------------- ABN AMRO Bank NV 2.8% - ---------------------------------------------------- % OF TOTAL TOP 5 INDUSTRIES INVESTMENTS - ---------------------------------------------------- Banking 20.1% - ---------------------------------------------------- Banking - Foreign 15.9% - ---------------------------------------------------- Real Estate Investment Trusts 10.0% - ---------------------------------------------------- Utilities 8.6% - ---------------------------------------------------- Financial 8.0% - ---------------------------------------------------- CUMULATIVE TOTAL RETURN (INCEPTION DATE 9/24/02) - ---------------------------------------------------- Market NAV - ---------------------------------------------------- Since Inception 4.02% 11.22% - ---------------------------------------------------- Bar Chart: 2002-2003 MONTHLY DIVIDENDS PER SHARE 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. 9/27/02 15.1 15.15 15.05 15 15 15 15 14.7 14.13 14.5 14.7 14.73 14.86 14.99 15.02 15.14 15.1 15 15.15 15.34 15.25 15.17 15.18 15.06 14.98 14.58 14.97 15.06 15.12 15.24 15.21 15.44 15.67 15.8 15.78 15.85 15.7 15.8 15.94 15.83 15.28 14.95 7/31/03 14.65 5 Nuveen Quality Preferred Income Fund 3 Performance OVERVIEW As of July 31, 2003 JHP PORTFOLIO STATISTICS - -------------------------------------------------- Share Price $14.36 - -------------------------------------------------- Common Share Net Asset Value $14.38 - -------------------------------------------------- Net Assets Applicable to Common Shares ($000) $339,499 - -------------------------------------------------- % OF TOTAL TOP 5 ISSUERS INVESTMENTS - -------------------------------------------------- ING Groep NV 3.3% - -------------------------------------------------- Wachovia Corporation 3.3% - -------------------------------------------------- Citigroup 2.8% - -------------------------------------------------- Zurich Financial Services 2.7% - -------------------------------------------------- SAFECO Corporation 2.4% - -------------------------------------------------- % OF TOTAL TOP 5 INDUSTRIES INVESTMENTS - -------------------------------------------------- Banking 18.9% - -------------------------------------------------- Banking - Foreign 10.6% - -------------------------------------------------- Real Estate Investment Trusts 10.0% - -------------------------------------------------- Insurance - P&C - Foreign 8.8% - -------------------------------------------------- Financial 6.6% - -------------------------------------------------- CUMULATIVE TOTAL RETURN (INCEPTION DATE 12/18/02) - -------------------------------------------------- Market NAV - -------------------------------------------------- Since Inception -0.19% 4.62% - -------------------------------------------------- Bar Chart: 2003 MONTHLY DIVIDENDS PER SHARE 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. 12/20/02 15.01 15.01 15.02 15.08 15.07 15 15.05 15.18 15.14 15.06 15.11 15.09 14.98 14.77 14.82 15 15.03 15.1 15.12 15.3 15.38 15.55 15.7 15.47 15.53 15.52 15.64 15.76 15.11 14.95 7/31/03 14.36 6 Report of INDEPENDENT AUDITORS 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, 2003, 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 auditing standards generally accepted in the 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, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures when 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, 2003, and the results of their operations, the changes in their net assets and the financial highlights for the periods indicated therein in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Chicago, Illinois September 12, 2003 7 Nuveen Quality Preferred Income Fund (JTP) Portfolio of INVESTMENTS July 31, 2003
MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ EXCHANGE-LISTED PREFERRED SECURITIES - 74.1% (50.1% OF TOTAL INVESTMENTS) AGENCY - 0.3% 42,000 Freddie Mac, Series F, 5.000% (a) $ 2,005,500 33,400 Tennessee Valley Authority, Series D, 6.750% 891,112 - ------------------------------------------------------------------------------------------------------------------------------------ AUTO - 0.5% 33,000 Ford Motor Company, Series F, 8.000% (CBTCS) 818,070 51,240 Ford Motor Company Capital Trust I, 9.000% 1,308,157 63,300 General Motors Corporation, 7.375% 1,558,446 23,700 General Motors Corporation, 7.250% 571,170 - ------------------------------------------------------------------------------------------------------------------------------------ AUTO - FOREIGN - 1.1% 382,050 Magna International Inc., Series B, 8.875% 10,124,325 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - 9.6% 1,000 ABN AMRO North America, Series 144A, 6.590% (a) 1,054,063 101,300 ASBC Capital I, 7.625% 2,690,528 7,200 BAC Capital Trust I, 7.000% 184,680 64,000 BAC Capital Trust II, 7.000% 1,625,600 145,000 BAC Capital Trust III, 7.000% 3,784,500 24,000 BAC Capital Trust IV, 5.875% 583,200 68,300 Bank One Capital Trust II, 8.500% 1,891,910 50,300 Bank One Capital Trust VI, 7.200% 1,295,225 60,100 BNY Capital Trust V, Series F, 5.950% 1,470,046 117,399 Chase Capital Trust IV, Series D, 7.340% 2,954,933 24,800 Chase Capital Trust VIII, Series H, 8.300% 669,600 197,000 Chittenden Capital Trust I, 8.000% 5,122,000 Citigroup Inc.: 20,000 Series F, 6.365% (a) 1,075,000 70,000 Series H, 6.231% (a) 3,663,100 45,000 Series M, 5.864% (a) 2,328,750 28,900 Citicorp Capital III, 7.100% 732,037 18,000 Citigroup Capital Trust VI, 6.875% 458,640 103,000 Citigroup Capital Trust VII, 7.100% 2,685,210 47,600 Citigroup Capital Trust VIII, 6.950% 1,222,844 122,500 Comerica Capital Trust I, 7.600% 3,256,050 224,795 Compass Bank Capital Trust III, 7.350% 5,844,670 8,400 First Union Capital II, 8.200% (CORTS) 235,368 28,400 First Union Capital II, Series II, 7.500% (CORTS) 758,564 89,000 Fleet Capital Trust VI, 8.800% 2,401,220 32,100 Fleet Capital Trust VII, 7.200% 823,044 57,900 Harris Preferred Capital Corporation, Series A, 7.375% 1,463,712 8 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BANKING (continued) 32,600 JPMorgan Chase Capital Trust I, Series 2001-1, 7.850% (CORTS) $ 869,442 77,200 JPMorgan Chase Capital Trust IX, Series I, 7.500% 2,007,200 KeyCorp: 29,800 Series B, 8.250% (CORTS) 800,130 15,300 Series 2001-7, 7.750% (CORTS) 403,920 59,400 KeyCorp, 7.500% (PCARS) 1,580,040 44,700 National Commerce Capital Trust II, 7.700% 1,191,255 29,200 Regions Finance Trust I, 8.000% 779,640 35,700 Suntrust Capital Trust V, 7.050% 917,490 174,400 US Bancorp Capital Trust III, 7.750% 4,515,216 418,405 US Bancorp Capital Trust IV, 7.350% 10,732,088 38,400 US Bancorp Capital Trust V, 7.250% 973,824 9,400 Valley National Bank Capital Trust I, 7.750% 247,596 19,000 Washington Mutual Capital Trust I, Series 2001-22, 7.650% (CORTS) 495,900 7,700 Wells Fargo Capital Trust IV, 7.000% 199,738 17,000 Wells Fargo Capital Trust V, 7.000% 438,940 92,100 Wells Fargo Capital Trust VII, 5.850% 2,234,346 300,000 Zions Capital Trust B, 8.000% 8,175,000 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - FOREIGN - 5.0% 273,200 ABN AMRO Capital Funding Trust I, 7.500% 6,898,300 208,800 ABN AMRO Capital Funding Trust II, 7.125% 5,276,376 24,200 ANZ Exchangeable Preferred Trust, 8.000% 611,050 9,000 ANZ Exchangeable Preferred Trust II, 8.080% 228,330 8,500 Abbey National plc, 7.250% 219,130 67,800 Abbey National plc, Series B, 7.375% 1,789,920 46,300 Banco Totta & Acores Finance, Series A, 8.875% 1,279,501 104,600 BCH Capital Ltd., Series B, 9.430% 2,907,880 BSCH Finance Ltd.: 253,837 Series F, 8.125% 6,609,915 162,055 Series G, 8.125% 4,215,051 70,691 Series H, 7.790% 1,774,344 2,500 Series J, 7.350% 62,775 265,650 Series Q, 8.625% 7,108,794 37,400 Espirito Santo Overseas Ltd., 8.500% 985,116 60,000 NAB Exchangeable Preferred Trust, 8.000% 1,518,000 55,300 National Westminster Bank plc, Series A, 7.875% 1,396,325 75,000 Royal Bank of Scotland Group plc, 5.750% 1,724,250 22,900 Westpac Capital Trust I, 8.000% 593,568 - ------------------------------------------------------------------------------------------------------------------------------------ BROKERAGE - 3.3% 50,100 Bear Stearns Capital Trust III, 7.800% 1,323,642 110,000 Lehman Brothers Capital Trust I, 8.000% 2,813,800 118,100 Lehman Brothers Holdings Capital Trust II, Series J, 7.875% 3,054,066 98,949 Lehman Brothers Holdings Capital Trust III, Series K, 6.375% 2,471,746 38,500 Merrill Lynch Capital Trust II, 8.000% 1,055,670 186,900 Merrill Lynch Preferred Capital Trust, 7.750% 5,107,977 7,300 Merrill Lynch Preferred Capital Trust IV, 7.120% 187,975 9 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of INVESTMENTS July 31, 2003 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BROKERAGE (continued) 44,800 Merrill Lynch Preferred Capital Trust V, 7.280% $ 1,162,560 92,000 Morgan Stanley Capital Trust II, 7.250% 2,352,440 188,400 Morgan Stanley Capital Trust III, 6.250% 4,593,192 250,095 Morgan Stanley Capital Trust IV, 6.250% 6,072,307 - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - FOREIGN - 1.5% 46,100 ENCANA Corporation, 9.500% 1,233,175 79,400 Suncor Energy Inc., 9.125% 2,101,718 153,600 Talisman Energy Inc., 9.000% 3,924,480 257,100 Talisman Energy Inc., 8.900% 6,617,754 - ------------------------------------------------------------------------------------------------------------------------------------ ENTERTAINMENT - 0.3% 119,000 Viacom Inc., 7.250% 3,105,900 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - 6.2% 485,300 AT&T Capital Corp., 8.250% 12,287,796 760,000 AT&T Capital Corp., 8.125% 19,182,400 30,176 CIT Group Incorporated, 7.750% (CORTS) 809,019 584,500 Countrywide Capital Trust IV, 6.750% 14,261,800 42,000 General Electric Capital Corp., 6.100% 1,058,400 20,000 General Electric Capital Corp., 5.875% 497,000 95,000 General Motors Acceptance Corporation, 7.350% 2,337,950 28,500 General Motors Acceptance Corporation, 7.300% 705,945 127,000 Household Capital Trust V, Series X, 10.000% 3,511,550 59,500 Household Capital Trust VI, 8.250% 1,576,750 17,000 Household Capital Trust VII, 7.500% 445,910 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - FOREIGN - 4.8% 55,900 ING Capital Funding Trust, 7.700% 1,429,922 26,400 ING Capital Funding Trust II, 9.200% 722,040 1,015,458 ING Groep NV, 7.200% 26,259,744 563,900 ING Groep NV, 7.050% 14,379,450 26,200 Swedish Export Credit Corp., 7.375% 663,646 - ------------------------------------------------------------------------------------------------------------------------------------ FOOD - 0.1% 19,100 ConAgra Capital LC, Series B, 5.000% 479,219 - ------------------------------------------------------------------------------------------------------------------------------------ FOOD - FOREIGN - 1.6% 535,800 Grand Met De Ltd. Partnership, 9.420% 14,396,946 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - 2.0% 32,100 AGL Capital Trust II, 8.000% 850,650 96,800 Coastal Finance I, 8.375% 1,926,320 93,400 Dominion CNG Capital Trust I, 7.800% 2,465,760 142,400 MCN Financing Trust II, 8.625% 3,665,376 22,900 South Jersey Gas Capital Trust, 8.350% 583,950 322,500 Southern Union Financing Trust, 9.480% 8,297,925 10 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ GAS - FOREIGN - 0.3% 108,500 TransCanada Pipelines Ltd., 8.250% $ 2,761,325 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - FINANCIAL - 0.8% 64,500 AMBAC Financial Group Inc., 5.950% 1,566,705 118,774 AMBAC Financial Group Inc., 5.875% 2,874,331 74,000 Financial Security Assurance Holdings, 6.250% 1,815,960 26,600 MBIA Inc., 8.000% 727,244 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - LIFE - 2.6% 20,700 American General Capital Trust I, 7.875% 543,375 15,700 American General Capital Trust III, 8.050% 442,740 100,000 Delphi Financial Group Inc., 8.000% 2,540,000 136,600 Great West Life and Annuity Insurance Capital Trust I, Series A, 7.250% 3,476,470 77,100 Lincoln National Capital Trust V, Series E, 7.650% 2,013,081 70,900 Protective Life Company Capital Trust III, 7.500% 1,858,289 410,000 Protective Life Company Capital Trust IV, 7.250% 10,824,000 58,600 Torchmark Capital Trust I, 7.750% 1,548,798 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - MULTILINE - 0.8% 13,600 Farmers Group Capital Trust II, Series B, 8.250% 349,520 81,152 Hartford Capital Trust I, Series A, 7.700% 2,057,203 110,000 Hartford Capital Trust III, Series C, 7.450% 2,799,500 42,700 Hartford Life Capital Trust II, Series B, 7.625% 1,106,357 26,700 SAFECO, 8.750% (CBTCS) 707,817 24,600 SAFECO Capital I, Series II, 8.700% (CORTS) 655,836 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - 0.2% 59,200 Everest Re Capital Trust, 7.850% 1,568,800 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - FOREIGN - 6.8% 12,900 ACE Capital Trust I, 8.875% 339,399 755,200 Ace Ltd., Series C, 7.800% 18,955,520 760,000 Converium Finance, 8.250% 19,919,600 250,000 PartnerRe Ltd., Series C, 6.750% 6,225,000 99,000 PartnerRe Ltd. Capital Trust I, 7.900% 2,653,200 RenaissanceRe Holdings Ltd.: 67,705 Series A, 8.100% 1,808,401 40,000 Series B, 7.300% 1,036,400 XL Capital Ltd.: 385,354 Series A, 8.000% 10,250,416 24,000 Series B, 7.625% 626,400 - ------------------------------------------------------------------------------------------------------------------------------------ PAPER - 0.1% 37,800 International Paper Capital Trust III, 7.875% 958,986 - ------------------------------------------------------------------------------------------------------------------------------------ PHARMACEUTICALS - FOREIGN - 0.2% 54,300 Rhone-Poulenc Overseas, Series A, 8.125% 1,381,392 - ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS - 18.7% 8,600 Archstone-Smith Trust, Series D, 8.750% 230,910 13,400 AvalonBay Communities Inc., Series H, 8.700% 381,900 11 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of INVESTMENTS July 31, 2003 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS (continued) BRE Properties: 12,900 Series A, 8.500% $ 330,563 608,700 Series B, 8.080% 16,495,770 Developers Diversified Realty Corporation: 9,000 Series G, 8.000% 228,150 78,000 Series H, 7.375% 1,911,000 Duke Realty Corp.: 109,179 Series B, 7.990% 5,650,013 9,300 Series I, 8.450% 251,286 Equity Office Properties Trust: 22,900 Series C, 8.625% 587,385 1,097,400 Series G, 7.750% 29,070,126 Equity Residential Properties Trust: 30,400 Series B, 9.125% 825,360 22,100 Series D, 8.600% 618,800 First Industrial Realty Trust Inc.: 10,600 Series C, 8.625% 294,680 87,200 Series D, 7.950% 2,180,872 60,500 Series E, 7.900% 1,509,475 19,000 Firstar Realty LLC, Series 144A, 8.875% 22,230,000 HRPT Properties Trust: 218,300 Series A, 9.875% 5,915,930 1,096,700 Series B, 8.750% 29,172,220 New Plan Excel Realty Trust: 20,000 Series D, 7.800% 966,876 414,000 Series E, 7.625% 10,764,000 89,600 Prologis Trust, Series D, 7.920% 2,269,568 Public Storage Inc.: 7,000 Series D, 9.500% 194,950 16,200 Series E, 10.000% 458,136 22,800 Series F, 9.750% 631,104 6,400 Series K, 8.250% 163,840 20,400 Series L, 8.250% 522,444 24,000 Series Q, 8.600% 644,400 99,000 Series R, 8.000% 2,631,420 200,000 Series S, 7.875% 5,300,000 12,180 Series U, 7.625% 321,308 316,000 Series V, 7.500% 8,374,000 Simon Property Group Inc.: 20,500 Series F, 8.750% 559,650 176,200 Series G, 7.890% 9,365,030 Vornado Realty Trust: 26,100 Series B, 8.500% 664,506 47,700 Series C, 8.500% 1,216,350 285,000 Wachovia Bank Preferred Funding Corporation, 7.250% 7,700,700 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL - 0.6% 219,600 Sears Roebuck Acceptance Corporation, 7.000% 5,448,276 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOM - 1.8% 10,000 SBC Communications Inc., 7.000% 260,500 183,796 Telephone & Data Systems Capital Trust I, 8.500% 4,650,039 262,846 Telephone & Data Systems Inc., 7.600% 6,902,336 156,300 US Cellular Corporation, 8.750% 4,166,958 12 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 4.9% 248,300 Alabama Power Company, 5.830% (a) $ 6,331,650 13,300 Atlantic Capital Trust II, Series C, 7.375% 337,155 92,600 CPL Capital I, Series A, 8.000% 2,340,002 13,500 Delmarva Power Finance (Conectiv Inc.), 8.125% 346,140 55,600 Dominion Resources Capital Trust II, 8.400% 1,472,288 77,740 DTE Energy Trust I, 7.800% 2,021,240 20,800 Duke Energy Capital Trust I, Series Q, 7.200% 521,872 8,000 Duke Energy Capital Trust II, 7.200% 204,640 94,800 Energy East Capital Trust I, 8.250% 2,518,836 93,005 Entergy LA Inc., 7.600% 2,456,262 134,751 Georgia Power Company, 5.900% 3,368,775 Interstate Power & Light Company: 11,800 Series A, 7.875% 297,950 320,000 Series B, 8.375% (a) 10,688,000 64,700 OGE Energy Capital Trust I, 8.375% 1,694,493 7,700 Ohio Power Company, 7.375% 194,425 40,000 Potomac Electric Power Company, Series 6, 2.280% (a) 1,660,000 1,300 PSE&G Capital Trust, 8.125% 33,540 60,800 PSO Capital Trust I, Series A, 8.000% 1,533,376 53,100 SWEPCO Capital Trust I, Series A, 7.875% 1,342,368 3,100 Virginia Electric & Power Company, Series A, 7.150% 78,306 187,000 Virginia Power Capital Trust, 7.375% 4,899,400 1,000 WPS Resources Capital Trust I, 7.000% 25,153 - ------------------------------------------------------------------------------------------------------------------------------------ Exchange-Listed Preferred Securities (cost $650,061,826) 672,104,301 -------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED SECURITIES - 9.7% (6.5% OF TOTAL INVESTMENTS) BANKING - 0.6% 154,000 Citigroup Global Markets Holdings, 2.000% 5,430,502 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - 1.7% 299,400 Keyspan Corporation, 8.750% 15,733,470 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - FOREIGN - 0.2% 32,000 PartnerRe Ltd., 8.000% 1,633,600 - ------------------------------------------------------------------------------------------------------------------------------------ MEDICAL PRODUCTS - 0.7% 117,500 Baxter International Inc., 7.000% 5,979,575 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOM - 2.1% 263,200 ALLTELL Corp., 7.750% 12,633,600 242,200 Citizens Communications Company, 6.750% 6,079,220 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 4.4% 302,200 Ameren Corporation, 9.750% 8,558,304 125,500 American Electric Power Inc., 9.250% 5,823,200 58,000 Cinergy Corp., 9.500% 3,419,100 260,200 Dominion Resources Inc., 8.750% 13,556,420 153,600 Public Service Enterprise Group, 10.250% 8,970,240 - ------------------------------------------------------------------------------------------------------------------------------------ Total Convertible Preferred Securities (cost $82,504,425) 87,817,231 -------------------------------------------------------------------------------------------------------------------- 13 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of INVESTMENTS July 31, 2003 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED - HYBRID SECURITIES - 2.7% (1.9% OF TOTAL INVESTMENTS) BANKING - FOREIGN - 1.1% 10 BBVA Privanza International Gibraltar, Series 144A, 7.764% $10,000,000 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOM - 1.6% 13,250 Centaur Funding Corp., Series 144A, 9.080% 14,889,688 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Hybrid Securities (cost $21,548,162) 24,889,688 -------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED SECURITIES - 50.5% (34.1% OF TOTAL INVESTMENTS) BANKING - 20.7% $ 6,500 ABN AMRO North America Holding Capital, Series 144A, 6,929,722 6.523%, 11/08/12 3,000 BankAmerica Capital II, Series 2, 8.000%, 12/15/26 3,222,780 1,000 BankAmerica Institutional Capital Trust A, Series 144A, 1,063,466 8.070%, 12/31/26 2,000 BankAmerica Institutional Capital Trust B, Series 144A, 2,133,400 7.700%, 12/31/26 5,700 Bank of Boston Capital Trust II, Series B, 7.750%, 12/15/26 5,900,030 6,000 Barnett Capital I, 8.060%, 12/01/26 6,380,304 7,800 BT Preferred Capital Trust II, 7.875%, 2/25/27 8,182,824 5,000 Chase Capital Trust I, Series A, 7.670%, 12/01/26 5,120,035 3,000 Corestates Capital Trust I, Series 144A, 8.000%, 12/15/26 3,251,130 500 First Empire Capital Trust II, 8.277%, 6/01/27 540,990 26,463 First Union Institutional Capital I, 8.040%, 12/01/26 28,699,917 20,000 JPM Capital Trust II, 7.950%, 2/01/27 20,918,680 2,000 KeyCorp Institutional Capital Trust A, 7.826%, 12/01/26 2,059,798 11,150 NB Capital Trust II, 7.830%, 12/15/26 11,754,598 1,000 North Fork Capital Trust I, 8.700%, 12/15/26 1,121,610 8,000 Peoples Heritage Capital Trust I (BankNorth Group Inc.), 8,685,296 Series B, 9.060%, 2/01/27 19,000 PNC Institutional Capital Trust A, 7.950%, 12/15/26 19,976,334 17,500 Reliance Capital Trust I, Series B, 8.170%, 5/01/28 18,440,118 1,400 Republic NY Capital Trust IV, 7.530%, 12/04/26 1,422,995 23,000 Summit Capital Trust I, 8.400%, 3/15/27 25,190,290 1,000 Union Planters Capital Trust A, 8.200%, 12/15/26 1,017,644 4,000 Wachovia Bank Capital Trust I, Series 144A, 7.640%, 1/15/27 4,230,480 1,050 Wells Fargo Capital, 7.950%, 12/01/26 1,128,236 1,000 Zions Institutional Capital Trust A, Series A, 8.536%, 12/15/26 1,042,007 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - FOREIGN - 9.5% 30,000 Abbey National Capital Trust I, 8.963%, 12/29/49 38,957,700 7,242 Dresdner Funding Trust I, 8.151%, 6/30/31 7,336,023 25,000 HSBC Capital Funding LP, 10.176%, 6/30/03 35,436,000 5,000 Sparebanken Rogaland, Series 144A, 6.443%, 5/01/13 4,975,000 - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - 2.6% 21,900 Phillips 66 Capital Trust II, 8.000%, 1/15/37 23,290,212 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - 1.0% 4,000 KN Capital Trust I, 8.560%, 4/15/27 4,523,960 4,360 KN Capital Trust III, 7.630%, 4/15/28 4,533,048 14 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - FINANCIAL - 0.8% $ 7,500 Berkley Capital Trust, 8.197%, 12/15/45 $ 7,297,710 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - LIFE - 0.8% 3,000 American General Institutional Capital, 8.125%, 3/15/46 3,609,150 4,000 MIC Financing Trust I, 8.375%, 2/01/27 4,101,924 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - LIFE - FOREIGN - 2.9% 24,410 Sun Life Canada Capital Trust, 8.526%, 5/06/49 25,951,003 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - MULTILINE - 6.6% 2,983 AFC Capital Trust I, Series B, 8.207%, 2/03/27 2,565,380 20,525 SAFECO Capital Trust I, 8.072%, 7/15/37 21,880,676 35,095 Zurich Capital Trust I, 8.376%, 6/01/37 35,549,164 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - MULTILINE - FOREIGN - 0.9% 8,000 Mangrove Bay, Series 144A, 6.102%, 7/15/33 7,760,000 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - FOREIGN - 2.0% 7,570 Ace Capital Trust II, 9.700%, 4/01/30 9,414,885 2,000 RenaissanceRe Capital Trust, 8.540%, 3/01/27 2,022,152 7,500 Royal & Sun Alliance Insurance, 8.950%, 10/15/29 6,686,918 - ------------------------------------------------------------------------------------------------------------------------------------ SAVINGS AND LOAN - 0.6% 5,000 Washington Mutual Capital Trust I, 8.375%, 6/01/27 5,463,750 - ------------------------------------------------------------------------------------------------------------------------------------ SAVINGS AND LOAN - THRIFT - 1.6% 8,500 Dime Capital Trust I, Series A, 9.330%, 5/06/27 9,563,648 5,000 Great Western Financial Trust II, Series A, 8.206%, 2/01/27 5,255,960 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 0.5% 5,000 PECO Energy Capital Trust IV, 5.750%, 6/15/33 4,270,544 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred Securities (cost $453,160,740) 458,857,491 -------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 6.7% (4.5% OF TOTAL INVESTMENTS) BANKING - FOREIGN - 6.1% 11,500 C.A. Preferred Funding Trust, 7.000%, 1/30/09 11,214,766 25,500 HBOS Capital Funding LP, Notes, 6.850%, 3/29/49 24,862,500 6,250 Lloyds TSB Bank plc, Subordinate Notes, 6.900%, 11/22/07 6,183,213 13,000 RBS Capital Trust, Series B, 6.800%, 3/31/08 12,757,745 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - FOREIGN - 0.6% 5,500 Old Mutual Capital Funding, Notes, 8.000%, 12/22/08 5,486,249 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Euro-Market Listed Securities (cost $64,436,826) 60,504,473 -------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 4.0% (2.7% OF TOTAL INVESTMENTS) AUTO - 1.3% 5,000 Ford Motor Company, Debenture, 8.900%, 1/15/32 4,803,055 5,700 Ford Motor Company, Debenture, 7.700%, 5/15/97 4,725,944 3,400 Ford Motor Company, Debenture, 7.400%, 11/01/46 2,716,848 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - 0.3% 3,000 Suntrust Bank, Subordinate Notes, 5.450%, 12/01/17 3,027,876 15 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of INVESTMENTS July 31, 2003 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - 2.4% $ 22,500 General Motors Acceptance Corporation, Notes, 8.000%, 11/01/31 $20,815,223 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - 0.0% 500 Zurich Reinsurance Centre Holdings Inc., Senior Notes, 7.125%, 10/15/23 439,301 - ------------------------------------------------------------------------------------------------------------------------------------ Total Corporate Bonds (cost $36,737,833) 36,528,247 -------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 0.3% (0.2% OF TOTAL INVESTMENTS) 2,959 State Street Bank Repurchase Agreement, 0.980%, dated 7/31/03, due 8/01/03, ============= repurchase price $2,958,983, collateralized by U.S. Treasury Bonds 2,958,902 -------------------------------------------------------------------------------------------------------------------- Total Short-Term Investments (cost $2,958,902) 2,958,902 -------------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,311,408,714) - 148.0% 1,343,660,333 -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 0.5% 4,086,089 -------------------------------------------------------------------------------------------------------------------- FundPreferred Shares, at Liquidation Value - (48.5)% (440,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $907,746,422 ==================================================================================================================== (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. (CBTCS) Corporate Backed Trust Certificates. (CORTS) Corporate Backed Trust Securities. (PCARS) Public Credit and Repackaged Securities. See accompanying notes to financial statements. 16
Nuveen Quality Preferred Income Fund 2 (JPS) Portfolio of INVESTMENTS July 31, 2003
MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ EXCHANGE-LISTED PREFERRED SECURITIES - 68.8% (47.9% OF TOTAL INVESTMENTS) AGENCY - 1.4% 316,000 Fannie Mae, Series L, 5.125% (a) $15,484,000 88,600 Freddie Mac, Series F, 5.000% (a) 4,230,650 42,000 SLM Corporation, Series A, 6.970% (a) 2,379,300 90,100 Tennessee Valley Authority, Series D, 6.750% 2,403,868 - ------------------------------------------------------------------------------------------------------------------------------------ AUTO - 0.1% 30,000 Ford Motor Company, Series F, 8.000% (CBTCS) 743,700 35,000 Ford Motor Company Capital Trust I, 9.000% 893,550 20,400 General Motors Corporation, 7.375% 502,248 - ------------------------------------------------------------------------------------------------------------------------------------ AUTO - FOREIGN - 0.1% 35,500 Magna International Inc., Series B, 8.875% 940,750 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - 8.8% 152,060 ASBC Capital I, 7.625% 4,038,714 135,900 BAC Capital Trust I, 7.000% 3,485,835 168,500 BAC Capital Trust II, 7.000% 4,279,900 218,300 BAC Capital Trust III, 7.000% 5,697,630 300,000 BAC Capital Trust IV, 5.875% 7,290,000 81,600 BancWest Capital I, 9.500% 2,321,520 68,500 Bank One Capital II, 8.500% 1,897,450 41,400 Bank One Capital V, 8.000% 1,114,488 144,500 Bank One Capital VI, 7.200% 3,720,875 35,800 BankNorth Capital Trust II, 8.000% 941,540 17,800 BNY Capital Trust IV, Series E, 6.875% 453,544 54,100 BNY Capital Trust V, Series F, 5.950% 1,323,286 93,100 Chase Capital Trust IV, 7.340% 2,343,327 22,800 Chase Capital Trust V, Series E, 7.030% 572,964 76,800 Chase Capital Trust VIII, 8.300% 2,073,600 12,100 Chittenden Capital Trust I, 8.000% 314,600 35,300 Citicorp Capital III, 7.100% 894,149 52,100 Citigroup Capital Trust VI, 6.875% 1,327,508 148,100 Citigroup Capital Trust VII, 7.100% 3,860,967 360,000 Citigroup Capital Trust VIII, 6.950% 9,248,400 Citigroup Inc.: 23,000 Series F, 6.365% (a) 1,236,250 40,000 Series H, 6.231% (a) 2,093,200 45,000 Series M, 5.864% (a) 2,328,750 239,700 Comerica Capital Trust I, 7.600% 6,371,226 380,125 Compass Bank Capital Trust III, 7.350% 9,883,250 31,300 First Union Capital II, 8.200% (CORTS) 877,026 17 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS July 31, 2003 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BANKING (continued) 63,300 First Union Capital II, Series II, 7.500% (CORTS) $ 1,690,743 128,300 Fleet Capital Trust VI, 8.800% 3,461,534 79,700 Harris Preferred Capital Corporation, Series A, 7.375% 2,014,816 41,000 JPMorgan Chase Capital Trust, Series 2002-6, 7.125% (SATURNS) 1,038,530 71,500 JPMorgan Chase Capital Trust, 7.200% (CBTCS) 1,823,965 6,400 JPMorgan Chase Capital Trust I, Series 2001-1, 7.850% (CBTCS) 170,688 204,100 JPMorgan Chase Capital Trust IX, Series I, 7.500% 5,306,600 KeyCorp: 91,300 Series B, 8.250% (CORTS) 2,451,405 28,000 Series 2001-7, 7.750% (CORTS) 739,200 33,900 KeyCorp, 7.500% (PCARS) 901,740 239,800 National Commerce Capital Trust II, 7.700% 6,390,670 34,300 Regions Finance Trust I, 8.000% 915,810 131,900 SunTrust Capital Trust IV, 7.125% 3,397,744 81,400 SunTrust Capital Trust V, 7.050% 2,091,980 602,600 US Bancorp Capital Trust III, 7.750% 15,601,314 208,100 US Bancorp Capital Trust IV, 7.350% 5,337,765 78,100 US Bancorp Capital Trust V, 7.250% 1,980,616 87,600 Valley National Bank Capital Trust I, 7.750% 2,307,384 41,000 Washington Mutual Capital Trust I, Series 2001-22, 1,070,100 7.650% (CORTS) 15,700 Wells Fargo Capital Trust IV, 7.000% 407,258 26,400 Wells Fargo Capital Trust V, 7.000% 681,648 20,000 Wells Fargo Capital Trust VI, 6.950% 511,200 165,000 Wells Fargo Capital Trust VII, 5.850% 4,002,900 510,200 Zions Capital Trust B, 8.000% 13,902,950 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - FOREIGN - 5.6% 340,000 ABN AMRO Capital Funding Trust I, 7.500% 8,585,000 780,300 ABN AMRO Capital Funding Trust II, 7.125% 19,718,181 102,000 ANZ Exchangeable Preferred Trust, 8.000% 2,575,500 61,600 ANZ Exchangeable Preferred Trust II, 8.080% 1,562,792 23,500 Banco Totta & Acores Finance, Series A, 8.875% 649,423 621,000 Banesto Holdings, Series A, 10.500% 18,630,000 4,100 BBVA Preferred Capital Ltd., Series B, 7.750% 106,805 341,600 BCH Capital Ltd., Series B, 9.430% 9,496,480 BSCH Finance Ltd.: 154,900 Series F, 8.125% 4,033,596 131,000 Series G, 8.125% 3,407,310 88,100 Series H, 7.790% 2,211,310 212,000 Series J, 7.350% 5,323,320 446,100 Series Q, 8.625% 11,937,636 27,400 Espirito Santo Overseas Ltd., 8.500% 721,716 148,500 NAB Exchangeable Preferred Trust, 8.000% 3,757,050 105,200 National Westminster Bank plc, Series A, 7.875% 2,656,300 60,000 Royal Bank of Scotland Group plc, 5.750% 1,379,400 139,100 Westpac Capital Trust I, 8.000% 3,605,472 18 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BROKERAGE - 2.8% 105,900 Bear Stearns Capital Trust II, 7.500% $ 2,679,270 94,900 Bear Stearns Capital Trust III, 7.800% 2,507,258 63,800 Lehman Brothers Capital Trust I, 8.000% 1,632,004 102,800 Lehman Brothers Holdings Capital Trust II, Series J, 7.875% 2,658,408 273,100 Lehman Brothers Holdings Capital Trust III, Series K, 6.375% 6,822,038 500 Merrill Lynch Capital Trust, 7.000% 12,740 91,800 Merrill Lynch Capital Trust II, 8.000% 2,517,156 60,300 Merrill Lynch Preferred Capital Trust, 7.750% 1,647,999 44,400 Merrill Lynch Preferred Capital Trust IV, 7.120% 1,143,300 87,700 Merrill Lynch Preferred Capital Trust V, 7.280% 2,275,815 80,408 Morgan Stanley Capital Trust II, 7.250% 2,056,033 537,600 Morgan Stanley Capital Trust III, 6.250% 13,106,688 451,600 Morgan Stanley Capital Trust IV, 6.250% 10,964,848 16,000 Morgan Stanley Dean Witter, Series C, 7.250% 416,800 - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - FOREIGN - 0.4% 52,800 ENCANA Corporation, 9.500% 1,412,400 46,400 Suncor Energy Inc., 9.125% 1,228,208 67,300 Talisman Energy Inc., 9.000% 1,719,515 75,100 Talisman Energy Inc., 8.900% 1,933,074 - ------------------------------------------------------------------------------------------------------------------------------------ ENTERTAINMENT - 0.1% 67,300 Viacom Inc., 7.250% 1,756,530 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - 6.3% 130,800 AT&T Capital Corp., 8.250% 3,311,856 611,100 AT&T Capital Corp., 8.125% 15,424,164 32,600 CIT Group Incorporated, 7.750% (CORTS) 874,006 978,000 Countrywide Capital Trust IV, 6.750% 23,863,200 199,700 General Electric Capital Corp., 6.625% 5,042,425 1,000,000 General Electric Capital Corp., 6.100% 25,200,000 10,500 General Electric Capital Corp., 5.875% 260,925 8,400 General Motors Acceptance Corporation, 7.350% 206,724 5,000 General Motors Acceptance Corporation, 7.300% 123,850 526,700 Household Capital Trust V, Series X, 10.000% 14,563,255 617,096 Household Capital Trust VI, 8.250% 16,353,044 22,500 Household Capital Trust VII, 7.500% 590,175 250,000 Household Finance Corporation, 6.875% 6,250,000 16,000 Philadelphia Authority for Industrial Development, 6.550% 405,600 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - FOREIGN - 4.2% 18,800 CSFB USA, Series 2002-10, 7.000% (SATURNS) 473,196 23,000 ING Capital Funding Trust, 7.700% 588,340 63,600 ING Capital Funding Trust II, 9.200% 1,739,460 1,462,100 ING Groep NV, 7.200% 37,809,906 1,338,655 ING Groep NV, 7.050% 34,135,703 6,500 Swedish Export Credit Corp., 7.375% 164,645 19 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS July 31, 2003 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ FOOD - FOREIGN - 0.2% 106,100 Grand Met De Ltd. Partnership, 9.420% $ 2,850,907 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - 0.2% 38,100 AGL Capital Trust II, 8.000% 1,009,650 92,500 Dominion CNG Capital Trust I, 7.800% 2,442,000 10,800 MCN Financing Trust II, 8.625% 277,992 17,300 South Jersey Gas Capital Trust, 8.350% 441,150 8,100 Southern Union Financing Trust, 9.480% 208,413 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - FOREIGN - 0.2% 151,100 TransCanada Pipelines Ltd., 8.250% 3,845,495 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - FINANCIAL - 1.9% 76,900 AMBAC Financial Group Inc., 5.950% 1,867,901 181,200 AMBAC Financial Group Inc., 5.875% 4,385,040 7,800 Financial Security Assurance Holdings, 6.950% 195,780 43,000 Financial Security Assurance Holdings, 6.875% 1,117,570 1,059,618 Financial Security Assurance Holdings, 6.250% 26,003,026 22,200 MBIA Inc., 8.000% 606,948 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - LIFE - 1.7% 28,200 American General Capital Trust I, 7.875% 740,250 33,400 American General Capital Trust III, 8.050% 941,880 472,557 Delphi Financial Group Inc., 8.000% 12,002,948 25,900 Great West Life and Annuity Insurance Capital Trust I, 659,155 Series A, 7.250% 59,000 Lincoln National Capital Trust V, Series E, 7.650% 1,540,490 80,700 Protective Life Company Capital Trust III, 7.500% 2,115,147 440,940 Protective Life Company Capital Trust IV, 7.250% 11,640,816 57,200 Torchmark Capital Trust I, 7.750% 1,511,796 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - MULTILINE - 0.9% 169,856 Hartford Capital Trust I, Series A, 7.700% 4,305,850 247,600 Hartford Capital Trust III, Series C, 7.450% 6,301,420 52,700 Hartford Life Capital Trust II, Series B, 7.625% 1,365,457 78,900 SAFECO Capital I, Series II, 8.700% ( CORTS) 2,103,474 59,700 SAFECO, 8.750% (CBTCS) 1,582,647 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - 4.2% 2,827,000 Everest Re Capital Trust, 7.850% 74,915,500 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - FOREIGN - 6.8% 967,600 Ace Ltd., Series C, 7.800% 24,286,760 1,505,600 Converium Finance, 8.250% 39,461,776 230,081 PartnerRe Capital Trust I, 7.900% 6,166,171 439,320 PartnerRe Ltd., Series C, 6.750% 10,939,068 RenaissanceRe Holdings Ltd.: 304,360 Series A, 8.100% 8,129,456 136,500 Series B, 7.300% 3,536,715 XL Capital Ltd.: 554,400 Series A, 8.000% 14,747,040 537,617 Series B, 7.625% 14,031,804 20 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ PAPER - 0.1% 105,300 International Paper Capital Trust III, 7.875% $ 2,671,461 - ------------------------------------------------------------------------------------------------------------------------------------ PHARMACEUTICALS - FOREIGN - 0.1% 80,000 Rhone-Poulenc Overseas, Series A, 8.125% 2,035,200 - ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS - 13.1% 14,500 Archstone-Smith Trust, Series D, 8.750% 389,325 91,900 AvalonBay Communities Inc., Series H, 8.700% 2,619,150 BRE Properties: 25,600 Series A, 8.500% 656,000 8,700 Series B, 8.080% 235,770 CarrAmerica Realty Corporation: 22,000 Series C, 8.550% 559,900 5,500 Series D, 8.450% 139,865 Developers Diversified Realty Corporation: 279,800 Series G, 8.000% 7,092,930 100,000 Series H, 7.375% 2,450,000 Duke Realty Corp.: 186,650 Series B, 7.990% 9,659,138 16,300 Series E, 8.250% 416,954 33,400 Series I, 8.450% 902,468 Equity Office Properties Trust: 47,400 Series C, 8.625% 1,215,810 293,000 Series G, 7.750% 7,761,570 Equity Residential Properties Trust: 81,800 Series B, 9.125% 2,220,870 40,000 Series C, 9.125% 1,119,600 59,750 Series D, 8.600% 1,673,000 1,000 Series N, 6.480% 24,250 First Industrial Realty Trust Inc.: 16,700 Series C, 8.625% 464,260 110,700 Series D, 7.950% 2,768,607 99,800 Series E, 7.900% 2,490,010 2,300 Gables Residential Trust, Series D, 7.500% 57,960 HRPT Properties Trust: 206,200 Series A, 9.875% 5,588,020 1,516,825 Series B, 8.750% 40,347,545 153,000 Kimco Realty Corporation, Series F, 6.650% 3,840,300 New Plan Excel Realty Trust: 147,350 Series D, 7.800% 7,123,459 763,000 Series E, 7.625% 19,838,000 261,000 Prologis Trust, Series D, 7.920% 6,611,130 Public Storage Inc.: 5,000 Series D, 9.500% 139,250 11,000 Series F, 9.750% 304,480 9,000 Series K, 8.250% 230,400 13,700 Series L, 8.250% 350,857 12,700 Series M, 8.750% 332,740 43,800 Series Q, 8.600% 1,176,030 88,295 Series R, 8.000% 2,346,881 12,900 Series S, 7.875% 341,850 72,065 Series T, 7.625% 1,897,471 58,900 Series U, 7.625% 1,553,782 130,500 Series V, 7.500% 3,458,250 21 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS July 31, 2003 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS (continued) 250,000 Regency Centers Corporation, 7.450% $ 6,512,500 Shurgard Storage Centers Inc.: 4,900 Series C, 8.700% 127,155 26,000 Series D, 8.750% 722,800 Simon Property Group Inc.: 29,800 Series F, 8.750% 813,540 321,041 Series G, 7.890% 17,063,329 Vornado Realty Trust: 33,200 Series B, 8.500% 845,272 40,700 Series C, 8.500% 1,037,850 2,436,900 Wachovia Bank Preferred Funding Corporation, 7.250% 65,845,038 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL - 0.4% 80,000 Sears Roebuck Acceptance Corporation, 7.000% 1,976,000 124,400 Sears Roebuck Acceptance Corporation, 7.000% 3,086,364 98,000 Sears Roebuck Acceptance Corporation, 6.950% 2,386,300 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOM - 2.3% 4,000 BellSouth Capital Funding Corporation, 7.375% 101,800 4,200 BellSouth Inc., 7.000% (CORTS) 110,670 26,200 SBC Communications Inc., 7.000% 682,510 70,900 Telephone & Data Systems Capital Trust I, 8.500% 1,793,770 119,700 Telephone & Data Systems Inc., 7.600% 3,143,322 1,315,700 US Cellular Corporation, 8.750% 35,076,562 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 6.9% 340,000 Alabama Power Company, 5.830% (a) 8,670,000 7,000 Alabama Power Company, Series J, 6.750% 179,900 24,900 Atlantic Capital Trust II, Series C, 7.375% 631,215 28,400 BGE Capital Trust I, 7.160% 714,260 17,000 Consolidated Edison Co. of New York, 7.350% 437,750 12,200 Consolidated Edison Co. of New York, 7.500% 320,494 7,600 Consolidated Edison Inc., 7.250% 198,056 142,000 CPL Capital I, Series A, 8.000% 3,588,340 9,500 Detroit Edison Company, 7.625% 238,640 1,000 Detroit Edison Company, 7.540% 25,200 36,800 Dominion Resources Capital Trust II, 8.400% 974,464 27,200 DTE Energy Trust I, 7.800% 707,200 63,400 Duke Energy Capital Trust I, Series Q, 7.200% 1,590,706 22,800 Duke Energy Capital Trust II, 7.200% 583,224 1,000 Duke Energy Corp., Series C, 6.600% 25,450 93,600 Energy East Capital Trust I, 8.250% 2,486,952 500 Entergy Arkansas Inc., 6.700% 13,150 48,600 Entergy LA Inc., 7.600% 1,283,526 1,298,000 Entergy Mississippi Inc., 7.250% 34,591,700 22 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES (continued) 3,000 Georgia Power Capital Trust V, 7.125% $ 78,030 35,500 Georgia Power Company, 6.600% 897,085 21,800 Gulf Power Capital Trust II, Series C, 7.000% 548,488 Interstate Power & Light Company: 15,200 Series A, 7.875% 383,800 1,200,000 Series B, 8.375% (a) 40,080,000 41,000 OGE Energy Capital Trust I, 8.375% 1,073,790 20,500 Ohio Power Company, 7.375% 517,625 38,600 Potomac Electric Power Company Trust I, 7.375% 977,352 147,400 PSO Capital Trust I, Series A, 8.000% 3,717,428 50,000 Public Service Company of Oklahoma, Series B, 6.000% 1,214,500 11,500 Rochester Gas & Electric Company, Series UU, 6.650% 299,000 218,600 SWEPCO Capital Trust I, Series A, 7.875% 5,526,208 9,700 Virginia Electric & Power Company, Series A, 7.150% 245,022 253,000 Virginia Power Capital Trust, 7.375% 6,628,500 44,600 WPSR Capital Trust I, 7.000% 1,121,912 58,847 Potomac Electric Power Company, Series 6, 2.280% (a) 2,442,150 12,200 PPL Electric Utilities Corporation, 4.400% (a) 1,029,375 - ------------------------------------------------------------------------------------------------------------------------------------ Exchange-Listed Preferred Securities (cost $1,186,580,457) 1,230,741,882 -------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED SECURITIES - 8.0% (5.6% OF TOTAL INVESTMENTS) BANKING - 0.4% 210,000 Citigroup Global Markets Holdings, 2.000% 7,405,230 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - 1.1% 380,500 Keyspan Corporation, 8.750% 19,995,275 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - MULTILINE - 0.1% 37,500 Hartford Financial Services Group Inc., 7.000% 2,062,500 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - FOREIGN - 0.2% 74,000 PartnerRe Ltd., 8.000% 3,777,700 - ------------------------------------------------------------------------------------------------------------------------------------ MEDICAL PRODUCTS - 0.6% 218,500 Baxter International Inc., 7.000% 11,119,465 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOM - 1.9% 430,000 ALLTELL Corp., 7.750% 20,640,000 497,000 Citizens Communications Company, 6.750% 12,474,700 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 3.7% 389,900 Ameren Corporation, 9.750% 11,041,968 230,900 American Electric Power, 9.250% 10,713,760 116,000 Cinergy Corp., 9.500% 6,838,200 392,000 Dominion Resources Inc., 8.750% 20,423,200 294,500 Public Service Enterprise Group, 10.250% 17,198,800 - ------------------------------------------------------------------------------------------------------------------------------------ Total Convertible Preferred Securities (cost $126,893,769) 143,690,798 -------------------------------------------------------------------------------------------------------------------- 23 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS July 31, 2003 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED - HYBRID SECURITIES - 4.1% (2.9% OF TOTAL INVESTMENTS) REAL ESTATE INVESTMENT TRUSTS - 1.3% 240 Union Planters Preferred Fund, Series 144A, 7.750% $22,955,040 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOM - 2.8% 45,250 Centaur Funding Corporation, Series 144A, 9.080% 50,849,688 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Hybrid Securities (cost $62,797,088) 73,804,728 -------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED SECURITIES - 52.8% (36.8% OF TOTAL INVESTMENTS) BANKING - 19.3% $ 40,000 ABN AMRO North America Holding Capital, Series 144A, 42,644,440 6.523%, 11/08/12 15,000 Ahmanson Capital Trust I, 8.360%, 12/01/26 15,843,270 4,780 BankAmerica Institutional Capital Trust A, Series 144A, 5,083,367 8.070%, 12/31/26 26,355 Bank of Boston Capital Trust I, Series B, 8.250%, 12/15/26 28,331,441 3,031 Bank of Boston Capital Trust II, Series B, 7.750%, 12/15/26 3,137,367 5,300 Barnett Capital I, 8.060%, 12/01/26 5,635,935 500 BT Capital Trust B, Series B1, 7.900%, 1/15/27 517,383 7,500 Chase Capital Trust I, Series A, 7.670%, 12/01/26 7,680,053 2,229 Corestates Capital Trust I, Series 144A, 8.000%, 12/15/26 2,415,590 5,000 FBS Capital Trust I, 8.090%, 11/15/26 5,391,100 2,500 First Chicago NBD Institutional Capital, 7.950%, 12/01/26 2,642,635 1,500 First Empire Capital Trust I, 8.234%, 2/01/27 1,615,500 3,665 First Hawaiian Capital Trust I, Series B, 8.343%, 7/01/27 3,992,688 17,595 First Union Capital Trust II, Series A, 7.950%, 11/15/29 20,221,582 22,080 Fleet Capital Trust II, 7.920%, 12/11/26 22,892,676 3,600 JPM Capital Trust I, 7.540%, 1/15/27 3,663,536 22,585 JPM Capital Trust II, 7.950%, 2/01/27 23,622,419 2,500 KeyCorp Institutional Capital Trust A, 7.826%, 12/01/26 2,574,748 25,000 M & I Capital Trust A, 7.650%, 12/01/26 26,463,500 25,000 Mellon Capital Trust I, Series A, 7.720%, 12/01/26 26,221,950 19,500 NB Capital Trust II, 7.830%, 12/15/26 20,557,368 2,000 North Fork Capital Trust I, 8.700%, 12/15/26 2,243,220 8,000 North Fork Capital Trust II, 8.000%, 12/15/27 8,462,000 2,000 Peoples Heritage Capital Trust I (BankNorth Group Inc.), 2,171,324 Series B, 9.060%, 2/01/27 31,710 PNC Institutional Capital, 7.950%, 12/15/26 33,339,450 8,000 Reliance Capital Trust I, Series B, 8.170%, 5/01/28 8,429,768 3,240 State Street Institutional Capital Trust, Series 144A, 3,555,965 7.940%, 12/30/26 7,500 Union Planters Capital Trust A, 8.200%, 12/15/26 7,632,330 6,000 Zions Institutional Capital Trust, Series A, 8.536%, 12/15/26 6,252,042 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - FOREIGN - 12.9% 62,474 Abbey National Capital Trust I, 8.963%, 12/29/49 81,128,112 41,000 Barclays Bank plc, Series 144A, 6.860%, 6/15/32 43,018,840 17,065 Dresdner Funding Trust I, 8.151%, 6/30/31 17,286,555 10,000 HSBC Capital Funding LP, 10.176%, 6/30/30 14,174,400 24 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - FOREIGN (continued) $ 30,000 KBC Bank Fund Trust III, Series 144A, 9.860%, 11/02/09 $37,011,180 18,400 Royal Bank of Scotland Group plc, 7.648%, 8/31/49 21,032,672 5,000 Sparebanken Rogaland, Series 144A, 6.443%, 5/01/13 4,975,000 10,000 UBS Preferred Funding Trust I, 8.622%, 10/01/49 12,123,130 - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - 0.4% 7,355 Phillips 66 Capital Trust II, 8.000%, 1/15/37 7,821,895 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - 2.5% 8,595 Countrywide Capital Trust I, 8.000%, 12/15/26 8,890,247 19,460 Countrywide Capital Trust III, Series B, 8.050%, 6/15/27 21,737,793 14,000 St. George Funding Company LLC, 8.485%, 6/30/17 14,610,820 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - 0.3% 5,750 KN Capital Trust III, 7.630%, 4/15/28 5,978,218 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - FINANCIAL - 0.5% 10,000 Berkley Capital Trust, 8.197%, 12/15/45 9,730,280 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - LIFE - 2.6% 33,855 American General Institutional Capital, 8.125%, 3/15/46 40,729,258 6,000 MIC Financing Trust I, 8.375%, 2/01/27 6,152,886 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - LIFE - FOREIGN - 2.6% 43,000 Sun Life Canada Capital Trust, 8.526%, 5/06/49 45,714,590 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - MULTILINE - 4.8% 38,777 SAFECO Capital Trust I, 8.072%, 7/15/37 41,338,221 44,515 Zurich Capital Trust I, 8.376%, 6/01/37 45,091,069 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - MULTILINE - FOREIGN - 0.4% 8,000 Mangrove Bay, Series 144A, 6.102%, 7/15/33 7,760,000 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - FOREIGN - 2.2% 14,280 Ace Capital Trust II, 9.700%, 4/01/30 17,760,179 10,000 RenaissanceRe Capital Trust, 8.540%, 3/01/27 10,110,760 12,690 Royal & Sun Alliance Insurance, 8.950%, 10/15/29 11,314,264 - ------------------------------------------------------------------------------------------------------------------------------------ SAVINGS AND LOAN - THRIFT - 1.6% 11,825 Dime Capital Trust I, Series A, 9.330%, 5/06/27 13,304,721 14,000 Great Western Financial Trust II, Series A, 8.206%, 2/01/27 14,716,688 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 1.0% 16,700 Fannie Mae, Benchmark Notes, 6.250%, 2/01/11 17,925,329 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 1.7% 12,000 Georgia Power Capital Trust VI, 4,875%, 11/01/42 11,960,088 11,000 Peco Energy Capital Trust IV, 5.750%, 6/15/33 9,395,198 8,000 Southern Company Capital Trust I, 8.190%, 2/01/37 8,488,559 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred Securities (cost $923,735,600) 944,515,599 -------------------------------------------------------------------------------------------------------------------- 25 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS July 31, 2003 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 4.7% (3.3% OF TOTAL INVESTMENTS) BANKING - FOREIGN - 4.3% $ 17,000 C.A. Preferred Funding Trust, 7.000%, 1/30/09 $16,578,349 45,050 HBOS Capital Funding LP, Notes, 6.850%, 3/29/49 43,923,750 9,000 Lloyds TSB Bank plc, Subordinate Notes, 6.900%, 11/22/07 8,903,826 9,000 RBS Capital Trust, Series B, 6.800%, 3/31/08 8,832,285 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - FOREIGN - 0.4% 6,300 Old Mutual Capital Funding, Notes, 8.000%, 12/22/08 6,284,250 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Euro-Market Listed Securities (cost $90,249,419) 84,522,460 -------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 4.8% (3.3% OF TOTAL INVESTMENTS) AUTO - 1.6% 7,525 Ford Motor Company, Debenture, 8.900%, 1/15/32 7,228,598 4,000 Ford Motor Company, Debenture, 7.450%, 7/16/31 3,424,996 21,500 Ford Motor Company, Debenture, 7.400%, 11/01/46 17,180,070 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - 0.4% 7,000 Suntrust Bank, Subordinate Notes, 5.450%, 12/01/17 7,065,044 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - 2.7% 52,860 General Motors Acceptance Corporation, Notes, 8.000%, 11/01/31 48,901,896 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - 0.1% 2,000 Zurich Reinsurance Centre Holdings Inc., Senior Notes, 7.125%, 10/15/23 1,757,205 - ------------------------------------------------------------------------------------------------------------------------------------ Total Corporate Bonds (cost $86,582,018) 85,557,809 -------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 0.3% (0.2% OF TOTAL INVESTMENTS) 5,719 State Street Bank Repurchase Agreement, 0.980%, dated 7/31/03, due 8/01/03, ============= repurchase price $5,719,156, collateralized by U.S. Treasury Bonds 5,719,000 -------------------------------------------------------------------------------------------------------------------- Total Short-Term Investments (cost $5,719,000) 5,719,000 -------------------------------------------------------------------------------------------------------------------- Total Investments (cost $2,482,557,351) - 143.5% 2,568,552,276 -------------------------------------------------------------------------------------------------------------------- Other Assets and Liabilities - 1.2% 21,256,579 -------------------------------------------------------------------------------------------------------------------- FundPreferred Shares, at Liquidation Value - (44.7)% (800,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $1,789,808,855 ==================================================================================================================== (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. (CBTCS) Corporate Backed Trust Certificates. (CORTS) Corporate Backed Trust Securities. (PCARS) Public Credit and Repackaged Securities. (SATURNS) Structured Asset Trust Unit Repackaging. See accompanying notes to financial statements. 26
Nuveen Quality Preferred Income Fund 3 (JHP) Portfolio of INVESTMENTS July 31, 2003
MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ EXCHANGE-LISTED PREFERRED SECURITIES - 76.9% (52.4% OF TOTAL INVESTMENTS) AGENCY - 2.4% 19,000 Fannie Mae, Series L, 5.125% (a) $ 931,000 23,900 Freddie Mac, Series F, 5.000% (a) 1,141,225 100,000 SLM Corporation, Series A, 6.970% (a) 5,665,000 18,300 Tennessee Valley Authority, Series D, 6.750% 488,244 - ------------------------------------------------------------------------------------------------------------------------------------ AUTO - FOREIGN - 0.1% 13,000 Magna International Inc., Series B, 8.875% 344,500 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - 11.2% 1,000 ABN AMRO North America, Series 144A, 6.590% (a) 1,054,063 16,600 ASBC Capital I, 7.625% 440,896 5,500 BAC Capital Trust I, 7.000% 141,075 32,700 BAC Capital Trust II, 7.000% 830,580 91,700 BAC Capital Trust III, 7.000% 2,393,370 40,000 BAC Capital Trust IV, 5.875% 972,000 14,400 BancWest Capital I, 9.500% 409,680 29,000 Bank One Capital II, 8.500% 803,300 8,200 Bank One Capital V, 8.000% 220,744 26,300 Bank One Capital VI, 7.200% 677,225 4,900 Chase Capital Trust IV, 7.340% 123,333 12,000 Chittenden Capital Trust I, 8.000% 312,000 Citigroup Inc.: 19,149 Series F, 6.365% (a) 1,029,259 116,500 Series H, 6.231% (a) 6,096,445 58,601 Series M, 5.864% (a) 3,032,602 25,600 Citigroup Capital Trust VII, 7.100% 667,392 46,600 Citigroup Capital Trust VIII, 6.950% 1,197,154 52,500 Comerica Capital Trust I, 7.600% 1,395,450 16,600 Compass Bank Capital Trust III, 7.350% 431,600 KeyCorp: 8,000 Series B, 8.250% (CORTS) 214,800 6,300 Series 2001-7, 7.750% (CORTS) 166,320 4,800 KeyCorp, 7.500% (PCARS) 127,680 11,300 First Union Capital II, 8.200% (CORTS) 316,626 23,100 First Union Capital II, Series II, 7.500% (CORTS) 617,001 31,000 Fleet Capital Trust VI, 8.800% 836,380 108,000 Fleet Capital Trust VII, 7.200% 2,769,120 21,216 Fleet Capital Trust VIII, 7.200% 544,615 16,800 Harris Preferred Capital Corporation, Series A, 7.375% 424,704 25,000 JPMorgan Chase Capital Trust, Series 2002-6, 7.125% (SATURNS) 633,250 1,600 National Commerce Capital Trust II, 7.700% 42,640 27 Nuveen Quality Preferred Income Fund 3 (JHP) (continued) Portfolio of INVESTMENTS July 31, 2003 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BANKING (continued) 4,300 Suntrust Capital Trust IV, 7.125% $ 110,768 17,200 Suntrust Capital Trust V, 7.050% 442,040 88,900 US Bancorp Capital Trust III, 7.750% 2,301,621 58,100 US Bancorp Capital Trust IV, 7.350% 1,490,265 48,800 US Bancorp Capital Trust V, 7.250% 1,237,568 18,400 Valley National Bank Capital Trust I, 7.750% 484,656 26,700 Washington Mutual Capital Trust I, Series 2001-22, 696,870 7.650% (CORTS) 80,000 Zions Capital Trust B, 8.000% 2,180,000 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - FOREIGN - 6.2% 75,500 ABN AMRO Capital Funding Trust I, 7.500% 1,906,375 48,000 ABN AMRO Capital Funding Trust II, 7.125% 1,212,960 24,800 ANZ Exchangeable Preferred Trust, 8.000% 626,200 32,800 ANZ Exchangeable Preferred Trust II, 8.080% 832,136 36,300 Banco Totta & Acores Finance, Series A, 8.875% 1,003,151 211,000 Banesto Holdings, Series A, 10.500% 6,330,000 13,000 BCH Capital Ltd., Series B, 9.430% 361,400 BSCH Finance Ltd.: 86,000 Series F, 8.125% 2,239,440 11,500 Series G, 8.125% 299,115 31,600 Series H, 7.790% 793,160 40,000 Series J, 7.350% 1,004,400 47,300 Series Q, 8.625% 1,265,748 Espirito Santo Overseas: 4,900 Series A, 8.500% 125,440 26,500 Series B, 8.500% 698,010 43,200 NAB Exchangeable Preferred Trust, 8.000% 1,092,960 30,400 National Westminster Bank plc, Series A, 7.875% 767,600 24,700 Westpac Capital Trust I, 8.000% 640,224 - ------------------------------------------------------------------------------------------------------------------------------------ BROKERAGE - 7.3% 8,300 Bear Stearns Capital Trust II, 7.500% 209,990 32,000 Bear Stearns Capital Trust III, 7.800% 845,440 8,800 Lehman Brothers Holdings Capital Trust II, Series J, 7.875% 227,568 365,000 Lehman Brothers Holdings Capital Trust III, Series K, 6.375% 9,117,700 20,100 Merrill Lynch Capital Trust II, 8.000% 551,142 31,600 Merrill Lynch Preferred Capital Trust, 7.750% 863,628 17,900 Merrill Lynch Preferred Capital Trust IV, 7.120% 460,925 72,400 Merrill Lynch Preferred Capital Trust V, 7.280% 1,878,780 80,000 Morgan Stanley Capital Trust II, 7.250% 2,045,600 305,000 Morgan Stanley Capital Trust III, 6.250% 7,435,900 40,900 Morgan Stanley Trust, 7.050% (PPLUS) 1,065,854 - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - FOREIGN - 0.9% 32,900 ENCANA Corporation, 9.500% 880,075 11,100 Suncor Energy Inc., 9.125% 293,817 37,000 Talisman Energy Inc., 9.000% 945,350 34,700 Talisman Energy Inc., 8.900% 893,178 28 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - 5.2% 56,000 AT&T Capital Corp., 8.250% $ 1,417,920 82,900 AT&T Capital Corp., 8.125% 2,092,396 42,800 CIT Group Incorporated, 7.750% (CORTS) 1,147,468 100,000 Countrywide Capital Trust IV, 6.750% 2,440,000 50,000 General Electric Capital Corp., 5.875% 1,242,500 117,600 Household Capital Trust V, Series X, 10.000% 3,251,640 14,600 Household Capital Trust VI, 8.300% 386,900 100,500 Household Capital Trust VII, 7.500% 2,636,115 115,000 Household Finance Corp., 6.875% 2,875,000 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - FOREIGN - 5.2% 36,900 CSFB USA, Series 2002-10, 7.000% (SATURNS) 928,773 503,600 ING Groep NV, 7.200% 13,023,096 142,900 ING Groep NV, 7.050% 3,643,950 - ------------------------------------------------------------------------------------------------------------------------------------ FOOD - FOREIGN - 0.4% 44,500 Grand Met De Ltd. Partnership, 9.420% 1,195,715 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - 0.4% 27,900 AGL Capital Trust II, 8.000% 739,350 11,400 Dominion CNG Capital Trust I, 7.800% 300,960 13,200 MCN Financing Trust II, 8.625% 339,768 3,200 South Jersey Gas Capital Trust, 8.350% 81,600 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - FOREIGN - 0.2% 25,700 TransCanada Pipelines Ltd., 8.250% 654,065 - ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL - 0.2% 20,000 Sherwin Williams Company, Series III, 7.250% (CORTS) 514,000 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - FINANCIAL - 3.2% 98,742 AMBAC Financial Group Inc., 5.950% 2,398,443 200,000 AMBAC Financial Group Inc., 5.875% 4,840,000 151,100 Financial Security Assurance Holdings, 6.250% 3,707,994 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - LIFE - 2.3% 2,500 American General Capital Trust I, 7.875% 65,625 2,300 American General Capital Trust III, 8.050% 64,860 130,000 Delphi Financial Group Inc., 8.000% 3,302,000 2,200 Great West Life and Annuity Insurance Capital Trust I, 55,990 Series A, 7.250% 103,700 Lincoln National Capital Trust V, Series E, 7.650% 2,707,607 54,600 Protective Life Company Capital Trust III, 7.500% 1,431,066 4,800 Protective Life Company Capital Trust IV, 7.250% 126,720 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - MULTILINE - 1.0% 39,168 Hartford Capital Trust I, Series A, 7.700% 992,909 46,200 Hartford Capital Trust III, Series C, 7.450% 1,175,790 4,600 SAFECO, 8.750% (CBTCS) 121,946 14,000 SAFECO Capital I, Series II, 8.700% (CORTS) 373,240 32,200 SAFECO, Series 2001-7, 8.250% (SATURNS) 862,316 29 Nuveen Quality Preferred Income Fund 3 (JHP) (continued) Portfolio of INVESTMENTS July 31, 2003 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - 2.0% 258,671 Everest Re Capital Trust, 7.850% $ 6,854,782 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - FOREIGN - 10.5% 109,200 Ace Ltd., Series C, 7.800% 2,740,920 418,310 Converium Finance, 8.250% 10,963,905 55,700 PartnerRe Capital Trust I, 7.900% 1,492,760 140,000 PartnerRe Ltd., Series C, 6.750% 3,486,000 RenaissanceRe Holdings Ltd.: 41,500 Series A, 8.100% 1,108,465 255,000 Series B, 7.300% 6,607,050 XL Capital Ltd.: 61,800 Series A, 8.000% 1,643,880 289,400 Series B, 7.625% 7,553,340 - ------------------------------------------------------------------------------------------------------------------------------------ PAPER - 0.6% 76,600 International Paper Capital Trust III, 7.875% 1,943,342 - ------------------------------------------------------------------------------------------------------------------------------------ PHARMACEUTICALS - FOREIGN - 0.0% 4,500 Rhone-Poulenc Overseas, Series A, 8.125% 114,480 - ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS - 12.7% 2,300 AvalonBay Communities Inc., Series H, 8.700% 65,550 2,500 BRE Properties, Series A, 8.500% 64,063 Developers Diversified Realty Corporation: 80,000 Series G, 8.000% 2,028,000 30,000 Series H, 7.375% 735,000 19,000 Duke Realty Corp., Series E, 8.250% 486,020 Equity Office Properties Trust: 27,030 Series C, 8.625% 693,320 11,200 Series G, 7.750% 296,688 Equity Residential Properties Trust: 22,900 Series B, 9.125% 621,735 18,500 Series C, 9.125% 517,815 18,000 Series D, 8.600% 504,000 First Industrial Realty Trust Inc.: 5,100 Series C, 8.625% 141,780 248,100 Series D, 7.950% 6,204,981 163,300 Series E, 7.900% 4,074,335 HRPT Properties Trust: 151,400 Series A, 9.875% 4,102,940 213,307 Series B, 8.750% 5,673,966 New Plan Excel Realty Trust: 21,000 Series D, 7.800% 1,015,220 10,000 Series E, 7.625% 260,000 13,000 Prologis Trust, Series D, 7.920% 329,290 Public Storage Inc.: 10,600 Series K, 8.250% 271,360 12,900 Series L, 8.250% 330,369 1,600 Series M, 8.750% 41,920 32,400 Series Q, 8.600% 869,940 66,400 Series R, 8.000% 1,764,912 12,100 Series S, 7.875% 320,650 2,500 Series T, 7.625% 65,825 17,000 Series V, 7.500% 450,500 30 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS (continued) 6,400 Shurgard Storage Centers Inc., Series D, 8.750% $ 177,920 Simon Property Group Inc.: 4,500 Series F, 8.750% 122,850 68,600 Series G, 7.890% 3,646,090 Vornado Realty Trust: 1,700 Series B, 8.500% 43,282 13,400 Series C, 8.500% 341,700 252,700 Wachovia Bank Preferred Funding Corp., 7.250% 6,827,954 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOM - 2.9% 8,400 BellSouth Inc., 7.000% (CORTS) 221,340 69,500 Telephone & Data Systems Capital Trust I, 8.500% 1,758,350 39,700 Telephone & Data Systems Capital Trust II, 8.040% 1,000,440 69,101 Telephone & Data Systems Inc., 7.600% 1,814,592 157,500 US Cellular Corp., 8.750% 4,198,950 24,300 Verizon Communications, 7.625% (CORTS) 644,193 12,400 Verizon New England Inc., Series B, 7.000% 319,920 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 2.0% 2,900 Detroit Edison Company, 7.625% 72,848 53,100 Entergy Louisiana Inc., 7.600% 1,402,370 203,447 Entergy Mississippi Inc., 7.250% 5,421,862 1,500 PSO Capital Trust I, Series A, 8.000% 37,829 - ------------------------------------------------------------------------------------------------------------------------------------ Exchange-Listed Preferred Securities (cost $258,629,208) 260,977,642 -------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED SECURITIES - 8.4% (5.7% OF TOTAL INVESTMENTS) BANKING - 0.6% 61,000 Citigroup Global Markets Holdings, 2.000% 2,151,043 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - 1.2% 80,000 Keyspan Corporation, 8.750% 4,204,000 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - P&C - FOREIGN - 0.2% 15,000 PartnerRe Ltd., 8.000% 765,750 - ------------------------------------------------------------------------------------------------------------------------------------ MEDICAL PRODUCTS - 0.6% 43,000 Baxter International Inc., 7.000% 2,188,270 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOM - 2.0% 98,500 ALLTEL Corp., 7.750% 4,728,000 78,000 Citizens Communications Company, 6.750% 1,957,800 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 3.8% 90,000 Ameren Corporation, 9.750% 2,548,800 45,200 American Electric Power, 9.250% 2,097,280 90,000 Dominion Resources Inc., 8.750% 4,689,000 55,000 Public Service Enterprise Group, 10.250% 3,212,000 - ------------------------------------------------------------------------------------------------------------------------------------ Total Convertible Preferred Securities (cost $26,748,216) 28,541,943 -------------------------------------------------------------------------------------------------------------------- 31 Nuveen Quality Preferred Income Fund 3 (JHP) (continued) Portfolio of INVESTMENTS July 31, 2003 MARKET SHARES DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED - HYBRID SECURITIES - 4.4% (3.0% OF TOTAL INVESTMENTS) REAL ESTATE INVESTMENT TRUSTS - 2.0% 70 Union Planters Preferred Fund, Series144A, 7.750% $ 6,695,220 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOM - 2.4% 7,260 Centaur Funding Corporation, Series 144A, 9.080% 8,158,425 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Hybrid Securities (cost 14,290,218) 14,853,645 -------------------------------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED SECURITIES - 47.6% (32.4% OF TOTAL INVESTMENTS) BANKING - 15.9% $ 5,000 Ahmanson Capital Trust I, 8.360%, 12/01/26 5,281,090 500 BT Capital Trust B, Series B1, 7.900%, 1/15/27 517,383 1,000 BankAmerica Capital II, Series 2, 8.000%, 12/15/26 1,074,260 500 Bank of Boston Capital Trust II, Series B, 7.750%, 12/15/26 517,547 1,000 First Empire Capital Trust I, 8.234%, 2/01/27 1,077,000 7,485 First Union Capital Trust II, Series A, 7.950%, 11/15/29 8,602,361 9,000 JPM Capital Trust I, 7.540%, 1/15/27 9,158,841 4,000 North Fork Capital Trust I, 8.700%, 12/15/26 4,486,440 1,000 North Fork Capital Trust II, 8.000%, 12/15/27 1,057,750 10,200 PNC Institutional Capital Trust B, Series 144A, 8.315%, 5/15/27 11,018,448 3,150 Peoples Heritage Capital Trust I (BankNorth Group Inc.), 3,419,835 Series B, 9.060%, 2/01/27 4,600 Union Planters Capital Trust A, 8.200%, 12/15/26 4,681,162 3,000 Zions Institutional Capital Trust, Series A, 8.536%, 12/15/26 3,126,021 - ------------------------------------------------------------------------------------------------------------------------------------ BANKING - FOREIGN - 5.7% 8,000 Abbey National Capital Trust I, 8.963%, 12/29/49 10,388,720 8,692 Barclays Bank plc, Series 144A, 6.860%, 6/15/32 9,119,994 - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - 1.4% 4,500 Phillips 66 Capital Trust II, 8.000%, 1/15/37 4,785,660 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - 1.7% 1,000 Countrywide Capital Trust I, 8.000%, 12/15/26 1,034,351 4,447 St. George Funding Company LLC, 8.485%, 6/30/17 4,641,023 - ------------------------------------------------------------------------------------------------------------------------------------ GAS - 2.0% 6,500 KN Capital Trust III, 7.630%, 4/15/28 6,757,985 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - FINANCIAL - 1.4% 5,000 Berkley Capital Trust, 8.197%, 12/15/45 4,865,140 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - LIFE - 4.4% 4,000 American General Institutional Capital, 8.125%, 3/15/46 4,812,200 10,000 MIC Financing Trust I, 8.375%, 2/01/27 10,254,810 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - LIFE - FOREIGN - 3.1% 10,000 Sun Life Canada Capital Trust, 8.526%, 5/06/49 10,631,300 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - MULTILINE - 7.2% 10,038 SAFECO Capital Trust I, 8.072%, 7/15/37 10,701,010 13,500 Zurich Capital Trust I, 8.376%, 6/01/37 13,674,704 32 PRINCIPAL MARKET AMOUNT (000) DESCRIPTION(1) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - MULTILINE - FOREIGN - 0.9% $ 3,000 Mangrove Bay, Series 144A, 6.102%, 7/15/33 $ 2,910,000 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE P&C - FOREIGN - 2.2% 3,450 Ace Capital Trust II, 9.700%, 4/01/30 4,290,800 3,000 RenaissanceRe Capital Trust, 8.540%, 3/01/27 3,033,228 - ------------------------------------------------------------------------------------------------------------------------------------ SAVINGS AND LOAN - THRIFT - 1.4% 4,225 Dime Capital Trust I, Series A, 9.330%, 5/06/27 4,753,695 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 0.3% 1,000 PECO Energy Capital Trust IV, 5.750%, 6/15/33 854,108 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred Securities (cost $164,197,241) 161,526,866 -------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 4.5% (3.0% OF TOTAL INVESTMENTS) BANKING - FOREIGN - 3.6% 3,300 C.A. Preferred Funding Trust, 7.000%, 1/30/09 3,218,150 6,000 HBOS Capital Funding LP, Notes, 6.850%, 3/29/49 5,850,000 1,000 Lloyds TSB Bank plc, Subordinate Notes, 6.900%, 11/22/07 989,314 2,000 RBS Capital Trust, Series B, 6.800%, 3/31/08 1,962,730 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - FOREIGN - 0.9% 3,200 Old Mutual Capital Funding, Notes, 8.000%, 12/22/08 3,192,000 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred - Euro-Market Listed Securities (cost $16,206,699) 15,212,194 -------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 4.3% (2.9% OF TOTAL INVESTMENTS) AUTO - 1.5% 1,000 Ford Motor Company, 7.450%, 7/16/31 856,249 5,100 Ford Motor Company, 7.400%, 11/01/46 4,075,272 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - 2.8% 10,500 General Motors Acceptance Corporation, 8.000%, 11/01/31 9,713,771 - ------------------------------------------------------------------------------------------------------------------------------------ Total Corporate Bonds (cost $15,644,129) 14,645,292 ------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 0.9% (0.6% OF TOTAL INVESTMENTS) 3,136 State Street Bank Repurchase Agreement, 0.980%, dated 7/31/03, due 8/01/03, ============= repurchase price $3,136,085, collateralized by U.S. Treasury Bonds 3,136,000 ------------------------------------------------------------------------------------------------------------------- Total Short-Term Investments (cost $3,136,000) 3,136,000 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $498,851,711) - 147.0% 498,893,582 ------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.9% 6,605,081 ------------------------------------------------------------------------------------------------------------------- FundPreferred Shares, at Liquidation Value - (48.9)% (166,000,000) ------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $339,498,663 ==================================================================================================================== (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. (CBTCS) Corporate Backed Trust Certificates. (CORTS) Corporate Backed Trust Securities. (PCARS) Public Credit and Repackaged Securities. (PPLUS) Preferred Trusts. (SATURNS) Structured Asset Trust Unit Repackaging. See accompanying notes to financial statements. 33
Statement of ASSETS AND LIABILITIES July 31, 2003
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at market value (cost $1,311,408,714, $2,482,557,351 and $498,851,711, respectively) $1,343,660,333 $2,568,552,276 $498,893,582 Cash -- 441 29,452 Interest rate swaps, at value -- -- 1,404,893 Receivables: Dividends 2,680,225 5,832,890 1,133,142 Interest 8,392,364 16,477,203 2,856,279 Investments sold 1,928,280 1,572,100 2,730,000 Other assets 40,162 96,843 16,815 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets 1,356,701,364 2,592,531,753 507,064,163 - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Cash overdraft 78 -- -- Payable for investments purchased 1,188,070 423,569 1,062,156 Interest rate swaps, at value 6,827,309 598,418 -- Accrued expenses: Management fees 652,801 1,203,645 256,436 Organization and offering costs -- -- 107,128 Other 243,077 412,599 115,520 FundPreferred share dividends payable 43,607 84,667 24,260 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 8,954,942 2,722,898 1,565,500 - ------------------------------------------------------------------------------------------------------------------------------------ FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $ 907,746,422 $1,789,808,855 $339,498,663 ==================================================================================================================================== Common shares outstanding 64,356,704 119,523,272 23,610,701 ==================================================================================================================================== Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 14.10 $ 14.97 $ 14.38 ==================================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: - ------------------------------------------------------------------------------------------------------------------------------------ Common shares, $.01 par value per share $ 643,567 $ 1,195,233 $ 236,107 Paid-in surplus 909,980,429 1,692,641,200 333,730,733 Undistributed net investment income 2,145,641 787,896 586,540 Accumulated net realized gain (loss) from investments (30,521,225) 8,876,561 3,319,727 Net unrealized appreciation of investments and interest rate swap transactions 25,498,010 86,307,965 1,625,556 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $ 907,746,422 $1,789,808,855 $339,498,663 ==================================================================================================================================== Authorized shares: Common Unlimited Unlimited Unlimited FundPreferred shares Unlimited Unlimited Unlimited ==================================================================================================================================== See accompanying notes to financial statements. 34
Statement of OPERATIONS
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME (JTP) INCOME 2 (JPS) INCOME 3 (JHP) ------------ ---------------- ---------------- FOR THE FOR THE PERIOD 9/24/02 PERIOD 12/19/02 (COMMENCEMENT (COMMENCEMENT YEAR ENDED OF OPERATIONS) OF OPERATIONS) 7/31/03 THROUGH 7/31/03 THROUGH 7/31/03 - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Dividends (net of foreign tax withheld of $3,416, $0, and $328, respectively) $ 60,819,948 $ 77,399,195 $11,203,203 Interest 40,115,302 66,626,434 7,850,216 - ------------------------------------------------------------------------------------------------------------------------------------ Total investment income 100,935,250 144,025,629 19,053,419 - ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Management fees 11,543,732 17,986,991 2,566,283 Net interest expense on interest rate swap transactions 7,190,683 8,714,609 1,069,257 FundPreferred shares - auction fees 1,036,712 1,534,247 191,014 FundPreferred shares - dividend disbursing agent fees 25,918 33,777 6,508 Shareholders' servicing agent fees and expenses 11,664 11,925 2,008 Custodian's fees and expenses 317,076 476,907 86,933 Trustees' fees and expenses 71,674 97,800 14,480 Professional fees 106,351 86,079 30,304 Shareholders' reports - printing and mailing expenses 320,330 349,920 68,649 Stock exchange listing fees 14,147 47,933 9,019 Investor relations expense 118,341 171,358 26,063 Other expenses 676,221 426,420 49,577 - ------------------------------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 21,432,849 29,937,966 4,120,095 Custodian fee credit (11,466) (35,309) (7,062) Expense reimbursement (4,205,287) (6,772,579) (913,085) - ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 17,216,096 23,130,078 3,199,948 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 83,719,154 120,895,551 15,853,471 - ------------------------------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS Net realized gain (loss) from investments (30,328,278) 9,651,211 3,540,303 Change in net unrealized appreciation (depreciation) of investments 47,552,557 85,994,925 41,871 Change in net unrealized appreciation (depreciation) of interest rate swap transactions (6,753,609) 313,040 1,583,685 - ------------------------------------------------------------------------------------------------------------------------------------ Net gain from investments 10,470,670 95,959,176 5,165,859 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS From net investment income (6,004,164) (8,370,051) (948,183) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from operations $ 88,185,660 $208,484,676 $20,071,147 ==================================================================================================================================== See accompanying notes to financial statements. 35
Statement of CHANGES IN NET ASSETS
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME (JTP) INCOME 2 (JPS) INCOME 3 (JHP) ------------------------------ --------------- --------------- FOR THE FOR THE FOR THE PERIOD 6/25/02 PERIOD 9/24/02 PERIOD 12/19/02 (COMMENCEMENT (COMMENCEMENT (COMMENCEMENT YEAR ENDED OF OPERATIONS) OF OPERATIONS) OF OPERATIONS) 7/31/03 THROUGH 7/31/02 THROUGH 7/31/03 THROUGH 7/31/03 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 83,719,154 $ 3,965,994 $ 120,895,551 $ 15,853,471 Net realized gain (loss) from investments (30,328,278) 106,148 9,651,211 3,540,303 Change in net unrealized appreciation (depreciation) of investments 47,552,557 (15,343,685) 85,994,925 41,871 Change in net unrealized appreciation (depreciation) of interest rate swap transactions (6,753,609) -- 313,040 1,583,685 Distributions to FundPreferred shareholders from net investment income (6,004,164) -- (8,370,051) (948,183) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations 88,185,660 (11,271,543) 208,484,676 20,071,147 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (80,491,725) -- (112,911,526) (14,584,390) - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Common shares: Net proceeds from sale of shares (119,042) 891,176,926 1,708,927,042 337,150,050 Net proceeds from shares issued to shareholders due to reinvestment of distributions 29,383,959 -- 1,703,414 351,072 FundPreferred shares offering costs (9,218,088) -- (16,495,026) (3,589,491) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from capital share transactions 20,046,829 891,176,926 1,694,135,430 333,911,631 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares 27,740,764 879,905,383 1,789,708,580 339,398,388 Net assets applicable to Common shares at the beginning of period 880,005,658 100,275 100,275 100,275 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of period $907,746,422 $880,005,658 $1,789,808,855 $339,498,663 ==================================================================================================================================== Undistributed net investment income at the end of period $ 2,145,641 $ 3,965,994 $ 787,896 $ 586,540 ==================================================================================================================================== See accompanying notes to financial statements. 36
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 (JTP), 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. (formerly, The John Nuveen Company), and the recording of the organization expenses ($15,000, $15,000 and $11,500, respectively) and their reimbursement by Nuveen Investments, LLC (formerly, Nuveen Investments), 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 accounting principles generally accepted in the United States. 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 provided by a pricing service approved by the Funds' Board of Trustees and based on the mean between the bid and asked prices. When price quotes are not readily available, the pricing service establishes fair market value based on prices of comparable securities. 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, 2003, 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. 37 Notes to FINANCIAL STATEMENTS (continued) Income Taxes The Funds intend to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its net investment income to its shareholders. Therefore, no federal income tax provision is required. Dividends and Distributions to Common Shareholders Dividends from net investment income are declared monthly. Net realized capital gains from investment transactions, if any, are distributed to shareholders not less frequently than annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards. Distributions to Common shareholders of net investment income and net realized capital gains, if any, are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States. FundPreferred Shares The Funds have issued and outstanding $25,000 stated value FundPreferred shares. 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 ================================================================================ Effective August 22, 2002, Quality Preferred Income (JTP) issued 3,520 Series M, 3,520 Series T, 3,520 Series W, 3,520 Series TH, and 3,520 Series F, $25,000 stated value FundPreferred shares. Effective October 18, 2002, Quality Preferred Income 2 (JPS) issued 4,800 Series M, 4,800 Series T, 4,800 Series W, 4,800 Series TH, and 4,800 Series F, $25,000 stated value FundPreferred shares. In addition, effective November 15, 2002, Quality Preferred Income 2 (JPS) issued 4,000 Series T2, and 4,000 Series TH2, $25,000 stated value FundPreferred shares. Effective February 14, 2003, Quality Preferred Income 3 (JHP) issued 3,320 Series M, and 3,320 Series TH, $25,000 stated value FundPreferred shares. 38 Interest Rate Swap Transactions The Funds are authorized to enter into hedging transactions, including interest rate swap transactions. The Funds use interest rate swaps with the intent to reduce or eliminate the risk that an increase in short-term interest rates could have on Common share net earnings as a result of leverage. Interest rate swaps involve each Fund's agreement with the swap 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 swap. Interest rate swaps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of credit loss with respect to the swap conterparty on interest rate swaps is limited to the net amount of interest payments that each Fund is to receive. The Funds have instructed the custodian to segregate assets with a current value at least equal to the amount of the net payment obligations under any interest rate swap transactions. Interest rate swap positions are marked to market 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 its obligations, by having the Adviser continually monitor the financial stability of that swap counterparty. At July 31, 2003, 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% 1.1000% 8/29/05 $(2,453,543) 110,000,000 3.8600 1.1000 8/29/07 (2,460,044) 110,000,000 4.3500 1.1000 8/29/09 (1,840,022) - --------------------------------------------------------------------------------------------------------- $(6,753,609) =========================================================================================================
*Based on LIBOR (London Interbank Offered Rate) At July 31, 2003, 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% 1.1175% 11/06/05 $(1,986,909) 200,000,000 3.3750 1.1175 11/06/07 32,516 200,000,000 3.9100 1.1175 11/06/09 2,267,433 - --------------------------------------------------------------------------------------------------------- $ 313,040 =========================================================================================================
*Based on LIBOR (London Interbank Offered Rate) At July 31, 2003, 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% 1.1175% 3/06/06 $ 12,200 42,000,000 3.2550 1.1175 3/06/08 541,092 42,000,000 3.8150 1.1175 3/06/10 1,030,393 - --------------------------------------------------------------------------------------------------------- $1,583,685 =========================================================================================================
*Based on LIBOR (London Interbank Offered Rate) 39 Notes to FINANCIAL STATEMENTS (continued) 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. Other Derivative Financial Instruments The Funds may invest in certain derivative financial instruments for the purpose of hedging their portfolios. The specific derivative instruments will be limited to U.S. Treasury security or U.S. Government Agency security futures contracts and options on U.S. Treasury security or U.S. Government Agency security futures contracts. Although the Funds are authorized to invest in such financial instruments, and may do so in the future, they did not make any such investments during the fiscal year ended July 31, 2003. Offering Costs Nuveen Investments, LLC has agreed to 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) share of Common shares offering costs ($1,389,616, $1,477,958, and $633,450, respectively) were recorded as a reduction 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 ($9,218,088, $16,495,026, and $3,589,491, respectively) were recorded as a reduction 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. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. 40 2. FUND SHARES Transactions in Common and FundPreferred shares were as follows:
QUALITY QUALITY PREFERRED PREFERRED QUALITY PREFERRED INCOME 2 INCOME 3 INCOME (JTP) (JPS) (JHP) ----------------------------- --------------- --------------- FOR THE FOR THE FOR THE PERIOD 6/25/02 PERIOD 9/24/02 PERIOD 12/19/02 (COMMENCEMENT (COMMENCEMENT (COMMENCEMENT YEAR ENDED OF OPERATIONS) OF OPERATIONS) OF OPERATIONS) 7/31/03 THROUGH 7/31/02 THROUGH 7/31/03 THROUGH 7/31/03 - ----------------------------------------------------------------------------------------------------------------- Common shares: Shares sold -- 62,300,000 119,400,000 23,580,000 Shares issued to shareholders due to reinvestment of distributions 2,049,704 -- 116,272 23,701 - ----------------------------------------------------------------------------------------------------------------- 2,049,704 62,300,000 119,516,272 23,603,701 - ----------------------------------------------------------------------------------------------------------------- FundPreferred shares sold 17,600 -- 32,000 6,640 =================================================================================================================
3. SECURITIES TRANSACTIONS Purchases and sales (including maturities) of investment securities and U.S. Government and agency obligations during the fiscal year ended July 31, 2003, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS)* (JHP)** - ------------------------------------------------------------------------------------------------------------- Purchases: Investment securities $1,056,074,442 $2,911,883,633 $554,213,592 U.S. Government and agency obligations -- 346,314,809 183,057,644 Sales and maturities: Investment securities 420,373,963 459,199,716 60,034,945 U.S. Government and agency obligations 148,437,973 330,800,933 184,889,902 =============================================================================================================
*For the period September 24, 2002 (commencement of operations) through July 31, 2003. **For the period December 19, 2002 (commencement of operations) through July 31, 2003. 41 Notes to FINANCIAL STATEMENTS (continued) 4. INCOME TAX INFORMATION The following information is presented on an income tax basis based on the information currently available to the Funds. Differences between amounts for financial statement and federal income tax purposes are primarily due to the recognition of income on certain securities, which are treated as debt securities for income tax purposes and equity securities for financial statement purposes, and timing differences in recognizing certain gains and losses on security transactions. At July 31, 2003, the cost of investments were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - ------------------------------------------------------------------------------------------------------------- Cost of investments $1,321,056,695 $2,485,942,639 $499,020,230 =============================================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments at July 31, 2003, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - ------------------------------------------------------------------------------------------------------------ Gross unrealized: Appreciation $ 39,136,948 $105,680,715 $ 8,259,899 Depreciation (16,533,310) (23,071,078) (8,386,547) - ------------------------------------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) on investments $ 22,603,638 $ 82,609,637 $ (126,648) ============================================================================================================
The tax components of undistributed net ordinary income and net realized gains at July 31, 2003, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - ------------------------------------------------------------------------------------------------------------ Undistributed net ordinary income * $17,864,493 $25,684,356 $6,530,948 Undistributed net long-term capital gains -- -- -- ============================================================================================================
*Net ordinary income consists of net taxable income derived from dividends, interest and net short-term capital gains, if any. The tax character of distributions paid during the fiscal year ended 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 (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. Quality Preferred Income (JTP) made no distributions from net ordinary income or net long-term capital gains during the fiscal year ended July 31, 2002. At July 31, 2003, Quality Preferred Income (JTP) had an unused capital loss carryforward of $1,653,878 available to be applied against future capital gains, if any. If not applied, the carryforward will expire in the year 2011. 42 Quality Preferred Income (JTP) has elected to defer net realized losses from investments incurred from November 1, 2002 through July 31, 2003 ("post-October losses") in accordance with Federal income tax regulations. The Fund has $28,137,157 of post-October losses that are treated as having arisen in the following fiscal year. 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 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 each Fund's investment management agreement with the Adviser, each Fund pays an annual management fee, payable monthly, at the rates set forth below, which are based upon each Fund's average daily managed assets. "Managed Assets" means the average daily net assets of each Fund including assets attributable to FundPreferred shares and the principal amount of borrowings. AVERAGE DAILY MANAGED ASSETS MANAGEMENT FEE - -------------------------------------------------------------------------------- For the first $500 million .9000% For the next $500 million .8750 For the next $500 million .8500 For the next $500 million .8250 For Managed Assets over $2 billion .8000 ================================================================================ The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Adviser has entered into Sub-Advisory Agreements with Spectrum Asset Management, Inc. ("Spectrum"), under which Spectrum manages the investment portfolios of the Funds. Spectrum is compensated for its services to the Funds from the management fee paid to the Adviser. An affiliate of Spectrum earns commissions 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. 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. 43 Notes to FINANCIAL STATEMENTS (continued) 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 2, 2003, to shareholders of record on August 15, 2003: QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - -------------------------------------------------------------------------------- Dividend per share $.1050 $.1050 $.1030 ================================================================================ 44 Financial HIGHLIGHTS 45 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 Gain (Loss) holders+ holders+ Total holders holders Total ==================================================================================================================================== QUALITY PREFERRED INCOME (JTP) - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2003 $14.12 $1.31 $ .16 $(.09) $-- $1.38 $(1.25) $-- $(1.25) 2002(a) 14.33 .06 (.25) -- -- (.19) -- -- -- QUALITY PREFERRED INCOME 2 (JPS) - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2003(b) 14.33 1.02 .79 (.07) -- 1.74 (.95) -- (.95) QUALITY PREFERRED INCOME 3 (JHP) - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2003(c) 14.33 .67 .22 (.04) -- .85 (.62) -- (.62) ==================================================================================================================================== Total Returns ----------------- Based Offering on Costs and Ending Common Preferred 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: 2003 $(.15) $14.10 $14.59 4.95% 9.15% 2002(a) (.02) 14.12 15.15 1.00 (1.47) QUALITY PREFERRED INCOME 2 (JPS) - ------------------------------------------------------------------------------- Year Ended 7/31: 2003(b) (.15) 14.97 14.65 4.02 11.22 QUALITY PREFERRED INCOME 3 (JHP) - ------------------------------------------------------------------------------- Year Ended 7/31: 2003(c) (.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: 2003 $ 907,746 2.38% 8.84% 1.91% 9.31% 45% 2002(a) 880,006 .96* 4.51* .64* 4.83* 1 QUALITY PREFERRED INCOME 2 (JPS) - ------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2003(b) 1,789,809 1.99* 7.59* 1.54* 8.04* 35 QUALITY PREFERRED INCOME 3 (JHP) - ------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2003(c) 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: 2003 $440,000 $25,000 $76,577 2002(a) -- -- -- QUALITY PREFERRED INCOME 2 (JPS) - ------------------------------------------------------------------ Year Ended 7/31: 2003(b) 800,000 25,000 80,932 QUALITY PREFERRED INCOME 3 (JHP) - ------------------------------------------------------------------ Year Ended 7/31: 2003(c) 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, reinvested capital gains distributions, 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. ++ Ratios do not reflect the effect of dividend payments to FundPreferred shareholders; income ratios reflect income earned on assets attributable to FundPreferred shares. Each Ratio of Expenses to Average Net Assets Applicable to Common Shares and each Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares 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 (a) -- QUALITY PREFERRED INCOME 2 (JPS) 2003 (b) .58 QUALITY PREFERRED INCOME 3 (JHP) 2003 (c) .51 (a) For the period June 25, 2002 (commencement of operations) through July 31, 2002. (b) For the period September 24, 2002 (commencement of operations) through July 31, 2003. (c) For the period December 19, 2002 (commencement of operations) through July 31, 2003. See accompanying notes to financial statements. 46-47 SPREAD
Trustees 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 of Trustees of the Funds. The number of trustees of the Funds is currently set at six. None of the trustees 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 trustees 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 FUND COMPLEX YEAR FIRST PRINCIPAL OCCUPATION(S) OVERSEEN NAME, BIRTHDATE POSITION(S) HELD ELECTED OR INCLUDING OTHER DIRECTORSHIPS BY AND ADDRESS WITH THE FUNDS APPOINTED(2) DURING PAST 5 YEARS TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------------ TRUSTEE WHO IS AN INTERESTED PERSON OF THE FUNDS: - ------------------------------------------------------------------------------------------------------------------------------------ Timothy R. Schwertfeger (1) Chairman of the 1994 Chairman and Director (since 1996) of Nuveen 140 3/28/49 Board and Investments, Inc. and Nuveen Investments, LLC; 333 W. Wacker Drive Trustee Director (since 1992) and Chairman (since 1996) of Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen 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). TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE FUNDS: - ------------------------------------------------------------------------------------------------------------------------------------ William E. Bennett Trustee 2001 Private Investor; previously, President and Chief 140 10/16/46 company that Executive Officer, Draper & Kramer, Inc., 333 W. Wacker Drive a private handles mortgage banking, real estate Chicago, IL 60606 development, pension advisory and real estate management (1995-1998). Prior thereto, Executive Vice President and Chief Credit Officer of First Chicago Corporation and its principal subsidiary, The First National Bank of Chicago. - ------------------------------------------------------------------------------------------------------------------------------------ Jack B. Evans Trustee 1999 President, The Hall-Perrine Foundation, a private 70 10/22/48 philanthropic corporation (since 1996); Director, 333 W. Wacker Drive Alliant Energy; Director and Vice Chairman, United Chicago, IL 60606 Fire & Casualty Company; Director, Federal Reserve Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., a regional financial services firm. - ------------------------------------------------------------------------------------------------------------------------------------ William L. Kissick Trustee 1992 Professor Emeritus, School of Medicine and the Wharton 70 7/29/32 School of Management and former Chairman, Leonard 333 W. Wacker Drive Davis Institute of Health Economics, University of Chicago, IL 60606 Pennsylvania; Adjunct Professor, Health Policy and Management, Yale University. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas E. Leafstrand Trustee 1992 Retired; previously, Vice President in charge of 70 11/11/31 Municipal Underwriting and Dealer Sales at The 333 W. Wacker Drive Northern Trust Company. Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Sheila W. Wellington Trustee 1994 President (since 1993) of Catalyst (a not-for-profit 70 2/24/32 organization focusing on women's leadership development 333 W. Wacker Drive in business and the professions). Chicago, IL 60606 48 NUMBER OF PORTFOLIOS IN FUND YEAR FIRST COMPLEX NAME, BIRTHDATE POSITION(S) HELD ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN AND ADDRESS WITH THE FUNDS APPOINTED (3) DURING PAST 5 YEARS BY OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS: - ------------------------------------------------------------------------------------------------------------------------------------ Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary 140 9/9/56 Administrative and Associate General Counsel, formerly, Vice President 333 W. Wacker Drive Officer and 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 May 2003); Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant 140 2/3/66 and Assistant Vice President (since 2000), previously, Associate of 333 W. Wacker Drive Secretary Nuveen Investments, LLC. Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999), 140 11/28/67 and Treasurer prior thereto, Assistant Vice President (since 1997); 333 W. Wacker Drive Vice President and Treasurer of Nuveen Investments, Chicago, IL 60606 Inc. (since 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); Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Susan M. DeSanto Vice President 2001 Vice President of Nuveen Advisory Corp. (since 2001); 140 9/8/54 previously, Vice President of Van Kampen Investment 333 W. Wacker Drive Advisory Corp. (since 1998); Vice President of Nuveen Chicago, IL 60606 Institutional Advisory Corp. (since 2002); prior thereto, Assistant Vice President of Van Kampen Investment Advisory Corp. (since 1994). - ------------------------------------------------------------------------------------------------------------------------------------ Jessica R. Droeger Vice President 2000 Vice President (since 2002) and Assistant General 140 9/24/64 and Secretary Counsel (since 1998); formerly, Assistant Vice 333 W. Wacker Drive President (since 1998) of Nuveen Investments, LLC; Chicago, IL 60606 Vice President (since 2002) and Assistant Secretary (since 1998), formerly Assistant Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. 49 Trustees AND OFFICERS (CONTINUED) NUMBER OF PORTFOLIOS IN FUND YEAR FIRST COMPLEX NAME, BIRTHDATE POSITION(S) HELD ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN AND ADDRESS WITH THE FUNDS APPOINTED (3) DURING PAST 5 YEARS BY OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS (CONTINUED): - ------------------------------------------------------------------------------------------------------------------------------------ Lorna C. Ferguson Vice President 1998 Vice President of Nuveen Investments, LLC; Vice 140 10/24/45 President (since 1998) of Nuveen Advisory Corp. and 333 W. Wacker Drive Nuveen Institutional Advisory Corp. Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen Investments, 140 3/2/64 LLC; Managing Director (since 2001), formerly Vice 333 W. Wacker Drive President of Nuveen Advisory Corp. and Nuveen Chicago, IL 60606 Institutional Advisory 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 140 5/31/54 and Controller 1998) of Nuveen Investments, LLC and Vice President and 333 W. Wacker Drive Funds Controller (since 1998) of Nuveen Investments, Chicago, IL 60606 Inc.; Certified Public Accountant. - ------------------------------------------------------------------------------------------------------------------------------------ David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, LLC, 140 3/22/63 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 140 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 140 7/27/51 and Assistant General Counsel of Nuveen Investments, LLC; Vice 333 W. Wacker Drive Secretary President and Assistant Secretary of Nuveen Advisory Chicago, IL 60606 Corp. and Nuveen 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). 50 NUMBER OF PORTFOLIOS IN FUND YEAR FIRST COMPLEX NAME, BIRTHDATE POSITION(S) HELD ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN AND ADDRESS WITH THE FUNDS APPOINTED (3) DURING PAST 5 YEARS BY OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS (CONTINUED): - ------------------------------------------------------------------------------------------------------------------------------------ Edward F. Neild, IV Vice President 1996 Managing Director (since 2002) of Nuveen Investments, 140 7/7/65 LLC; Managing Director (since 1997), formerly Vice 333 W. Wacker Drive President (since 1996) of Nuveen Advisory Corp. and Chicago, IL 60606 Nuveen Institutional 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 trustee of the Adviser. (2) Trustees serve a one-year term until his/her successor is elected. The year first elected or appointed represents the year in which the Trustee was first elected or appointed to any fund in the Nuveen Complex. (3) Officers serve a one-year term 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. 51 Build Your Wealth AUTOMATICALLY 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 compounding. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market. EASY AND CONVENIENT To make recordkeeping easy and convenient, each month you'll receive a statement showing your total dividends and distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own. HOW SHARES ARE PURCHASED The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at 95% of the then-current market price or at net asset value, whichever is higher. 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 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. FLEXIBILITY 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. 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. 52 Fund INFORMATION BOARD OF TRUSTEES William E. Bennett Jack B. Evans William L. Kissick Thomas E. Leafstrand Timothy R. Schwertfeger Sheila W. Wellington FUND MANAGER Nuveen Institutional Advisory Corp. 333 West Wacker Drive Chicago, IL 60606 FUND SUB-ADVISER Spectrum Asset Management, Inc. 4 High Ridge Park Stamford, CT 06905 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 AUDITORS Ernst & Young LLP Chicago, IL 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. - --------- 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, 2003. Any future repurchases will be reported to shareholders in the next annual or semiannual report. 53 Serving Investors FOR GENERATIONS Since 1898, financial advisors and their clients have relied on Nuveen Investments to provide dependable investment solutions. For the past century, Nuveen Investments has adhered to the belief that the best approach to investing is to apply conservative risk-management principles to help minimize volatility. Building on this tradition, we today offer a range of high quality equity and fixed-income solutions that are integral to a well-diversified core portfolio. Our clients have come to appreciate this diversity, as well as our continued adherence to proven, long-term investing principles. Managing $80 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. To learn more about the products and services Nuveen Investments offers and for a prospectus, where applicable, talk to your financial advisor, or call us at (800) 257-8787. Please read the information carefully before you invest. Distributed by NUVEEN INVESTMENTS, LLC | 333 West Wacker Drive | Chicago, Illinois 60606 | www.nuveen.com EAN-D-0703D 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 has determined that the registrant has at least one "audit committee financial expert" (as defined in Item 3 of Form N-CSR) serving on its audit committee. The registrant's audit committee financial expert is William E. Bennett, who is "independent" for purposes of Item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable at this time. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable at this time. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES The registrant has adopted the proxy voting policies and procedures of its Sub-Adviser, Spectrum Asset Management. Spectrum's policies seek to ensure that proxies are voted solely in the best economic interstes of the registrant and without undue influence from parties that may have an economic interest in the outcome of a proxy vote. Spectrum classifies proxy voting into three broad categories: Routine Administrative Items, Special Interest Issues, and Issues Having the Potential for Significant Economic Impact. Once it has analyzed and identified each issue as belonging in a particular category, Spectrum will cast the client's vote in accordance with the guidelines developed for that particular category. On any ocassion when a proxy vote presents a potential conflict of interest, Spectrum will review the matter and disclose the conflict to the client(s) to obtain the client's consent prior to voting. ITEM 8. [RESERVED] ITEM 9. 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 these 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 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 10. 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. (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 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT Attached hereto. (b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certification required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Ex-99.906 CERT attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Nuveen Quality Preferred Income Fund 2 ----------------------------------------------------------- By (Signature and Title)* /s/ Jessica R. Droeger ---------------------------------------------- Jessica R. Droeger Vice President and Secretary Date: October 8, 2003 ------------------------------------------------------------------- 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 8, 2003 ------------------------------------------------------------------- By (Signature and Title)* /s/ Stephen D. Foy ---------------------------------------------- Stephen D. Foy Vice President and Controller (Principal Financial Officer) Date: October 8, 2003 ------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature. EX-99.CERT 3 file002.txt CERTIFICATIONS N-CSR FORM OF CERTIFICATION I, Gifford R. Zimmerman, certify that: 1. I have reviewed this report on Form N-CSR of Nuveen Quality Preferred Income Fund 2; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent 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; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 8, 2003 /s/ Gifford R. Zimmerman ------------------------- -------------------------------- Chief Administrative Officer (principal executive officer) N-CSR FORM OF CERTIFICATION I, Stephen D. Foy, certify that: 1. I have reviewed this report on Form N-CSR of Nuveen Quality Preferred Income Fund 2; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent 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; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 8, 2003 /s/ Stephen D. Foy ------------------------- -------------------------------- Vice President and Controller (principal financial officer) EX-99.906CERT 4 file003.txt CERTIFICATIONS Certification Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002; provided by the Chief Executive Officer and Chief Financial Officer, based on each such officer's knowledge and belief. The undersigned officers of Nuveen Quality Preferred Income Fund 2 (the "Fund"), certify that, to the best of each such officer's knowledge and belief: 1. The Form N-CSR of the Fund for the period ended July 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Date: October 8, 2003 ----------------------- /s/ Gifford R. Zimmerman --------------------- Chief Administrative Officer (Chief Executive Officer) /s/ Stephen D. Foy --------------------- Vice President, Controller (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----