-----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, Mn4Rm+e/i14xXlbFs709WmOjNkLMsUfRhuYZv1SR+4UFC5v9LNq284pkhCv+od1Q u6E1x6KxJhwmnbapHqukUA== 0000950137-08-003392.txt : 20080307 0000950137-08-003392.hdr.sgml : 20080307 20080307122119 ACCESSION NUMBER: 0000950137-08-003392 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080307 DATE AS OF CHANGE: 20080307 EFFECTIVENESS DATE: 20080307 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: 08673301 BUSINESS ADDRESS: STREET 1: 333 WEST WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129178146 N-CSR 1 c22786bnvcsr.txt FORM N-CSR 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) Kevin J. McCarthy Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (312) 917-7700 --------------------- Date of fiscal year end: December 31 ------------------- Date of reporting period: December 31, 2007 ----------------------- 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 SHAREHOLDERS Annual Report DECEMBER 31, 2007 Nuveen Investments CLOSED-END FUNDS NUVEEN QUALITY PREFERRED INCOME FUND JTP NUVEEN QUALITY PREFERRED INCOME FUND 2 JPS NUVEEN QUALITY PREFERRED INCOME FUND 3 JHP High Current Income from a Portfolio of Investment-Grade Preferred Securities NUVEEN INVESTMENTS LOGO Life is complex. Nuveen makes things e-simple. ----------------------------------- It only takes a minute to sign up for e-Reports. Once enrolled, you'll receive an e-mail as soon as your Nuveen Investments Fund information is ready--no more waiting for delivery by regular mail. Just click on the link within the e-mail to see the report, and save it on your computer if you wish. Free e-Reports right to your e-mail! www.investordelivery.com OR www.nuveen.com/accountaccess If you received your Nuveen Fund If you received your Nuveen Fund dividends and statements from your dividends and statements directly from financial advisor or brokerage Nuveen. account.
NUVEEN INVESTMENTS LOGO Chairman's LETTER TO SHAREHOLDERS (TIMOTHY SCHWERTFEGER PHOTO) Timothy R. Schwertfeger Chairman of the Board
Dear Shareholder: Once again, I am pleased to report that over the twelve-month period covered by this report your Fund continued to provide you with attractive income. For more details about the management strategy and performance of your Fund, please read the Portfolio Managers' Comments, the Distribution and Share Price Information, and the Performance Overview sections of this report. With the recent volatility in the stock market, many have begun to wonder which way the market is headed, and whether they need to adjust their holdings of investments. No one knows what the future will bring, which is why we think a well-balanced portfolio that is structured and carefully monitored with the help of an investment professional is an important component in achieving your long-term financial goals. A well-diversified portfolio may actually help to reduce your overall investment risk, and we believe that investments like your Nuveen Investments Fund can be important building blocks in a portfolio crafted to perform well through a variety of market conditions. We are grateful that you have chosen us as a partner as you pursue your financial goals and we look forward to continuing to earn your trust in the months and years ahead. At Nuveen Investments, our mission continues to be to assist you and your financial advisor by offering investment services and products that can help you to secure your financial objectives. Sincerely, (TIMOTHY SCHWERTFEGER SIG) Timothy R. Schwertfeger Chairman of the Board February 15, 2008 Portfolio Managers' COMMENTS NUVEEN INVESTMENTS CLOSED-END FUNDS JTP, JPS, JHP The Nuveen Quality Preferred Income Funds are sub-advised by a team of specialists at Spectrum Asset Management, an affiliate of Principal Capital(SM). Mark Lieb, Bernie Sussman and Phil Jacoby, who have more than 50 years of combined experience in the preferred securities markets, lead the team and have managed the Funds since their inceptions in 2002. Here Mark, Bernie and Phil talk about market conditions, their management strategy and the performance of each Fund for the twelve-month period ended December 31, 2007. WHAT WERE THE GENERAL ECONOMIC CONDITIONS AND MARKET TRENDS DURING THE ANNUAL REPORTING PERIOD ENDED DECEMBER 31, 2007? During the first part of the period, equities generally performed well as favorable corporate earnings and export-driven economic growth were sufficient to offset some growing anxiety over the deteriorating housing and mortgage markets. The second half of the period was dominated by concerns about the impact of sub-prime mortgage defaults and fears of a recession, especially as the sub-prime market's impact began to spread beyond mortgage lenders to international and domestic money center banks and other financial institutions. When August data began to show the potential for a severely weakening economy, the Federal Reserve cut the widely followed short-term fed funds rate by a half a percentage point in September, by another quarter of a point in October and yet another quarter point in December. (On January 22 and 29, 2008, after the close of this reporting period, the Federal Reserve cut the fed funds rate by a combined 1.25%, bringing the rate to 3.00%.) - -------------------------------------------------------------------------------- Discussions of specific investments are for illustrative purposes only and are not intended as recommendations of individual investments. The views expressed in this commentary represent those of the portfolio managers as of the date of this report and are subject to change at any time, based on market conditions and other factors. The Funds disclaim any obligation to advise shareholders of such changes. - -------------------------------------------------------------------------------- The financial services sector volatility caused by the sub-prime mortgage crisis severely impacted the preferred securities market, especially in the second half of the year. With over 70% of preferred securities coming from issuers in the financial service sector, the fourth quarter of 2007 was the worst quarter on record for the $25 par market. These securities, as well as $1000 par capital market preferreds, experienced heavy selling (exacerbated by year-end tax loss selling) late in 2007, as the Merrill Lynch Preferred Stock Hybrid Securities Index fell by more than 9% in the fourth quarter alone. Fannie Mae sold $7 billion of a $25 par issue, Freddie Mac offered $6 billion of a similar structure, and Citigroup issued $3.5 billion of $1000 par preferred securities. Given the total size and number of all the transactions and the negative market environment in which they were offered, new issues needed to be "priced to sell." While this ensured that most of the issuance was well received, it caused large price declines among existing securities in the secondary market as yields needed to adjust to reflect the new reality created by the most recent offerings. Overall there was about 4 $40 billion of new supply in the fourth quarter. Preferred issuance reached $120.6 billion in 2007, a new record. WHAT KEY STRATEGIES WERE USED TO MANAGE THE FUNDS DURING THIS REPORTING PERIOD? Although all the Funds had to contend with a relatively heavy number of calls during this period, we strove to maintain an approximate 60/40 portfolio mix between the $25 par (retail driven) sector and the $1000 par capital securities (institutionally driven) sector. We started 2007 buying mainly $25 par securities, but six months later we were purchasing more capital securities as the relative attractiveness between the two sectors had shifted. Beginning in August, the sub-prime mortgage crisis began to take its toll on the preferred market. In particular, the $25 par market experienced an unusually high sell-off. With approximately 55% of the each Fund allocated to $25 par securities, our management options were constrained by the near breakdown of the market. In addition, with over 70% of all preferreds issued by firms in the financial service sector, securities that seemed to present attractive buying opportunities saw their immediate-term prospects overwhelmed by the massive selling pressure affecting the entire market. While we did have some opportunities to buy attractively priced preferred stock issued by certain U.S. government agencies, we were disappointed by what we considered to be their relatively weak call protection. We felt that too many non-traditional preferred securities buyers were willing to give up call protection at the very time that the issuers had no choice but to provide it if buyers insisted. As a result, when the new issues were announced the secondary markets experienced large price declines. We were able to buy some agency issues at discounts, which we believed would benefit the Funds' earnings and returns in the future. We also had one of our busiest days on the last trading day of 2007 when the availability of some deep discounts allowed the Funds to buy at bargain prices. HOW DID THE FUNDS PERFORM OVER THIS TWELVE-MONTH PERIOD? The performance of JTP, JPS and JHP, as well as their comparative indices and benchmarks, are presented in the accompanying table. Average Annual Total Returns on Net Asset Value For the periods ended 12/31/07
1-Year 5-Year ------ ------ JTP -15.32% 3.80% JPS -14.32% 4.02% JHP -16.01% 3.04% Lehman Brothers Aggregate Bond Index(1) 6.97% 4.42% Comparative Benchmark(2) -8.6% 3.12%
- -------------------------------------------------------------------------------- Past performance does not guarantee future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. For additional information, see the individual Performance Overview for your Fund in this report. - -------------------------------------------------------------------------------- 5 For the twelve months ended December 31, 2007, the total returns on net asset value for all three Funds underperformed the unleveraged, unmanaged Lehman Brothers Aggregate Bond Index and their comparative benchmark. The comparative benchmark's negative return shows clearly that 2007 presented a very challenging and unforgiving market environment. The Fund's underperformance relative to the benchmark was primarily due to their use of financial leverage. Over the past year, leverage tended to exacerbate the price declines suffered by the Funds' holdings. However, leverage is a strategy the Funds have used since their inceptions and, as the five-year returns show, has made a positive contribution to net performance over time. We believe this strategy will continue to provide opportunities for enhanced distributions and total returns in the future. In addition to leverage, the Funds were all negatively affected by the heavy selling of financial services sector securities in the third and fourth quarters of 2007. As noted, the fourth quarter was the worst quarter on record for $25 par securities, and the Funds' exposure to this retail-oriented market hurt their absolute and relative performance as the $25 par market significantly underperformed the institutionally oriented $1000 par market. - -------------------------------------------------------------------------------- 1 The Lehman Brothers Aggregate Bond Index is an unmanaged index that includes all investment-grade, publicly issued, fixed-rate, dollar denominated, nonconvertible debt issues and commercial mortgage backed securities with maturities of at least one year and outstanding par values of $150 million or more. Index returns do not include the effects of any sales charges or management fees. It is not possible to invest directly in an index. 2 Comparative benchmark performance is a blended return consisting of: 1) 55% of the Merrill Lynch Preferred Stock Hybrid Securities Index, an unmanaged index of investment-grade, exchange traded preferred stocks with outstanding market values of at least $30 million and at least one year to maturity; and 2) 45% of the Lehman Tier 1 Capital Securities Index, an unmanaged index that includes securities that can generally be viewed as hybrid fixed-income securities that either receive regulatory capital treatment or a degree of "equity credit" from a rating agency. - -------------------------------------------------------------------------------- RECENT DEVELOPMENTS IN THE AUCTION RATE PREFERRED MARKETS During February 2008, after the close of this reporting period, regularly scheduled auctions for the FundPreferred(R) shares issued by your Fund began attracting more shares for sale than offers to buy. This meant that these auctions "failed to clear," and that many FundPreferred shareholders who wanted to sell their shares in these auctions were unable to do so. It is important to note this decline in liquidity did not lower the credit quality of these shares, and that FundPreferred shareholders unable to sell their shares received distributions at the "maximum rate" calculated in accordance with the pre-established terms of the FundPreferred stock. At the time this report was prepared, the Funds' managers could not predict when future auctions might succeed in attracting sufficient buyers for the shares offered. The Funds' managers are working diligently to develop mechanisms designed to improve the liquidity of the FundPreferred shares, but at present there is no assurance that those efforts will succeed. These developments do not affect the management or investment policies of the Funds. However, one implication of these auction failures for common shareholders is that the Funds' cost of leverage will be higher than it otherwise would have been had the auctions been successful. As a result, the Funds' future common share earnings may be marginally lower than they otherwise might have been. 6 Common Share Distribution and Share Price INFORMATION The Funds employ financial leverage through the issuance of FundPreferred shares. Financial leverage provides the potential for higher earnings (net investment income), total returns and distributions over time, but -as noted earlier- also increases the variability of common shareholders' net asset value per share in response to changing market conditions. Financial leverage contributed positively to the Funds' common share net earnings over the reporting period, but detracted from the Funds' overall common share net total return. All three Funds declared monthly common share distributions over the course of the period, including two common share distribution decreases in March and September. In addition, JPS declared a long-term capital gains distribution in April of $0.0437 per share. During certain periods, the Funds may pay dividends at a rate that may be more or less than the amount of net investment income actually earned by the Funds during the period. If a Fund has cumulatively earned more than it has paid in dividends, it holds excess in reserve as undistributed net investment income (UNII) as part of the Fund's NAV. Conversely, if a Fund has cumulatively paid dividends in excess of earnings, the excess constitutes negative UNII that is likewise reflected in a Funds's NAV. As of December 31, 2007, JPS had a negative UNII balance for financial statement purposes and a zero balance for tax purposes, while JTP and JHP had positive UNII balances for financial statement purposes and zero balances for tax purposes. 7 The following table provides information regarding each Fund's common share distributions and total return performance for the fiscal year ended December 31, 2007. The distribution information is presented on a tax basis rather than on a generally accepted accounting principles (GAAP) basis. This information is intended to help you better understand whether the Funds' returns for the specified time period were sufficient to meet each Funds' distributions.
- -------------------------------------------------------------------------------------------------- As of 12/31/07 (Common Shares) JTP JPS JHP - -------------------------------------------------------------------------------------------------- Inception date 6/25/02 9/24/02 12/18/02 Calendar year: Per share distribution: From net investment income $0.93 $1.04 $0.95 From short-term capital gains -- -- -- From long-term capital gains -- 0.04 -- From return of capital 0.09 0.04 0.10 ------- ------- ------- Total per share distribution $1.02 $1.12 $1.05 ======= ======= ======= Distribution rate on NAV 9.22% 9.68% 9.53% Annualized total returns: 1-year on NAV -15.32% -14.32% -16.01% 5-year on NAV 3.80% 4.02% 3.04% Since inception on NAV 3.30% 4.39% 3.02% - --------------------------------------------------------------------------------------------------
As of December 31, 2007, the Funds' shares were trading relative to their NAVs as shown in the accompanying table:
- ------------------------------------------------------------------------------------------------ 12/31/07 12-Month Average Discount Discount - ------------------------------------------------------------------------------------------------ JTP -6.60% -2.16% JPS -6.57% -2.08% JHP -4.63% -0.80% - ------------------------------------------------------------------------------------------------
8 JTP Nuveen Quality PERFORMANCE Preferred Income OVERVIEW Fund as of December 31, 2007
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS)(2) (PIE CHART) U.S. Government and Agency Obligations 0.10 Corporate Bonds 0.80 Short-Term Investments 1.60 Investment Companies 3.50 Capital Preferred Securities 41.40 $25 Par (or similar) Preferred Securities 52.60
2007 MONTHLY DISTRIBUTIONS PER COMMON SHARE (GRAPH) Jan 0.090 Feb 0.090 Mar 0.086 Apr 0.086 May 0.086 Jun 0.086 Jul 0.086 Aug 0.086 Sep 0.081 Oct 0.081 Nov 0.081 Dec 0.081
COMMON SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE (GRAPH) 1/01/07 14.80 14.69 14.23 14.05 13.93 14.08 14.42 14.16 14.31 14.22 14.06 13.85 14.14 14.08 14.18 14.14 14.08 14.03 14.04 14.05 13.98 13.94 14.16 13.48 13.35 13.11 13.12 13.05 12.86 12.60 12.33 12.40 12.06 11.29 12.13 12.28 12.45 12.07 12.07 11.97 12.11 11.79 11.53 11.66 11.46 10.70 10.32 10.60 11.16 11.18 10.58 10.17 10.32 12/31/07 10.33
FUND SNAPSHOT - ------------------------------------------------------------------------------------- Common Share Price $10.33 - ------------------------------------------------------------------------------------- Common Share Net Asset Value $11.06 - ------------------------------------------------------------------------------------- Premium/(Discount) to NAV -6.60% - ------------------------------------------------------------------------------------- Current Distribution Rate(1) 9.41% - ------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $713,945 - -------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (INCEPTION 6/25/02)
- -------------------------------------------------------------------------------------- ON SHARE PRICE ON NAV - -------------------------------------------------------------------------------------- 1-Year -24.60% -15.32% - -------------------------------------------------------------------------------------- 5-Year 0.79% 3.80% - -------------------------------------------------------------------------------------- Since Inception 1.38% 3.30% - --------------------------------------------------------------------------------------
INDUSTRIES (AS A % OF TOTAL INVESTMENTS)(2) - ------------------------------------------------------------------------------------- Commercial Banks 31.2% - ------------------------------------------------------------------------------------- Insurance 19.1% - ------------------------------------------------------------------------------------- Real Estate/Mortgage 12.8% - ------------------------------------------------------------------------------------- Diversified Financial Services 9.8% - ------------------------------------------------------------------------------------- Capital Markets 9.1% - ------------------------------------------------------------------------------------- Media 3.7% - ------------------------------------------------------------------------------------- Investment Companies 3.5% - ------------------------------------------------------------------------------------- Short-Term Investments 1.6% - ------------------------------------------------------------------------------------- Other 9.2% - -------------------------------------------------------------------------------------
TOP FIVE ISSUERS(3) (AS A % OF TOTAL INVESTMENTS) - ------------------------------------------------------------------------------------ ING Groep N.V. 3.1% - ------------------------------------------------------------------------------------ Banco Santander Finance 2.9% - ------------------------------------------------------------------------------------ Deutsche Bank AG 2.9% - ------------------------------------------------------------------------------------ HSBC Holdings Public Limited Company 2.4% - ------------------------------------------------------------------------------------ AgFirst Farm Credit Bank 2.4% - ------------------------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Fund's cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital. 2 Excluding derivative transactions. 3 Excluding short-term investments and derivative transactions. 9 JPS Nuveen Quality PERFORMANCE Preferred Income OVERVIEW Fund 2 as of December 31, 2007
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS)(2) (PIE CHART) U.S. Government and Agency Obligations 0.00 Corporate Bonds 0.40 Short-Term Investments 1.60 Investment Companies 3.30 Capital Preferred Securities 41.10 $25 Par (or similar) Preferred Securities 53.60
2007 MONTHLY DISTRIBUTIONS PER COMMON SHARE (BAR CHART) Jan 0.093 Feb 0.093 Mar 0.091 Apr 0.091 May 0.091 Jun 0.091 Jul 0.091 Aug 0.091 Sep 0.086 Oct 0.086 Nov 0.086 Dec 0.086
COMMON SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE (LINE GRAPH) 1/01/07 15.12 14.89 14.55 14.57 14.45 14.47 14.83 14.67 14.95 14.66 14.52 14.52 14.86 14.78 14.82 14.81 14.70 14.72 14.62 14.60 14.60 14.49 14.71 13.94 13.90 13.65 13.79 13.58 13.41 13.10 12.78 12.95 12.55 11.90 12.69 12.76 12.91 12.52 12.63 12.50 12.68 12.37 12.09 12.14 11.97 11.05 10.76 10.90 11.59 11.70 11.22 10.70 10.91 12/31/07 10.81
FUND SNAPSHOT - -------------------------------------------------------------------------------------- Common Share Price $10.81 - -------------------------------------------------------------------------------------- Common Share Net Asset Value $11.57 - -------------------------------------------------------------------------------------- Premium/(Discount) to NAV -6.57% - -------------------------------------------------------------------------------------- Current Distribution Rate(1) 9.55% - -------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $1,386,125 - --------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (INCEPTION 9/24/02)
- -------------------------------------------------------------------------------------- ON SHARE PRICE ON NAV - -------------------------------------------------------------------------------------- 1-Year -22.24% -14.32% - -------------------------------------------------------------------------------------- 5-Year 2.35% 4.02% - -------------------------------------------------------------------------------------- Since Inception 2.51% 4.39% - --------------------------------------------------------------------------------------
INDUSTRIES (AS A % OF TOTAL INVESTMENTS)(2) - ------------------------------------------------------------------------------------- Commercial Banks 31.7% - ------------------------------------------------------------------------------------- Insurance 18.9% - ------------------------------------------------------------------------------------- Real Estate/Mortgage 12.4% - ------------------------------------------------------------------------------------- Diversified Financial Services 9.6% - ------------------------------------------------------------------------------------- Capital Markets 8.1% - ------------------------------------------------------------------------------------- Media 3.4% - ------------------------------------------------------------------------------------- Investment Companies 3.3% - ------------------------------------------------------------------------------------- Short-Term Investments 1.6% - ------------------------------------------------------------------------------------- Other 11.0% - -------------------------------------------------------------------------------------
TOP FIVE ISSUERS(3) (AS A % OF TOTAL INVESTMENTS) - ------------------------------------------------------------------------------------ Wachovia Corporation 3.5% - ------------------------------------------------------------------------------------ ING Groep N.V. 3.0% - ------------------------------------------------------------------------------------ Deutsche Bank AG 2.5% - ------------------------------------------------------------------------------------ Banco Santander Finance 2.4% - ------------------------------------------------------------------------------------ Aegon N.V. 2.3% - ------------------------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Fund's cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital. 2 Excluding derivative transactions. 3 Excluding short-term investments and derivative transactions. 10 JHP Nuveen Quality PERFORMANCE Preferred Income OVERVIEW Fund 3 as of December 31, 2007
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS) (PIE CHART) Corporate Bonds 0.40 Short-Term Investments 1.60 Investment Companies 4.00 Capital Preferred Securities 32.30 $25 Par (or similar) Preferred Securities 61.70
2007 MONTHLY DISTRIBUTIONS PER COMMON SHARE (GRAPH) Jan 0.0910 Feb 0.0910 Mar 0.0885 Apr 0.0885 May 0.0885 Jun 0.0885 Jul 0.0885 Aug 0.0885 Sep 0.0835 Oct 0.0835 Nov 0.0835 Dec 0.0835
COMMON SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE (GRAPH) 1/01/07 14.9200 15.0000 14.6700 14.6500 14.6000 14.6600 14.7100 14.4300 14.5300 14.5400 14.2800 14.0200 14.2600 14.5100 14.4200 14.1700 14.3400 14.4300 14.2900 14.1600 14.1200 14.0600 14.3900 13.5900 13.7400 13.3300 13.3500 13.5100 13.1600 13.0800 12.4100 12.6499 12.4000 11.7700 12.2600 12.4300 12.7100 12.4500 12.1500 12.4000 12.3000 12.0500 11.6500 11.7100 11.5300 10.8400 10.3200 10.6600 11.6800 12.0400 10.8400 10.7500 10.6600 12/31/07 10.5100
FUND SNAPSHOT - ------------------------------------------------------------------------------------- Common Share Price $10.51 - ------------------------------------------------------------------------------------- Common Share Net Asset Value $11.02 - ------------------------------------------------------------------------------------- Premium/(Discount) to NAV -4.63% - ------------------------------------------------------------------------------------- Current Distribution Rate(1) 9.53% - ------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $261,081 - -------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (INCEPTION 12/18/02)
- -------------------------------------------------------------------------------------- ON SHARE PRICE ON NAV - -------------------------------------------------------------------------------------- 1-Year -23.61% -16.01% - -------------------------------------------------------------------------------------- 5-Year 1.31% 3.04% - -------------------------------------------------------------------------------------- Since Inception 1.30% 3.02% - --------------------------------------------------------------------------------------
INDUSTRIES (AS A % OF TOTAL INVESTMENTS)(2) - ------------------------------------------------------------------------------------- Commercial Banks 26.2% - ------------------------------------------------------------------------------------- Insurance 18.3% - ------------------------------------------------------------------------------------- Real Estate/Mortgage 12.8% - ------------------------------------------------------------------------------------- Capital Markets 12.2% - ------------------------------------------------------------------------------------- Diversified Financial Services 10.6% - ------------------------------------------------------------------------------------- Investment Companies 4.0% - ------------------------------------------------------------------------------------- Media 3.4% - ------------------------------------------------------------------------------------- Short-Term Investments 1.6% - ------------------------------------------------------------------------------------- Other 10.9% - -------------------------------------------------------------------------------------
TOP FIVE ISSUERS(3) (AS A % OF TOTAL INVESTMENTS) - ------------------------------------------------------------------------------------ Wachovia Corporation 3.5% - ------------------------------------------------------------------------------------ ING Groep N.V. 3.4% - ------------------------------------------------------------------------------------ Deutsche Bank AG 2.9% - ------------------------------------------------------------------------------------ Protective Life Corporation 2.3% - ------------------------------------------------------------------------------------ Public Storage Inc. 2.2% - ------------------------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Fund's cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital. 2 Excluding derivative transactions. 3 Excluding short-term investments and derivative transactions. 11 SHAREHOLDER MEETING REPORT The special meeting of shareholders was held in the offices of Nuveen Investments on October 12, 2007; the meeting for Nuveen Quality Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred Income Fund 3 was subsequently adjourned to October 22, 2007.
JTP JPS JHP - ----------------------------------------------------------------------------------------------------------------- Common and Common and Common and Preferred Preferred Preferred shares voting shares voting shares voting together together together as a class as a class as a class - ----------------------------------------------------------------------------------------------------------------- TO APPROVE A NEW INVESTMENT MANAGEMENT AGREEMENT: For 32,722,345 59,354,289 12,010,979 Against 1,589,151 3,549,189 572,961 Abstain 1,363,047 2,339,856 517,554 Broker Non-Votes 11,219,988 21,097,586 4,192,919 - ----------------------------------------------------------------------------------------------------------------- Total 46,894,531 86,340,920 17,294,413 - ----------------------------------------------------------------------------------------------------------------- TO APPROVE A NEW SUB-ADVISORY AGREEMENT BETWEEN NUVEEN ASSET MANAGEMENT AND SPECTRUM ASSET MANAGEMENT, INC.: For 32,521,263 58,987,728 11,973,422 Against 1,733,887 3,773,081 572,140 Abstain 1,419,393 2,482,525 555,932 Broker Non-Votes 11,219,988 21,097,586 4,192,919 - ----------------------------------------------------------------------------------------------------------------- Total 46,894,531 86,340,920 17,294,413 - ----------------------------------------------------------------------------------------------------------------- TO RATIFY THE SELECTION OF ERNST & YOUNG LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE CURRENT FISCAL YEAR: For 45,171,196 83,084,829 16,655,732 Against 803,757 1,531,120 296,749 Abstain 919,578 1,724,971 341,932 - ----------------------------------------------------------------------------------------------------------------- Total 46,894,531 86,340,920 17,294,413 - -----------------------------------------------------------------------------------------------------------------
12 Report of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF TRUSTEES AND SHAREHOLDERS NUVEEN QUALITY PREFERRED INCOME FUND NUVEEN QUALITY PREFERRED INCOME FUND 2 NUVEEN QUALITY PREFERRED INCOME FUND 3 We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 (the "Funds") as of December 31, 2007, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2007, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 at December 31, 2007, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein in conformity with U.S. generally accepted accounting principles. (ERNST & YOUNG LLP LOGO) Chicago, Illinois February 26, 2008 13 JTP Nuveen Quality Preferred Income Fund Portfolio of INVESTMENTS as of December 31, 2007
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - -------------------------------------------------------------------------------------------------------------------------------- $25 PAR (OR SIMILAR) PREFERRED SECURITIES - 84.7% (52.7% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 9.7% 40,358 Bear Stearns Capital 7.800% A2 $ 975,049 Trust III 252,247 BNY Capital Trust V, 5.950% Aa3 5,236,648 Series F 1,258,400 Deutsche Bank Capital 6.550% Aa3 27,194,020 Funding Trust II 5,000 Goldman Sachs Capital I 6.000% A1 100,550 (CORTS) 15,700 Goldman Sachs Capital I, 6.000% A1 311,174 Series A (CORTS) 7,400 Goldman Sachs Group Inc. 5.750% AA- 150,590 (SATURNS) 1,200 Goldman Sachs Group 6.000% AA- 24,300 Inc., Series 2003-06 (SATURNS) 14,000 Goldman Sachs Group 6.000% A1 279,160 Inc., Series 2004-04 (SATURNS) 19,200 Goldman Sachs Group 6.000% A1 383,232 Inc., Series 2004-06 (SATURNS) 26,500 Goldman Sachs Group 6.000% A1 524,170 Inc., Series GSC-3 (PPLUS) 4,600 Goldman Sachs Group 6.000% A1 90,942 Inc., Series GSC-4 Class A (PPLUS) 6,500 Goldman Sachs Group 6.000% AA- 135,850 Inc., Series GSG-1 (PPLUS) 108,649 Lehman Brothers Holdings 6.375% A2 2,162,115 Capital Trust III, Series K 85,700 Lehman Brothers Holdings 6.375% A2 1,765,420 Capital Trust IV, Series L 10,900 Lehman Brothers Holdings 6.000% A2 208,190 Capital Trust V, Series M 84,920 Lehman Brothers Holdings 6.240% A2 1,732,368 Capital Trust VI, Series N 122,413 Merrill Lynch Preferred 7.000% A2 2,546,190 Capital Trust III 94,500 Merrill Lynch Preferred 7.120% A2 2,069,550 Capital Trust IV 178,400 Merrill Lynch Preferred 7.280% A2 3,924,800 Capital Trust V 169,526 Morgan Stanley Capital 6.250% A1 3,239,642 Trust III 167,669 Morgan Stanley Capital 6.250% A1 3,194,094 Trust IV 515,305 Morgan Stanley Capital 6.600% A1 10,331,865 Trust VI 144,324 Morgan Stanley Capital 6.600% A2 2,830,194 Trust VII - -------------------------------------------------------------------------------------------------------------------------------- Total Capital Markets 69,410,113 ------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 12.5% 121,050 ABN AMRO Capital Fund 5.900% A1 2,203,110 Trust V 105,400 ASBC Capital I 7.625% A3 2,529,600 18,900 BAC Capital Trust VIII 6.000% Aa2 371,385 8,400 BAC Capital Trust X 6.250% Aa2 172,284 83,021 Banco Santander Finance 6.410% Aa3 1,830,613 190,081 Banco Santander Finance, 6.500% A 3,967,941 144A 206,386 Banco Santander Finance, 6.800% Aa3 4,550,811 144A 7,700 BancorpSouth Capital 8.150% Baa1 192,500 Trust I 84,500 Banesto Holdings, Series 10.500% A1 2,603,656 A, 144A 64,300 Bank One Capital Trust 7.200% Aa3 1,498,190 VI 178,900 Barclays Bank PLC 7.750% Aa3 4,508,280 57,600 Barclays Bank PLC 7.100% Aa3 1,368,000 5,817 Barclays Bank PLC 6.625% Aa3 126,345 189,400 Citizens Funding Trust I 7.500% Baa2 2,935,700 116,800 Cobank ABC, 144A 7.000% A 5,902,722 252,500 Fifth Third Capital 7.250% A1 5,252,000 Trust VI 13,000 Fleet Capital Trust VIII 7.200% Aa2 305,500 4,400 HSBC Finance Corporation 6.875% AA- 103,268 91,915 KeyCorp Capital Trust IX 6.750% Baa1 1,741,789 859,900 National City Capital 6.625% A3 14,231,345 Trust II 12,300 National City Capital 6.625% A3 205,410 Trust III 200,000 PFCI Capital Corporation 7.750% A- 5,168,760 6,750 PNC Capital Trust 6.125% A2 141,750 80,633 Royal Bank of Scotland 5.750% A1 1,447,362 Group PLC, Series L 224,762 Royal Bank of Scotland 6.350% A1 4,382,859 Group PLC, Series N 88,739 Royal Bank of Scotland 7.250% Aa3 2,048,984 Group PLC, Series T 10,000 Royal Bank of Scotland 6.600% Aa3 202,600 Group PLC 23,600 USB Capital Trust XI 6.600% A1 499,140 29,760 VNB Capital Trust I 7.750% A3 736,262 85,000 Wachovia Capital Trust 6.375% A1 1,695,750 IX 20,000 Wachovia Corporation 8.000% A 506,000 238,800 Wells Fargo Capital 7.000% Aa2 5,516,280 Trust V
14
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - -------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS (continued) 18,925 Wells Fargo Capital 5.850% Aa2 $ 381,717 Trust VII 382,750 Zions Capital Trust B 8.000% BBB- 9,469,235 - -------------------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 88,797,148 ------------------------------------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS - 0.0% 2,996 IBM Inc., Trust 7.100% A+ 74,001 Certificates, Series 2001-2 1,500 IBM Trust IV (CORTS) 7.000% A+ 37,170 - -------------------------------------------------------------------------------------------------------------------------------- Total Computers & 111,171 Peripherals ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 11.7% 42,600 Allied Capital 6.875% BBB+ 724,200 Corporation 599,640 BAC Capital Trust XII 6.875% Aa3 13,551,864 321,730 Citigroup Capital Trust 6.950% A+ 6,772,417 VIII 4,000 Citigroup Capital Trust 6.000% A+ 74,200 IX 11,500 Citigroup Capital XIV 6.875% A+ 232,875 418,650 Citigroup Capital XV 6.500% Aa3 8,142,743 30,900 Citigroup Capital XVI 6.450% A+ 586,791 370,100 Citigroup Capital XIX 7.250% A+ 8,142,200 295,700 Deutsche Bank Capital 6.375% A 6,271,797 Funding Trust VIII 4,100 General Electric Capital 6.450% AAA 105,575 Corporation 5,100 General Electric Capital 6.100% AAA 121,788 Corporation 100 General Electric Capital 5.875% AAA 2,321 Corporation 1,006,258 ING Groep N.V. 7.200% A1 22,560,304 569,000 ING Groep N.V. 7.050% A 12,461,100 8,741 ING Groep N.V. 6.375% A1 175,956 8,800 JPMorgan Chase Capital 5.875% Aa3 173,184 Trust XI 127,185 Royal Bank of Scotland 6.125% A1 2,429,234 Group PLC, Series R 31,815 Royal Bank of Scotland 6.750% A1 662,388 Public Limited Company, Series 2006Q - -------------------------------------------------------------------------------------------------------------------------------- Total Diversified 83,190,937 Financial Services ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 0.6% 99,000 AT&T Inc. 6.375% A 2,387,880 13,300 BellSouth Capital 7.100% A 296,756 Funding (CORTS) 74,635 BellSouth Corporation 7.000% A 1,538,414 (CORTS) 2,200 Verizon Communications 7.625% A 55,308 (CORTS) 12,200 Verizon Communications, 6.125% A+ 267,058 Series 2004-1 (SATURNS) 1,100 Verizon Global Funding 6.250% A 25,410 Corporation Trust III, Series III (CORTS) - -------------------------------------------------------------------------------------------------------------------------------- Total Diversified 4,570,826 Telecommunication Services ------------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES - 2.1% 77,740 DTE Energy Trust I 7.800% Baa3 1,939,613 109,205 Entergy Louisiana LLC 7.600% A- 2,674,430 2,000 Entergy Mississippi 7.250% A- 50,660 Inc. 78,400 FPL Group Capital Inc. 6.600% A3 1,881,600 400 Georgia Power Company 5.750% A 8,760 36,500 National Rural Utilities 6.100% A3 774,165 Cooperative Finance Corporation 15,125 National Rural Utilities 5.950% A3 319,743 Cooperative Finance Corporation 111,500 PPL Energy Supply LLC 7.000% BBB 2,770,775 191,400 Virginia Power Capital 7.375% BBB 4,668,246 Trust - -------------------------------------------------------------------------------------------------------------------------------- Total Electric Utilities 15,087,992 ------------------------------------------------------------------------------------------------------------------- FOOD PRODUCTS - 0.4% 29,900 Dairy Farmers of America 7.875% BBB- 2,956,363 Inc., 144A, - -------------------------------------------------------------------------------------------------------------------------------- HOUSEHOLD DURABLES - 0.5% 173,624 Pulte Homes Inc. 7.375% BB+ 3,326,636 - -------------------------------------------------------------------------------------------------------------------------------- INSURANCE - 17.8% 642,200 Ace Ltd., Series C 7.800% BBB 15,348,580 14,840 Aegon N.V. 6.875% A- 314,608 1,161,650 Aegon N.V. 6.375% A- 22,942,587 75,053 AMBAC Financial Group 5.950% AA 1,354,707 Inc. 44,000 AMBAC Financial Group 5.875% AA 784,520 Inc. 354,600 American International 7.700% Aa3 8,882,730 Group 15,500 Arch Capital Group 7.785% BBB- 359,600 Limited, Series B 513,512 Arch Capital Group 8.000% BBB- 12,832,665 Limited
15 JTP Nuveen Quality Preferred Income Fund (continued) Portfolio of INVESTMENTS as of December 31, 2007
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - -------------------------------------------------------------------------------------------------------------------------------- INSURANCE (continued) 382,400 Berkley WR Corporation, 6.750% BBB- $ 8,018,928 Capital Trust II 216,600 Delphi Financial Group, 8.000% BBB+ 5,135,586 Inc. 229,900 Delphi Financial Group, 7.376% BBB- 4,240,506 Inc. 466,600 EverestRe Capital Trust 6.200% Baa1 8,781,412 II 4,000 Financial Security 6.875% AA 78,920 Assurance Holdings 4,600 Financial Security 6.250% AA 83,950 Assurance Holdings 34,500 Lincoln National Capital 6.750% A- 777,975 Trust VI 265,920 Markel Corporation 7.500% BBB- 6,411,331 296,700 PartnerRe Limited, 6.750% BBB+ 5,714,442 Series C 77,700 PartnerRe Limited, 6.500% BBB+ 1,459,983 Series D 80,700 PLC Capital Trust III 7.500% BBB+ 1,834,311 414,700 PLC Capital Trust IV 7.250% BBB+ 9,123,400 7,900 PLC Capital Trust V 6.125% BBB+ 150,653 20,200 Protective Life 7.250% BBB 441,370 Corporation 8,300 Prudential Financial 6.000% A+ 170,648 Inc. (CORTS) 264,265 Prudential PLC 6.750% A 5,375,150 284,502 RenaissanceRe Holdings 6.600% BBB 5,274,667 Limited 65,100 RenaissanceRe Holdings 7.300% BBB 1,415,925 Limited, Series B - -------------------------------------------------------------------------------------------------------------------------------- Total Insurance 127,309,154 ------------------------------------------------------------------------------------------------------------------- IT SERVICES - 0.1% 31,500 Vertex Industries Inc. 7.625% A 794,430 (PPLUS) - -------------------------------------------------------------------------------------------------------------------------------- MEDIA - 6.0% 110,600 CBS Corporation 7.250% BBB 2,392,278 167,800 CBS Corporation 6.750% BBB 3,230,150 96,609 Comcast Corporation 7.000% BBB+ 2,197,855 735,519 Comcast Corporation 7.000% BBB+ 16,505,046 16,400 Comcast Corporation 6.625% BBB+ 337,676 828,932 Viacom Inc. 6.850% BBB 18,253,083 - -------------------------------------------------------------------------------------------------------------------------------- Total Media 42,916,088 ------------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 1.7% 532,932 Nexen Inc. 7.350% Baa3 12,358,693 - -------------------------------------------------------------------------------------------------------------------------------- PHARMACEUTICALS - 0.1% 20,500 Bristol-Myers Squibb 6.250% A+ 430,500 Company (CORTS) 14,300 Bristol-Myers Squibb 6.800% A+ 327,184 Company Trust (CORTS) - -------------------------------------------------------------------------------------------------------------------------------- Total Pharmaceuticals 757,684 ------------------------------------------------------------------------------------------------------------------- REAL ESTATE/MORTGAGE - 17.0% 41,158 AMB Property 6.750% Baa2 868,434 Corporation, Series M 196,300 AMB Property 6.850% Baa2 4,210,635 Corporation, Series P 12,500 AvalonBay Communities, 8.700% BBB 316,625 Inc., Series H 30,100 Developers Diversified 7.500% BBB- 624,274 Realty Corporation 47,300 Developers Diversified 8.000% BBB- 1,061,885 Realty Corporation, Series G 406,800 Developers Diversified 7.375% BBB- 8,339,400 Realty Corporation, Series H 155,700 Duke Realty Corporation, 6.600% BBB 3,059,505 Series L 51,700 Duke Realty Corporation, 7.250% BBB 1,066,054 Series N 279,400 First Industrial Realty 7.250% BBB- 5,657,850 Trust, Inc., Series J 577,039 HRPT Properties Trust, 8.750% BBB- 14,402,893 Series B 600,300 Kimco Realty 7.750% BBB+ 13,917,956 Corporation, Series G 3,600 Prologis Trust, Series F 6.750% BBB 76,464 107,400 Prologis Trust, Series G 6.750% BBB 2,257,548 455,900 PS Business Parks, Inc. 7.000% BBB- 8,935,640 57,970 PS Business Parks, Inc., 6.875% BBB- 1,113,024 Series I 240,000 PS Business Parks, Inc., 7.600% BBB- 5,049,600 Series L 1,700 PS Business Parks, Inc., 7.375% BBB- 34,595 Series O 4,000 Public Storage, Inc. 7.125% BBB+ 84,960 17,100 Public Storage, Inc. 6.750% BBB+ 336,015 64,800 Public Storage, Inc., 6.600% BBB+ 1,224,720 Series C 5,200 Public Storage, Inc., 6.750% BBB+ 101,972 Series E 59,400 Public Storage, Inc., 6.450% BBB+ 1,119,690 Series F 367,196 Public Storage, Inc., 7.250% BBB+ 7,729,476 Series K 95,200 Public Storage, Inc., 6.625% BBB+ 1,808,800 Series M 347,600 Public Storage, Inc., 7.500% BBB+ 7,751,480 Series V
16
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - -------------------------------------------------------------------------------------------------------------------------------- REAL ESTATE/MORTGAGE (continued) 3,371 Public Storage, Inc., 6.450% BBB+ $ 63,375 Series X 107,100 Public Storage, Inc., 6.850% BBB+ 2,289,263 Series Y 83,500 Realty Income 7.375% BBB- 1,974,775 Corporation 110,400 Realty Income 6.750% BBB- 2,336,064 Corporation, Series E 47,500 Regency Centers 7.450% BBB- 1,047,375 Corporation 22,600 Regency Centers 7.250% BBB- 465,560 Corporation 323,633 Vornado Realty Trust, 6.625% BBB- 6,365,861 Series G 40,200 Vornado Realty Trust, 6.750% BBB- 829,326 Series H 91,500 Vornado Realty Trust, 6.625% BBB- 1,808,955 Series I 579,400 Wachovia Preferred 7.250% A2 13,146,586 Funding Corporation 2,300 Weingarten Realty Trust, 6.950% A- 47,610 Series E - -------------------------------------------------------------------------------------------------------------------------------- Total Real 121,524,245 Estate/Mortgage ------------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 2.7% 13,400 Countrywide Capital 8.050% BBB- 162,140 Trust III (PPLUS) 717,384 Countrywide Capital 6.750% BBB- 8,457,957 Trust IV 792,505 Countrywide Capital 7.000% BBB- 9,074,182 Trust V 60,800 Harris Preferred Capital 7.375% A1 1,372,864 Corporation, Series A - -------------------------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage 19,067,143 Finance ------------------------------------------------------------------------------------------------------------------- U.S. AGENCY - 1.2% 19,300 Federal Home Loan 6.550% AA- 448,725 Mortgage Corporation 77,000 Federal Home Loan 8.375% AA- 2,013,550 Mortgage Corporation 125,000 Federal National 7.000% AA- 5,792,975 Mortgage Association - -------------------------------------------------------------------------------------------------------------------------------- Total U.S. Agency 8,255,250 ------------------------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES - 0.6% 159,700 United States Cellular 8.750% A- 3,982,922 Corporation - -------------------------------------------------------------------------------------------------------------------------------- TOTAL $25 PAR (OR SIMILAR) PREFERRED 604,416,795 SECURITIES (COST $715,539,654) =================================================================================================================== PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 1.3% (0.8% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 1.3% $ 8,600 Swedbank 7.500% 9/27/49 Aa2 $ 9,116,138 ForeningsSparbanken AB, 144A - ---------------------------------------------------------------------------------------------------------------------------------- $ 8,600 TOTAL CORPORATE BONDS 9,116,138 (COST $9,387,889) ================================================================================================================================== PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED SECURITIES - 66.4% (41.3% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 4.9% 2,500 Bank of New York Capital 7.970% 12/31/26 Aa3 $ 2,589,675 I, Series B 2,250 C.A. Preferred Fund 7.000% 10/30/49 A1 2,191,093 Trust II 8,250 C.A. Preferred Funding 7.000% 1/30/49 A1 8,044,880 Trust 11,400 Dresdner Funding Trust 8.151% 6/30/31 A1 11,657,788 I, 144A 1,900 MUFG Capital Finance 2 4.850% 7/25/56 BBB+ 2,357,586 2,000 Schwab Capital Trust I 7.500% 11/15/37 A3 2,016,068 5,500 UBS Preferred Funding 8.622% 10/29/49 Aa2 5,930,287 Trust I - ----------------------------------------------------------------------------------------------------------------------------------- Total Capital Markets 34,787,377 ------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 36.6% 4,000 AB Svensk Exportkredit, 6.375% 10/27/49 AA- 3,978,848 144A 19,850 Abbey National Capital 8.963% 6/30/50 A+ 23,378,495 Trust I 23,000 AgFirst Farm Credit Bank 8.393% 12/15/16 A- 24,485,799 3,000 AgFirst Farm Credit Bank 7.300% 12/15/53 A- 2,830,005 2,500 Bank One Capital III 8.750% 9/01/30 Aa3 2,902,340 1,500 BanPonce Trust I, Series 8.327% 2/01/27 Baa1 1,566,515 A 7,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 7,589,354 2,000 Barclays Bank PLC 7.434% 12/15/57 Aa3 2,081,952 6,000 BBVA International 5.919% 10/18/49 A1 5,260,974 Preferred S.A., Unipersonal 2,000 BNP Paribas 7.195% 12/25/57 AA- 1,977,780
17 JTP Nuveen Quality Preferred Income Fund (continued) Portfolio of INVESTMENTS as of December 31, 2007
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS (continued) 7,500 Capital One Capital IV 6.745% 2/17/37 Baa1 $ 5,591,168 Corporation 2,000 CBG Florida REIT 7.114% 11/15/49 Baa3 1,861,446 Corporation 3,000 Centura Capital Trust I, 8.845% 6/01/27 A2 3,132,600 144A 2,000 Corestates Capital Trust 8.000% 12/15/26 A+ 2,070,654 I, 144A 1,700 DBS Capital Funding 7.657% 3/15/49 Aa3 1,817,830 Corporation, 144A 11,500 Den Norske Bank, 144A 7.729% 6/29/49 Aa3 12,262,186 1,500 First Midwest Bancorp 6.950% 12/01/33 Baa1 1,376,414 Inc. 4,700 HBOS Capital Funding LP, 6.850% 3/23/49 A1 4,121,933 Notes 15,400 HBOS PLC, Series, 144A 6.413% 4/01/49 A1 12,566,123 5,750 HSBC Capital Funding LP, 9.547% 12/31/49 A1 6,288,143 144A 17,150 HSBC Capital Funding LP, 10.176% 6/30/50 A1 21,706,378 Debt 3,000 HT1 Funding, GmbH 6.352% 6/30/57 A- 4,032,114 13,000 KBC Bank Fund Trust III, 9.860% 5/02/50 A1 13,971,906 144A 2,000 KeyCorp Capital III 7.750% 7/15/29 A3 2,192,214 3,390 Lloyds TSB Bank PLC, 6.900% 11/22/49 Aa2 3,295,470 Subordinated Note 12,000 Mizuho Financial Group 8.375% 4/27/49 Aa3 12,128,280 7,755 Nordbanken AB, 144A 8.950% 11/29/49 Aa3 8,351,895 700 Northgroup Preferred 6.378% 10/15/57 A1 620,556 Capital Corporation, 144A 2,000 Popular North American 6.564% 9/15/34 Baa1 1,787,800 Capital Trust I 17,500 Reliance Capital Trust 8.170% 5/01/28 N/R 18,400,533 I, Series B 1,500 Royal Bank of Scotland 7.640% 3/31/49 A1 1,544,777 Group PLC, Series U 9,400 Shinsei Finance II 7.160% 7/25/49 Baa2 7,957,692 Cayman Limited, Perpetual Maturity, 144A 5,000 Sparebanken Rogaland, 6.443% 5/01/49 A2 4,940,135 Notes, 144A 2,600 Standard Chartered PLC, 6.409% 1/30/57 BBB+ 2,358,738 144A 3,600 Standard Chartered PLC, 7.014% 1/30/58 BBB+ 3,418,844 144A 6,100 Swedbank 9.000% 9/17/50 Aa3 6,518,076 ForeningsSparbanken AB, 144A 4,700 Unicredito Italiano 9.200% 4/05/51 A1 5,125,030 Capital Trust, 144A 800 Union Bank of Norway 7.068% 11/19/49 A2 1,206,472 4,000 Wachovia Capital Trust 7.640% 1/15/27 A1 4,156,252 I, Capital Securities, 144A 14,900 Washington Mutual 7.250% 3/15/49 BBB 9,801,727 Preferred Funding Cayman, Series A-1, 144A - ----------------------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 260,655,448 ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 4.1% 1,500 BNP Paribas Capital 9.003% 12/29/49 AA- 1,606,253 Trust, 144A 3,500 Fulton Capital Trust I 6.290% 2/01/36 A3 2,637,177 7,400 JPMorgan Chase Capital 6.950% 8/17/36 Aa3 7,050,002 Trust XVIII 8,000 MBNA Corporation, 8.278% 12/01/26 Aa2 8,318,912 Capital Trust A 1,809 MM Community Funding 8.030% 6/15/31 Aaa 1,876,950 Trust I Limited 8,100 Old Mutual Capital 8.000% 6/22/53 Baa2 8,122,680 Funding, Notes - ----------------------------------------------------------------------------------------------------------------------------------- Total Diversified 29,611,974 Financial Services ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 1.8% 11 Centaur Funding 9.080% 4/21/20 BBB 13,057,031 Corporation, Series B, 144A - ----------------------------------------------------------------------------------------------------------------------------------- INSURANCE - 12.8% 7,570 Ace Capital Trust II 9.700% 4/01/30 Baa1 9,614,672 2,000 American General Capital 8.500% 7/01/30 Aa3 2,345,738 II 19,000 AXA S.A., 144A 6.463% 12/14/49 BBB+ 17,141,249 5,800 Great West Life and 7.153% 5/16/46 A- 5,818,079 Annuity Insurance Company 5,000 MetLife Capital Trust IV 7.880% 12/15/67 BBB+ 5,109,160 3,500 MetLife Inc. 6.400% 12/15/66 BBB+ 3,217,736 1,400 Nationwide Financial 7.899% 3/01/37 Baa1 1,442,405 Services Capital Trust 4,100 Nationwide Financial 6.750% 5/15/67 Baa1 3,787,965 Services Inc. 6,500 Oil Insurance Limited, 7.558% 12/30/49 Baa1 6,643,832 144A 6,100 Progressive Corporation 6.700% 6/15/37 A2 5,672,665 2,000 Prudential PLC 6.500% 6/29/49 A 1,796,050 10,200 QBE Capital Funding 6.797% 6/01/49 BBB 9,783,809 Trust II, 144A 22,000 XL Capital, Limited 6.500% 10/15/57 BBB 19,267,974 - ----------------------------------------------------------------------------------------------------------------------------------- Total Insurance 91,641,334 ------------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 0.7% 5,860 KN Capital Trust III 7.630% 4/15/28 B1 5,315,020 - -----------------------------------------------------------------------------------------------------------------------------------
18
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- REAL ESTATE - 3.6% 19 Firstar Realty LLC, 144A 8.875% 12/31/50 Aa3 $ 25,828,124 - ----------------------------------------------------------------------------------------------------------------------------------- ROAD & RAIL - 1.0% 7,600 Burlington Northern 6.613% 12/15/55 BBB 7,114,672 Santa Fe Funding Trust I - ----------------------------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 0.9% 3,000 Caisse Nationale Des 6.750% 1/27/49 A+ 2,899,791 Caisses d'Epargne et de Prevoyance 800 Onbank Capital Trust I 9.250% 2/01/27 A3 839,236 4,600 Washington Mutual 6.665% 3/15/57 BBB 2,717,954 Preferred Funding Trust II - ----------------------------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage 6,456,981 Finance ------------------------------------------------------------------------------------------------------------------- TOTAL CAPITAL PREFERRED 474,467,961 SECURITIES (COST $503,417,626) =================================================================================================================== SHARES DESCRIPTION (1) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT COMPANIES - 5.6% (3.5% OF TOTAL INVESTMENTS) 251,398 Blackrock Preferred and $ 4,034,938 Corporate Income Strategies Fund 601,789 Blackrock Preferred 9,586,499 Income Strategies Fund 100,221 Blackrock Preferred 1,734,826 Opportunity Trust 643,692 Flaherty and 10,402,063 Crumrine/Claymore Preferred Securities Income Fund Inc. 216,228 Flaherty and 3,649,929 Crumrine/Claymore Total Return Fund Inc. 48,147 John Hancock Preferred 913,347 Income Fund 52,729 John Hancock Preferred 987,087 Income Fund II 497,219 John Hancock Preferred 8,969,831 Income Fund III - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT 40,278,520 COMPANIES (COST $49,277,335) =================================================================================================================== PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 0.1% (0.1% OF TOTAL INVESTMENTS) $ 1,000 United States of America 3.625% 10/31/09 $ 1,010,157 Treasury Notes - ----------------------------------------------------------------------------------------------------------------------------------- $ 1,000 TOTAL U.S. GOVERNMENT 1,010,157 AND AGENCY OBLIGATIONS (COST $1,010,765) =================================================================================================================================== PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 2.6% (1.6% OF TOTAL INVESTMENTS) $ 18,321 Repurchase Agreement 1.000% 1/02/08 $ 18,321,137 with Fixed Income Clearing Corporation, dated 12/31/07, repurchase price $18,322,155, collateralized by $13,400,000 U.S. Treasury Bonds, 7.625%, due 2/15/25, value $18,693,000 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM 18,321,137 INVESTMENTS (COST $18,321,137) =================================================================================================================== TOTAL INVESTMENTS (COST 1,147,610,708 $1,296,954,406) -- 160.7% ------------------------------------------------------------------------------------------------------------------- OTHER ASSETS LESS 6,333,861 LIABILITIES - 0.9% =================================================================================================================== FUNDPREFERRED SHARES, AT (440,000,000) LIQUIDATION VALUE -- (61.6)% (3) ------------------------------------------------------------------------------------------------------------------- NET ASSETS APPLICABLE TO $ 713,944,569 COMMON SHARES -- 100% ===================================================================================================================
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2007:
FUND FIXED RATE UNREALIZED NOTIONAL PAY/RECEIVE FLOATING RATE FIXED RATE PAYMENT TERMINATION APPRECIATION COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION) ---------------------------------------------------------------------------------------------------------------------------- Citigroup Inc. $110,000,000 Receive 1-Month USD-LIBOR 4.350% Monthly 8/29/09 $ (987,076) ============================================================================================================================
USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
19 JTP Nuveen Quality Preferred Income Fund (continued) Portfolio of INVESTMENTS as of December 31, 2007 (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. (3) FundPreferred Shares, at Liquidation Value as a percentage of total investments is (38.3)%. N/R Not rated. 144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. CORTS Corporate Backed Trust Securities. PPLUS PreferredPlus Trust. SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements. 20 JPS Nuveen Quality Preferred Income Fund 2 Portfolio of INVESTMENTS as of December 31, 2007
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------- $25 PAR (OR SIMILAR) PREFERRED SECURITIES - 83.8% (53.6% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 5.8% 51,724 Bear Stearns Capital 7.800% A2 $ 1,249,652 Trust III 18,700 BNY Capital Trust IV, 6.875% Aa3 430,100 Series E 31,993 BNY Capital Trust V, 5.950% Aa3 664,175 Series F 1,306,900 Deutsche Bank Capital 6.550% Aa3 28,242,109 Funding Trust II 10,700 Goldman Sachs Capital I 6.000% A1 215,177 (CORTS) 14,000 Goldman Sachs Capital I, 6.000% A1 277,480 Series A (CORTS) 4,800 Goldman Sachs Group Inc. 5.750% AA- 97,680 (SATURNS) 1,900 Goldman Sachs Group Inc., 6.000% AA- 38,475 Series 2003-06 (SATURNS) 6,600 Goldman Sachs Group Inc., 5.625% Aa3 127,182 Series 2003-11 (SATURNS) 35,900 Goldman Sachs Group Inc., 6.000% A1 715,846 Series 2004-04 (SATURNS) 7,000 Goldman Sachs Group Inc., 6.000% A1 139,720 Series 2004-06 (SATURNS) 10,200 Goldman Sachs Group Inc., 6.000% A1 200,430 Series 2004-4 (CORTS) 16,800 Goldman Sachs Group Inc., 6.000% A1 332,304 Series GSC-3 (PPLUS) 12,700 Goldman Sachs Group Inc., 6.000% A1 251,079 Series GSC-4 Class A (PPLUS) 14,800 Goldman Sachs Group Inc., 6.000% AA- 309,320 Series GSG-1 (PPLUS) 7,400 Goldman Sachs Group Inc., 5.750% AA- 147,038 Series GSG-2 (PPLUS) 3,200 JPMorgan Chase Capital 6.625% Aa3 70,080 Trust XIX, Series S 228,000 Lehman Brothers Holdings 6.375% A2 4,537,200 Capital Trust III, Series K 103,600 Lehman Brothers Holdings 6.375% A2 2,134,160 Capital Trust IV, Series L 56,200 Lehman Brothers Holdings 6.000% A2 1,073,420 Capital Trust V, Series M 5,400 Lehman Brothers Holdings 6.240% A2 110,160 Capital Trust VI, Series N 197,781 Merrill Lynch Preferred 7.000% A2 4,113,845 Capital Trust III 144,200 Merrill Lynch Preferred 7.120% A2 3,157,980 Capital Trust IV 253,200 Merrill Lynch Preferred 7.280% A2 5,570,400 Capital Trust V 417,664 Morgan Stanley Capital 6.250% A1 7,981,559 Trust III 268,757 Morgan Stanley Capital 6.250% A1 5,119,821 Trust IV 36,579 Morgan Stanley Capital 5.750% A+ 640,133 Trust V 500,400 Morgan Stanley Capital 6.600% A1 10,033,020 Trust VI 126,797 Morgan Stanley Capital 6.600% A2 2,486,489 Trust VII - ----------------------------------------------------------------------------------------------------------------- Total Capital Markets 80,466,034 ---------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 14.1% 47,100 ABN AMRO Capital Fund 5.900% A1 857,220 Trust V 1,600 ABN AMRO Capital Trust 6.080% A1 29,728 Fund VII 162,960 ASBC Capital I 7.625% A3 3,911,040 5,200 BAC Capital Trust IV 5.875% Aa2 102,700 3,800 BAC Capital Trust V 6.000% Aa3 75,544 3,000 BAC Capital Trust VIII 6.000% Aa2 58,950 141,100 BAC Capital Trust X 6.250% Aa2 2,893,961 82,334 Banco Santander Finance 6.410% Aa3 1,815,465 77,879 Banco Santander Finance, 6.500% A 1,625,724 144A 202,057 Banco Santander Finance, 6.800% Aa3 4,455,357 144A 18,600 BancorpSouth Capital 8.150% Baa1 465,000 Trust I 731,000 Banesto Holdings, Series 10.500% A1 22,523,938 A, 144A 100,000 Bank of America 6.625% Aa3 2,367,000 Corporation 206,700 Bank One Capital Trust VI 7.200% Aa3 4,816,110 100,000 Barclays Bank PLC 7.750% Aa3 2,520,000 100,000 Barclays Bank PLC 7.100% Aa3 2,375,000 22,412 Barclays Bank PLC 6.625% Aa3 486,789 408,300 Capital One Capital II 7.500% Baa1 7,757,700 Corporation 481,100 Citizens Funding Trust I 7.500% Baa2 7,457,050 225,500 Cobank ABC, 144A 7.000% A 11,396,094 659,300 Fifth Third Capital Trust 7.250% A1 13,713,440 VI 3,000 Fleet Capital Trust IX 6.000% Aa2 59,250 374,795 HSBC Finance Corporation 6.875% AA- 8,796,439 150,300 HSBC Finance Corporation 6.000% Aa3 3,163,815 51,398 KeyCorp Capital Trust IX 6.750% Baa1 973,992 4,500 KeyCorp Capital Trust V 5.875% A3 79,650 5,300 KeyCorp Capital VI 6.125% A3 98,951 58,962 KeyCorp Capital VIII 7.000% A3 1,185,136 1,162,900 National City Capital 6.625% A3 19,245,995 Trust II
21 JPS Nuveen Quality Preferred Income Fund 2 (continued) Portfolio of INVESTMENTS as of December 31, 2007
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS (continued) 92,100 National City Capital 8.000% A2 $ 1,941,008 Trust IV 1,800 National Westminster Bank 7.760% Aa3 44,910 PLC 289,600 PFCI Capital Corporation 7.750% A- 7,484,364 4,600 PNC Capital Trust 6.125% A2 96,600 97,900 Royal Bank of Scotland 6.600% Aa3 1,983,454 Group PLC 50,000 Royal Bank of Scotland 5.750% A1 897,500 Group PLC, Series L 598,076 Royal Bank of Scotland 6.350% A1 11,662,482 Group PLC, Series N 8,900 Royal Bank of Scotland 6.250% A1 170,969 Group PLC, Series P 229,400 Royal Bank of Scotland 7.250% Aa3 5,296,846 Group PLC, Series T 3,500 SunAmerica (CORTS) 6.700% AA 74,165 7,600 USB Capital Trust VI 5.750% Aa3 146,604 21,900 USB Capital Trust VII 5.875% Aa3 427,926 2,000 USB Capital Trust VIII 6.350% Aa3 40,160 2,000 USB Capital Trust X 6.500% Aa3 42,000 530,050 USB Capital Trust XI 6.600% A1 11,210,558 74,740 VNB Capital Trust I 7.750% A3 1,849,068 9,715 Wachovia Capital Trust IX 6.375% A1 193,814 179,416 Wachovia Trust IV 6.375% A1 3,593,702 2,800 Wells Fargo Capital Trust 5.625% Aa2 53,760 IX 301,700 Wells Fargo Capital Trust 7.000% Aa2 6,969,270 V 34,481 Wells Fargo Capital Trust 5.850% Aa2 695,482 VII 3,100 Wells Fargo Capital Trust 5.625% Aa2 61,039 VIII 590,350 Zions Capital Trust B 8.000% BBB- 14,605,259 - ----------------------------------------------------------------------------------------------------------------- Total Commercial Banks 194,847,978 ---------------------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS - 0.0% 7,200 IBM Corporation, Class A 5.625% A+ 145,800 (CORTS) 11,310 IBM Inc., Trust 7.100% A+ 279,357 Certificates, Series 2001-2 1,500 IBM Trust VI (CORTS) 6.375% A+ 35,610 - ----------------------------------------------------------------------------------------------------------------- Total Computers & 460,767 Peripherals ---------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 11.1% 6,300 Allied Capital 6.875% BBB+ 107,100 Corporation 3,900 American International 6.125% Aa3 77,103 Group, (CORTS) 393,960 BAC Capital Trust XII 6.875% Aa3 8,903,496 558,725 Citigroup Capital Trust 6.950% A+ 11,761,161 VIII 95,990 Citigroup Capital Trust 6.000% A+ 1,780,615 IX 17,700 Citigroup Capital X 6.100% A+ 326,565 32,300 Citigroup Capital Trust 6.000% A+ 595,935 XI 163,075 Citigroup Capital XIV 6.875% A+ 3,302,269 851,188 Citigroup Capital XV 6.500% Aa3 16,555,607 35,900 Citigroup Capital XVI 6.450% A+ 681,741 118,600 Citigroup Capital XVII 6.350% A+ 2,253,400 71,900 Citigroup Capital XIX 7.250% A+ 1,581,800 241,800 Citigroup Capital XX 7.875% Aa3 6,037,456 1,246,000 Deutsche Bank Capital 6.375% A 26,427,660 Funding Trust VIII 127,912 General Electric Capital 6.450% AAA 3,293,734 Corporation 19,228 General Electric Capital 6.100% AAA 459,165 Corporation 5,000 General Electric Capital 6.050% AAA 125,000 Corporation 3,200 General Electric Capital 5.875% AAA 74,272 Corporation 1,509,600 ING Groep N.V. 7.200% A1 33,845,232 1,432,255 ING Groep N.V. 7.050% A 31,366,385 25,800 ING Groep N.V. 6.375% A1 519,354 2,700 ING Groep N.V. 6.200% A1 52,650 3,200 JPMorgan Chase Capital 5.875% Aa3 62,976 Trust XI 11,900 JPMorgan Chase Capital 6.200% Aa3 241,689 Trust XIV 158,000 Merrill Lynch Capital 6.450% A 3,069,940 Trust I - ----------------------------------------------------------------------------------------------------------------- Total Diversified 153,502,305 Financial Services ---------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 0.3% 87,100 AT&T Inc. 6.375% A 2,100,852 17,500 BellSouth Capital Funding 7.100% A 390,469 (CORTS) 43,200 BellSouth Corporation 7.000% A 890,460 (CORTS) 28,800 Verizon Communications 7.625% A 724,032 (CORTS) - ----------------------------------------------------------------------------------------------------------------- Total Diversified 4,105,813 Telecommunication Services ---------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES - 3.9% 27,400 DTE Energy Trust I 7.800% Baa3 683,630 4,200 Entergy Arkansas Inc. 6.700% AAA 103,950
22
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES (continued) 4,900 Entergy Arkansas Inc. 6.000% AAA $ 119,266 57,650 Entergy Louisiana LLC 7.600% A- 1,411,849 1,299,100 Entergy Mississippi Inc. 7.250% A- 32,906,203 1,400 Entergy Mississippi Inc. 6.000% AAA 34,328 110,392 FPL Group Capital Inc. 6.600% A3 2,649,408 6,500 FPL Group Capital Trust I 5.875% A3 139,880 4,600 Georgia Power Company 6.375% AAA 117,760 1,600 National Rural Utilities 6.750% A3 38,160 Cooperative Finance Corporation 9,000 National Rural Utilities 6.100% A3 190,890 Cooperative Finance Corporation 25,600 National Rural Utilities 5.950% A3 541,184 Cooperative Finance Corporation 13,600 PPL Capital Funding, 6.850% Baa2 319,736 Inc. 356,600 PPL Energy Supply LLC 7.000% BBB 8,861,510 265,500 Virginia Power Capital 7.375% BBB 6,475,545 Trust - ----------------------------------------------------------------------------------------------------------------- Total Electric Utilities 54,593,299 ---------------------------------------------------------------------------------------------------- FOOD PRODUCTS - 0.4% 56,900 Dairy Farmers of America 7.875% BBB- 5,625,988 Inc., 144A - ----------------------------------------------------------------------------------------------------------------- HOUSEHOLD DURABLES - 0.4% 255,156 Pulte Homes Inc. 7.375% BB+ 4,888,789 - ----------------------------------------------------------------------------------------------------------------- INSURANCE - 16.7% 1,214,900 Ace Ltd., Series C 7.800% BBB 29,036,110 1,000 Aegon N.V., Series 1 5.915% A- 17,750 77,018 Aegon N.V. 6.875% A- 1,632,782 6,000 Aegon N.V. 7.250% A- 133,140 2,463,950 Aegon N.V. 6.375% A- 48,663,011 2,100 AIG Capital Securities, 6.000% Aa3 40,509 Series 2002-11 (SATURNS) 67,190 AMBAC Financial Group 5.950% AA 1,212,780 Inc. 11,000 American International 6.450% Aa3 229,900 Group, Inc. 315,000 American International 7.700% Aa3 7,890,750 Group, Inc. 989,983 Arch Capital Group 8.000% BBB- 24,739,675 Limited 10,500 Arch Capital Group 7.785% BBB- 243,600 Limited, Series B 711,246 Berkley WR Corporation, 6.750% BBB- 14,914,829 Capital Trust II 659,307 Delphi Financial Group, 8.000% BBB+ 15,632,169 Inc. 425,300 Delphi Financial Group, 7.376% BBB- 7,844,659 Inc. 149,150 EverestRe Capital Trust 6.200% Baa1 2,807,003 II 63,800 Financial Security 6.875% AA 1,258,774 Assurance Holdings 714,000 Financial Security 6.250% AA 13,030,500 Assurance Holdings 2,800 Financial Security 5.600% AA 45,080 Assurance Holdings 54,300 Lincoln National Capital 6.750% A- 1,224,465 Trust VI 14,900 Lincoln National 6.750% A- 335,250 Corporation 531,600 Markel Corporation 7.500% BBB- 12,816,876 651,620 PartnerRe Limited, Series 6.750% BBB+ 12,550,201 C 27,400 PartnerRe Limited, Series 6.500% BBB+ 514,846 D 109,000 PLC Capital Trust III 7.500% BBB+ 2,477,570 462,240 PLC Capital Trust IV 7.250% BBB+ 10,169,280 26,100 PLC Capital Trust V 6.125% BBB+ 497,727 122,700 Protective Life 7.250% BBB 2,680,995 Corporation 9,400 Prudential Financial Inc. 6.000% A+ 193,264 (CORTS) 380,900 Prudential PLC 6.750% A 7,747,506 32,000 Prudential PLC 6.500% A- 645,760 358,200 RenaissanceRe Holdings 6.600% BBB 6,641,028 Limited 156,100 RenaissanceRe Holdings 7.300% BBB 3,395,175 Limited, Series B 12,300 RenaissanceRe Holdings 6.080% BBB+ 211,806 Limited, Series C 10,400 Torchmark Capital Trust 7.100% BBB+ 238,160 III - ----------------------------------------------------------------------------------------------------------------- Total Insurance 231,712,930 ---------------------------------------------------------------------------------------------------- IT SERVICES - 0.0% 16,500 Vertex Industries Inc. 7.625% A 416,130 (PPLUS) - ----------------------------------------------------------------------------------------------------------------- MEDIA - 5.3% 171,400 CBS Corporation 7.250% BBB 3,707,382 864,700 CBS Corporation 6.750% BBB 16,645,475 5,500 Comcast Corporation 7.000% BBB+ 125,125 1,372,514 Comcast Corporation 7.000% BBB+ 30,799,214 3,700 Comcast Corporation 6.625% BBB+ 76,183 1,000,840 Viacom Inc. 6.850% BBB 22,038,497
23 JPS Nuveen Quality Preferred Income Fund 2 (continued) Portfolio of INVESTMENTS as of December 31, 2007
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------- MEDIA (continued) 3,600 Walt Disney Company 6.875% A $ 91,116 (CORTS) - ----------------------------------------------------------------------------------------------------------------- Total Media 73,482,992 ---------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 1.5% 908,311 Nexen Inc. 7.350% Baa3 21,063,732 - ----------------------------------------------------------------------------------------------------------------- PHARMACEUTICALS - 0.0% 7,600 Bristol-Myers Squibb 6.250% A+ 159,600 Company (CORTS) 7,500 Bristol-Myers Squibb 6.800% A+ 171,600 Company Trust (CORTS) - ----------------------------------------------------------------------------------------------------------------- Total Pharmaceuticals 331,200 ---------------------------------------------------------------------------------------------------- REAL ESTATE/MORTGAGE - 19.4% 40,000 AMB Property Corporation, 7.000% Baa2 878,000 Series O 212,979 AMB Property Corporation, 6.850% Baa2 4,568,400 Series P 95,400 AvalonBay Communities, 8.700% BBB 2,416,482 Inc., Series H 105,805 BRE Properties, Series C 6.750% BBB- 2,046,269 32,635 BRE Properties, Series D 6.750% BBB- 652,700 42,167 Developers Diversified 7.500% BBB- 874,544 Realty Corporation 639,813 Developers Diversified 8.000% BBB- 14,363,802 Realty Corporation, Series G 191,323 Developers Diversified 7.375% BBB- 3,922,122 Realty Corporation, Series H 231,300 Duke Realty Corporation, 6.500% BBB 4,385,448 Series K 302,600 Duke Realty Corporation, 6.600% BBB 5,946,090 Series L 2,200 Duke Realty Corporation, 7.250% BBB 45,364 Series N 154,846 Duke-Weeks Realty 6.950% BBB 3,120,147 Corporation 5,600 Duke-Weeks Realty 6.625% BBB 108,864 Corporation 289,100 First Industrial Realty 7.250% BBB- 5,854,328 Trust, Inc., Series J 1,066,465 HRPT Properties Trust, 8.750% BBB- 26,618,966 Series B 71,980 HRPT Properties Trust, 7.125% BBB- 1,453,996 Series C 173,200 Kimco Realty Corporation, 6.650% BBB+ 3,723,800 Series F 905,801 Kimco Realty Corporation, 7.750% BBB+ 21,000,996 Series G 1,300 Prologis Trust, Series F 6.750% BBB 27,612 95,328 Prologis Trust, Series G 6.750% BBB 2,003,795 13,100 PS Business Parks, Inc. 6.700% BBB- 248,376 774,970 PS Business Parks, Inc. 7.000% BBB- 15,189,412 108,900 PS Business Parks, Inc., 6.875% BBB- 2,090,880 Series I 110,700 PS Business Parks, Inc., 7.950% BBB- 2,436,507 Series K 401,000 PS Business Parks, Inc., 7.600% BBB- 8,437,040 Series L 6,300 PS Business Parks, Inc., 7.375% BBB- 128,205 Series O 43,400 Public Storage, Inc. 6.750% BBB+ 852,810 4,800 Public Storage, Inc. 7.125% BBB+ 101,952 234,600 Public Storage, Inc., 6.600% BBB+ 4,433,940 Series C 41,400 Public Storage, Inc., 6.750% BBB+ 811,854 Series E 73,666 Public Storage, Inc., 6.450% BBB+ 1,388,604 Series F 17,130 Public Storage, Inc., 6.950% BBB+ 339,859 Series H 401,300 Public Storage, Inc., 7.250% BBB+ 8,443,352 Series I 381,020 Public Storage, Inc., 7.250% BBB+ 8,020,471 Series K 711,570 Public Storage, Inc., 6.625% BBB+ 13,519,830 Series M 148,000 Public Storage, Inc., 7.500% BBB+ 3,300,400 Series V 5,300 Public Storage, Inc., 6.450% BBB+ 99,640 Series X 67,600 Public Storage, Inc., 6.850% BBB+ 1,444,950 Series Y 4,000 Public Storage, Inc., 6.250% BBB+ 72,200 Series Z 159,400 Realty Income Corporation 7.375% BBB- 3,769,810 474,358 Realty Income 6.750% BBB- 10,037,415 Corporation, Series E 325,223 Regency Centers 7.450% BBB- 7,171,167 Corporation 245,800 Regency Centers 7.250% BBB- 5,063,480 Corporation 26,900 Vornado Realty Trust, 6.750% BBB- 554,678 Series F 213,940 Vornado Realty Trust, 6.625% BBB- 4,208,200 Series G 122,800 Vornado Realty Trust, 6.750% BBB- 2,533,364 Series H 220,250 Vornado Realty Trust, 6.625% BBB- 4,354,343 Series I 2,296,200 Wachovia Preferred 7.250% A2 52,100,775 Funding Corporation 2,100 Weingarten Realty 6.500% BBB 40,740 Investors Series F 158,600 Weingarten Realty Trust, 6.950% A- 3,283,020 Series E - ----------------------------------------------------------------------------------------------------------------- Total Real 268,488,999 Estate/Mortgage ---------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 1.7% 971,765 Countrywide Capital Trust 6.750% BBB- 11,457,109 IV 1,072,275 Countrywide Capital Trust 7.000% BBB- 12,277,549 V 22,300 Harris Preferred Capital 7.375% A1 503,534 Corporation, Series A - ----------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage 24,238,192 Finance ----------------------------------------------------------------------------------------------------
24
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------- U.S. AGENCY - 1.5% 67,200 Federal Home Loan 6.550% AA- $ 1,562,400 Mortgage Corporation 289,000 Federal Home Loan 8.375% AA- 7,557,350 Mortgage Corporation 238,000 Federal National Mortgage 7.000% AA- 11,029,824 Association - ----------------------------------------------------------------------------------------------------------------- Total U.S. Agency 20,149,574 ---------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES - 1.7% 939,840 United States Cellular 8.750% A- 23,439,605 Corporation - ----------------------------------------------------------------------------------------------------------------- TOTAL $25 PAR (OR SIMILAR) PREFERRED 1,161,814,327 SECURITIES (COST $1,351,225,257) ==================================================================================================== PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 0.7% (0.4% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 0.7% $ 5,000 Credit Agricole S.A. 6.637% 5/29/49 Aa3 $ 4,646,625 4,400 Swedbank 7.500% 9/27/49 Aa2 4,664,070 ForeningsSparbanken AB, 144A - ------------------------------------------------------------------------------------------------------------------- 9,400 Total Commercial Banks 9,310,695 - ------------------------------------------------------------------------------------------------------------------- $ 9,400 TOTAL CORPORATE BONDS 9,310,695 (COST $9,683,419) =================================================================================================================== PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - -------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED SECURITIES - 64.4% (41.1% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 6.9% 1,465 Bank of New York Capital 7.970% 12/31/26 Aa3 $ 1,517,550 I, Series B 5,000 C.A. Preferred Fund Trust 7.000% 10/30/49 A1 4,869,095 II 10,300 C.A. Preferred Funding 7.000% 1/30/49 A1 10,043,911 Trust 21,190 Dresdner Funding Trust I, 8.151% 6/30/31 A1 21,669,169 144A 17,095 First Union Capital Trust 7.950% 11/15/29 A1 18,244,741 II, Series A 10,000 Mizuho JGB Investment 9.870% 6/30/48 A1 10,092,510 3,600 MUFG Capital Finance 2 4.850% 7/25/56 BBB+ 4,467,005 3,000 Schwab Capital Trust I 7.500% 11/15/37 A3 3,024,102 19,800 UBS Preferred Funding 8.622% 10/29/49 Aa2 21,349,033 Trust I - -------------------------------------------------------------------------------------------------------------------- Total Capital Markets 95,277,116 ---------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 34.9% 10,000 AB Svensk Exportkredit, 6.375% 10/27/49 AA- 9,947,120 144A 36,650 Abbey National Capital 8.963% 6/30/50 A+ 43,164,829 Trust I 29,000 AgFirst Farm Credit Bank 8.393% 12/15/16 A- 30,873,400 7,100 AgFirst Farm Credit Bank 7.300% 12/15/53 A- 6,697,679 6,500 Bank One Capital III 8.750% 9/01/30 Aa3 7,546,084 4,300 BankAmerica Institutional 7.700% 12/31/26 Aa2 4,491,905 Capital Trust, Series B, 144A 4,500 BanPonce Trust I, Series 8.327% 2/01/27 Baa1 4,699,544 A 36,000 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 37,946,770 1,000 Barclays Bank PLC 7.434% 12/15/57 Aa3 1,040,976 6,900 BBVA International 5.919% 10/18/49 A1 6,050,120 Preferred S.A., Unipersonal 1,000 BNP Paribas 7.195% 12/25/57 AA- 988,890 5,000 Capital One Capital III 7.686% 8/15/36 Baa1 4,075,995 Corporation 6,920 Capital One Capital IV 6.745% 2/17/37 Baa1 5,158,784 Corporation 15,000 CBG Florida REIT 7.114% 11/15/49 Baa3 13,960,845 Corporation 2,000 Corestates Capital Trust 8.000% 12/15/26 A+ 2,070,654 I, 144A 3,700 DBS Capital Funding 7.657% 3/15/49 Aa3 3,956,454 Corporation, 144A 11,700 Den Norske Bank, 144A 7.729% 6/29/49 Aa3 12,475,441 1,500 First Empire Capital 8.234% 2/01/27 A3 1,565,078 Trust I 1,500 First Midwest Bancorp 6.950% 12/01/33 Baa1 1,376,414 Inc. 6,310 HBOS Capital Funding LP, 6.850% 3/23/49 A1 5,533,914 Notes 24,200 HBOS PLC, Series, 144A 6.413% 4/01/49 A1 19,746,764 2,400 HSBC Capital Funding LP, 9.547% 12/31/49 A1 2,624,616 144A 6,250 HSBC Capital Funding LP, 10.176% 6/30/50 A1 7,910,488 Debt 6,000 HT1 Funding, GmbH 6.352% 6/30/57 A- 8,064,228 32,000 KBC Bank Fund Trust III, 9.860% 5/02/50 A1 34,392,384 144A 8,000 KeyCorp Capital III 7.750% 7/15/29 A3 8,768,856 12,500 Lloyds TSB Bank PLC, 6.900% 11/22/49 Aa2 12,151,438 Subordinated Note 14,000 Mizuho Financial Group 8.375% 4/27/49 Aa3 14,149,660 14,000 Nordbanken AB, 144A 8.950% 11/29/49 Aa3 15,077,566 8,000 North Fork Capital Trust 8.000% 12/15/27 Baa1 7,538,048 II
25 JPS Nuveen Quality Preferred Income Fund 2 (continued) Portfolio of INVESTMENTS as of December 31, 2007
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - -------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS (continued) 10,000 Northgroup Preferred 6.378% 10/15/57 A1 $ 8,865,080 Capital Corporation, 144A 2,000 Popular North American 6.564% 9/15/34 Baa1 1,787,800 Capital Trust I 8,000 Reliance Capital Trust I, 8.170% 5/01/28 N/R 8,411,672 Series B 17,500 Royal Bank of Scotland 9.118% 3/31/49 Aa3 18,717,860 Group PLC 3,300 Royal Bank of Scotland 7.640% 3/31/49 A1 3,398,508 Group PLC, Series U 22,700 Shinsei Finance II Cayman 7.160% 7/25/49 Baa2 19,216,980 Limited, Perpetual Maturity, 144A 5,000 Sparebanken Rogaland, 6.443% 5/01/49 A2 4,940,135 Notes, 144A 6,900 Standard Chartered PLC, 7.014% 1/30/58 BBB+ 6,552,785 144A 13,600 Swedbank 9.000% 9/17/50 Aa3 14,532,103 ForeningsSparbanken AB, 144A 9,000 Unicredito Italiano 9.200% 4/05/51 A1 9,813,888 Capital Trust, 144A 1,500 Union Bank of Norway 7.068% 11/19/49 A2 2,262,135 -- (3) Union Planters Preferred 7.750% 7/15/53 A2 27,262,500 Fund, 144A 36,700 Washington Mutual 7.250% 3/15/49 BBB 24,142,508 Preferred Funding Cayman, Series A-1, 144A - -------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 483,948,898 ---------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 4.0% 1,000 BNP Paribas Capital 9.003% 12/29/49 AA- 1,070,835 Trust, 144A 6,800 Fulton Capital Trust I 6.290% 2/01/36 A3 5,123,657 15,300 JPMorgan Chase Capital 6.950% 8/17/36 Aa3 14,576,356 Trust XVIII 13,400 MBNA Corporation, Capital 8.278% 12/01/26 Aa2 13,934,178 Trust A 1,805 MM Community Funding 8.030% 6/15/31 Aaa 1,872,900 Trust I Limited 19,300 Old Mutual Capital 8.000% 6/22/53 Baa2 19,354,040 Funding, Notes - -------------------------------------------------------------------------------------------------------------------- Total Diversified 55,931,966 Financial Services ---------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 2.5% 30 Centaur Funding 9.080% 4/21/20 BBB 35,108,904 Corporation, Series B, 144A - -------------------------------------------------------------------------------------------------------------------- INSURANCE - 12.9% 14,280 Ace Capital Trust II 9.700% 4/01/30 Baa1 18,137,057 28,000 American General 8.125% 3/15/46 Aa3 32,909,184 Institutional Capital, 144A 12,900 AXA S.A., 144A 6.463% 12/14/49 BBB+ 11,638,006 10,700 AXA-UAP 8.600% 12/15/30 A- 13,156,634 9,600 Great West Life and 7.153% 5/16/46 A- 9,629,923 Annuity Insurance Company 1,000 Liberty Mutual Group 7.800% 3/15/37 Baa3 891,875 8,000 MetLife Capital Trust IV 7.880% 12/15/67 BBB+ 8,174,656 5,500 MetLife Inc. 6.400% 12/15/66 BBB+ 5,056,442 1,200 Nationwide Financial 7.899% 3/01/37 Baa1 1,236,347 Services Capital Trust 6,400 Nationwide Financial 6.750% 5/15/67 Baa1 5,912,922 Services Inc. 12,300 Oil Insurance Limited, 7.558% 12/30/49 Baa1 12,572,174 144A 15,600 Progressive Corporation 6.700% 6/15/37 A2 14,507,142 2,850 Prudential PLC 6.500% 6/29/49 A 2,559,371 18,100 QBE Capital Funding Trust 6.797% 6/01/49 BBB 17,361,466 II, 144A 28,900 XL Capital, Limited 6.500% 10/15/57 BBB 25,311,111 - -------------------------------------------------------------------------------------------------------------------- Total Insurance 179,054,310 ---------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 0.7% 10,750 KN Capital Trust III 7.630% 4/15/28 B1 9,750,250 - -------------------------------------------------------------------------------------------------------------------- ROAD & RAIL - 1.0% 14,400 Burlington Northern Santa 6.613% 12/15/55 BBB 13,480,430 Fe Funding Trust I - -------------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 1.5% 12,811 Countrywide Capital Trust 8.050% 6/15/27 BBB- 8,973,273 III, Series B 1,300 MM Community Funding 9.480% 6/15/31 Baa2 1,366,339 Trust I Limited 18,100 Washington Mutual 6.665% 3/15/57 BBB 10,694,571 Preferred Funding Trust II - -------------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage 21,034,183 Finance ---------------------------------------------------------------------------------------------------- TOTAL CAPITAL PREFERRED 893,586,057 SECURITIES (COST $962,916,913) ====================================================================================================
26
SHARES DESCRIPTION (1) VALUE - -------------------------------------------------------------------------------------------------------------------- INVESTMENT COMPANIES - 5.2% (3.3% OF TOTAL INVESTMENTS) 306,317 Blackrock Preferred and $ 4,916,388 Corporate Income Strategies Fund 1,126,886 Blackrock Preferred 17,951,294 Income Strategies Fund 347,135 Blackrock Preferred 6,008,907 Opportunity Trust 1,217,312 Flaherty and 19,671,762 Crumrine/Claymore Preferred Securities Income Fund Inc. 216,222 Flaherty and 3,649,827 Crumrine/Claymore Total Return Fund Inc. 107,237 John Hancock Preferred 2,034,286 Income Fund 90,920 John Hancock Preferred 1,702,022 Income Fund II 884,701 John Hancock Preferred 15,960,006 Income Fund III - -------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT 71,894,492 COMPANIES (COST $88,111,171) ==================================================================================================== PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 0.1% (0.0% OF TOTAL INVESTMENTS) $ 1,000 United States of America 3.125% 11/30/09 $ 1,001,407 Treasury Notes - -------------------------------------------------------------------------------------------------------------------- $ 1,000 TOTAL U.S. GOVERNMENT AND AGENCY 1,001,407 OBLIGATIONS (COST $1,004,141) ==================================================================================================================== PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 2.5% (1.6% OF TOTAL INVESTMENTS) $ 35,101 Repurchase Agreement with 1.000% 1/02/08 $ 35,100,887 Fixed Income Clearing Corporation, dated 12/31/07, repurchase price $35,102,837, collateralized by $33,190,000 U.S. Treasury Notes, 4.875%, due 8/15/16, value $35,803,713 ========== ---------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM 35,100,887 INVESTMENTS (COST $35,100,887) ==================================================================================================== TOTAL INVESTMENTS (COST 2,172,707,865 $2,448,041,788) - 156.7% ---------------------------------------------------------------------------------------------------- OTHER ASSETS LESS 13,417,564 LIABILITIES - 1.0% ==================================================================================================== FUNDPREFERRED SHARES, AT (800,000,000) LIQUIDATION VALUE - (57.7)% (4) ---------------------------------------------------------------------------------------------------- NET ASSETS APPLICABLE TO $1,386,125,429 COMMON SHARES - 100% ====================================================================================================
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2007:
FUND FIXED RATE UNREALIZED NOTIONAL PAY/RECEIVE FLOATING RATE FIXED RATE PAYMENT TERMINATION APPRECIATION COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION) --------------------------------------------------------------------------------------------------------------------------- Citigroup Inc. $200,000,000 Receive 1-Month USD-LIBOR 3.910% Monthly 11/06/09 $ (418,657) ===========================================================================================================================
USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. (3) Principal Amount (000)/Shares rounds to less than $1,000. (4) FundPreferred Shares, at Liquidation Value as a percentage of total investments is (36.8)%. N/R Not rated. 144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. CORTS Corporate Backed Trust Securities. PPLUS PreferredPlus Trust. SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements. 27 JHP Nuveen Quality Preferred Income Fund 3 Portfolio of INVESTMENTS as of December 31, 2007
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - -------------------------------------------------------------------------------------------------------------------------------- $25 PAR (OR SIMILAR) PREFERRED SECURITIES - 100.0% (61.6% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 11.5% 21,206 Bear Stearns Capital 7.800% A2 $ 512,337 Trust III 725 BNY Capital Trust V, 5.950% Aa3 15,051 Series F 560,800 Deutsche Bank Capital 6.550% Aa3 12,118,884 Funding Trust II 5,800 Goldman Sachs Group Inc. 5.750% AA- 118,030 (SATURNS) 11,900 Goldman Sachs Group 6.000% A1 235,382 Inc., Series GSC-3 (PPLUS) 12,000 Goldman Sachs Group 6.000% A1 237,240 Inc., Series GSC-4 Class A (PPLUS) 357,800 Lehman Brothers Holdings 6.375% A2 7,120,220 Capital Trust III, Series K 70,800 Merrill Lynch Preferred 7.000% A2 1,472,640 Capital Trust III 21,200 Merrill Lynch Preferred 7.120% A2 464,280 Capital Trust IV 88,000 Merrill Lynch Preferred 7.280% A2 1,936,000 Capital Trust V 176,623 Morgan Stanley Capital 6.250% A1 3,375,266 Trust III 1,400 Morgan Stanley Capital 6.250% A1 26,670 Trust IV 21,100 Morgan Stanley Capital 5.750% A+ 369,250 Trust V 75,700 Morgan Stanley Capital 6.600% A1 1,517,785 Trust VI 29,718 Morgan Stanley Capital 6.600% A2 582,770 Trust VII - -------------------------------------------------------------------------------------------------------------------------------- Total Capital Markets 30,101,805 ------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 17.2% 38,300 ASBC Capital I 7.625% A3 919,200 3,600 BAC Capital Trust IV 5.875% Aa2 71,100 12,200 BAC Capital Trust VIII 6.000% Aa2 239,730 3,800 BAC Capital Trust X 6.250% Aa2 77,938 1,359 Banco Santander Finance 6.410% Aa3 29,966 17,612 Banco Santander Finance, 6.500% A 367,651 144A 204,784 Banco Santander Finance, 6.800% Aa3 4,515,487 144A 25,800 BancorpSouth Capital 8.150% Baa1 645,000 Trust I 246,100 Banesto Holdings, Series 10.500% A1 7,582,956 A, 144A 33,200 Bank One Capital Trust 7.200% Aa3 773,560 VI 29,500 Capital One Capital II 7.500% Baa1 560,500 Corporation 40,500 Citizens Funding Trust I 7.500% Baa2 627,750 44,500 Cobank ABC, 144A 7.000% A 2,248,897 349,600 Fifth Third Capital 7.250% A1 7,271,680 Trust VI 35,816 Fleet Capital Trust VIII 7.200% Aa2 841,676 141,900 HSBC Finance Corporation 6.875% AA- 3,330,393 167,655 KeyCorp Capital Trust IX 6.750% Baa1 3,177,062 245,800 National City Capital 6.625% A3 4,067,990 Trust II 8,100 National City Capital 6.625% A3 135,270 Trust III 13,600 PNC Capital Trust 6.125% A2 285,600 1,744 Royal Bank of Scotland 5.750% A1 31,305 Group PLC, Series L 104,465 Royal Bank of Scotland 6.350% A1 2,037,068 Group PLC, Series N 16,100 USB Capital Trust XI 6.600% A1 340,515 15,760 VNB Capital Trust I 7.750% A3 389,902 4,000 Wells Fargo Capital 5.625% Aa2 76,800 Trust IX 51,000 Wells Fargo Capital 7.000% Aa2 1,178,100 Trust V 49,444 Wells Fargo Capital 5.850% Aa2 997,285 Trust VII 81,600 Zions Capital Trust B 8.000% BBB- 2,018,784 - -------------------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 44,839,165 ------------------------------------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS - 0.0% 2,804 IBM Inc., Trust 7.100% A+ 69,259 Certificates, Series 2001-2 - -------------------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 13.6% 59,100 Allied Capital 6.875% BBB+ 1,004,700 Corporation 370,815 BAC Capital Trust XII 6.875% Aa3 8,380,418 10,000 Citigroup Capital XIV 6.875% A+ 202,500 55,729 Citigroup Capital XV 6.500% Aa3 1,083,929 304,900 Citigroup Capital XX 7.875% Aa3 7,612,987 108,000 General Electric Capital 6.050% AAA 2,700,000 Corporation 497,300 ING Groep N.V. 7.200% A1 11,149,465 142,600 ING Groep N.V. 7.050% A 3,122,940 11,000 ING Groep N.V. 6.125% A1 210,100
28
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - -------------------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES (continued) 1,913 Royal Bank of Scotland 6.750% A1 $ 39,829 Public Limited Company, Series 2006Q - -------------------------------------------------------------------------------------------------------------------------------- Total Diversified 35,506,868 Financial Services ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 2.0% 179,200 AT&T Inc. 6.375% A 4,322,304 3,300 BellSouth Capital 7.100% A 73,631 Funding (CORTS) 4,600 BellSouth Corporation 7.000% A 94,818 (CORTS) 26,600 Verizon Communications 7.625% A 668,724 (CORTS) - -------------------------------------------------------------------------------------------------------------------------------- Total Diversified 5,159,477 Telecommunication Services ------------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES - 3.9% 55,200 Entergy Louisiana LLC 7.600% A- 1,351,848 203,147 Entergy Mississippi 7.250% A- 5,145,714 Inc. 47,900 FPL Group Capital Inc. 7.450% A3 1,240,610 23,800 FPL Group Capital Inc. 6.600% A3 571,200 3,500 National Rural Utilities 6.100% A3 74,235 Cooperative Finance Corporation 33,018 National Rural Utilities 5.950% A3 698,001 Cooperative Finance Corporation 34,400 PPL Energy Supply LLC 7.000% BBB 854,840 8,900 Virginia Power Capital 7.375% BBB 217,071 Trust - -------------------------------------------------------------------------------------------------------------------------------- Total Electric Utilities 10,153,519 ------------------------------------------------------------------------------------------------------------------- FOOD PRODUCTS - 0.4% 11,000 Dairy Farmers of America 7.875% BBB- 1,087,625 Inc., 144A - -------------------------------------------------------------------------------------------------------------------------------- INSURANCE - 18.5% 194,400 Ace Ltd., Series C 7.800% BBB 4,646,160 15,686 Aegon N.V. 6.875% A- 332,543 409,638 Aegon N.V. 6.375% A- 8,090,350 41,700 AMBAC Financial Group 5.950% AA 752,685 Inc. 142,500 American International 7.700% Aa3 3,569,625 Group 195,649 Arch Capital Group 8.000% BBB- 4,889,269 Limited 54,100 Berkley WR Corporation, 6.750% BBB- 1,134,477 Capital Trust II 139,400 Delphi Financial Group, 8.000% BBB+ 3,305,174 Inc. 92,100 Delphi Financial Group, 7.376% BBB- 1,698,785 Inc. 45,867 EverestRe Capital Trust 6.200% Baa1 863,217 II 146,200 Financial Security 6.250% AA 2,668,150 Assurance Holdings 174,900 PartnerRe Limited, 6.750% BBB+ 3,368,574 Series C 3,100 PartnerRe Limited, 6.500% BBB+ 58,249 Series D 57,100 PLC Capital Trust III 7.500% BBB+ 1,297,883 46,400 PLC Capital Trust IV 7.250% BBB+ 1,020,800 5,400 PLC Capital Trust V 6.125% BBB+ 102,978 332,700 Protective Life 7.250% BBB 7,269,495 Corporation 80,844 Prudential PLC 6.750% A 1,644,367 3,300 RenaissanceRe Holdings 6.600% BBB 61,182 Limited 73,466 RenaissanceRe Holdings 7.300% BBB 1,597,886 Limited, Series B - -------------------------------------------------------------------------------------------------------------------------------- Total Insurance 48,371,849 ------------------------------------------------------------------------------------------------------------------- MEDIA - 5.6% 75,000 CBS Corporation 6.750% BBB 1,443,750 261,800 Comcast Corporation 7.000% BBB+ 5,955,950 25,400 Comcast Corporation 7.000% BBB+ 569,976 40,900 Comcast Corporation 6.625% BBB+ 842,131 259,800 Viacom Inc. 6.850% BBB 5,720,796 - -------------------------------------------------------------------------------------------------------------------------------- Total Media 14,532,603 ------------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 1.7% 195,200 Nexen Inc. 7.350% Baa3 4,526,688 - -------------------------------------------------------------------------------------------------------------------------------- PHARMACEUTICALS - 0.2% 8,600 Bristol-Myers Squibb 6.250% A+ 180,600 Company (CORTS) 4,800 Bristol-Myers Squibb 6.800% A+ 109,824 Company Trust (CORTS) - -------------------------------------------------------------------------------------------------------------------------------- Total Pharmaceuticals 290,424 ------------------------------------------------------------------------------------------------------------------- REAL ESTATE/MORTGAGE - 20.7% 10,700 AvalonBay Communities, 8.700% BBB 271,031 Inc., Series H 29,400 BRE Properties, Series C 6.750% BBB- 568,596
29 JHP Nuveen Quality Preferred Income Fund 3 (continued) Portfolio of INVESTMENTS as of December 31, 2007
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE - -------------------------------------------------------------------------------------------------------------------------------- 8,029 BRE Properties, Series D 6.750% BBB- $ 160,580 171,200 Developers Diversified 8.000% BBB- 3,843,440 Realty Corporation, Series G 32,000 Developers Diversified 7.375% BBB- 656,000 Realty Corporation, Series H 112,900 Duke Realty Corporation, 6.600% BBB 2,218,485 Series L 136,700 Duke Realty Corporation, 7.250% BBB 2,818,754 Series N 149,000 Duke-Weeks Realty 6.950% BBB 3,002,350 Corporation 144,300 First Industrial Realty 7.250% BBB- 2,922,075 Trust, Inc., Series J 145,429 HRPT Properties Trust, 8.750% BBB- 3,629,908 Series B 131,111 HRPT Properties Trust, 7.125% BBB- 2,648,442 Series C 186,200 Kimco Realty 7.750% BBB+ 4,317,047 Corporation, Series G 17,500 Prologis Trust, Series G 6.750% BBB 367,850 155,600 PS Business Parks, Inc. 7.000% BBB- 3,049,760 115,800 PS Business Parks, Inc., 7.600% BBB- 2,436,432 Series L 3,000 Public Storage, Inc. 7.125% BBB+ 63,720 115,500 Public Storage, Inc. 6.750% BBB+ 2,269,575 16,500 Public Storage, Inc., 6.450% BBB+ 311,025 Series F 194,262 Public Storage, Inc., 7.250% BBB+ 4,089,215 Series K 32,500 Public Storage, Inc., 6.625% BBB+ 617,500 Series M 15,000 Public Storage, Inc., 7.500% BBB+ 334,500 Series V 77,300 Public Storage, Inc., 6.850% BBB+ 1,652,288 Series Y 5,900 Realty Income 7.375% BBB- 139,535 Corporation 53,800 Realty Income 6.750% BBB- 1,138,408 Corporation, Series E 30,972 Regency Centers 7.450% BBB- 682,933 Corporation 76,000 Regency Centers 7.250% BBB- 1,565,600 Corporation 9,000 Regency Centers 6.700% BBB- 176,940 Corporation 61,800 Vornado Realty Trust, 6.625% BBB- 1,215,606 Series G 7,500 Vornado Realty Trust, 6.625% BBB- 148,275 Series I 262,800 Wachovia Preferred 7.250% A2 5,962,932 Funding Corporation 39,900 Weingarten Realty Trust, 6.950% A- 825,930 Series E - -------------------------------------------------------------------------------------------------------------------------------- Total Real 54,104,732 Estate/Mortgage ------------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 2.3% 223,569 Countrywide Capital 6.750% BBB- 2,635,879 Trust IV 289,365 Countrywide Capital 7.000% BBB- 3,313,229 Trust V 3,300 Harris Preferred Capital 7.375% A1 74,514 Corporation, Series A - -------------------------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage 6,023,622 Finance ------------------------------------------------------------------------------------------------------------------- U.S. AGENCY - 0.9% 13,200 Federal Home Loan 6.550% AA- 306,900 Mortgage Corporation 46,500 Federal National 7.000% AA- 2,154,987 Mortgage Association - -------------------------------------------------------------------------------------------------------------------------------- Total U.S. Agency 2,461,887 ------------------------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES - 1.5% 157,500 United States Cellular 8.750% A- 3,928,052 Corporation - -------------------------------------------------------------------------------------------------------------------------------- TOTAL $25 PAR (OR SIMILAR) PREFERRED 261,157,575 SECURITIES (COST $304,820,823) =================================================================================================================== PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 0.7% (0.4% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 0.7% $ 2,000 Credit Agricole S.A. 6.637% 5/29/49 Aa3 $ 1,858,650 - ---------------------------------------------------------------------------------------------------------------------------------- $ 2,000 TOTAL CORPORATE BONDS 1,858,650 (COST $1,943,989) ================================================================================================================================== PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED SECURITIES - 52.7% (32.4% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 8.3% 1,000 Bank of New York Capital 7.970% 12/31/26 Aa3 $ 1,035,870 I, Series B 250 C.A. Preferred Fund 7.000% 10/30/49 A1 243,455 Trust II 3,250 C.A. Preferred Funding 7.000% 1/30/49 A1 3,169,195 Trust 4,300 Dresdner Funding Trust 8.151% 6/30/31 A1 4,397,236 I, 144A 8,485 First Union Capital 7.950% 11/15/29 A1 9,055,666 Trust II, Series A 3,000 Mizuho JGB Investment 9.870% 6/30/48 A1 3,027,753
30
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- CAPITAL MARKETS (continued) 700 MUFG Capital Finance 2 4.850% 7/25/56 BBB+ $ 868,584 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capital Markets 21,797,759 ------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 24.7% 1,500 AB Svensk Exportkredit, 6.375% 10/27/49 AA- 1,492,068 144A 1,800 Abbey National Capital 8.963% 6/30/50 A+ 2,119,964 Trust I 1,900 AgFirst Farm Credit Bank 7.300% 12/15/53 A- 1,792,337 6,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 6,535,277 500 Barclays Bank PLC 7.434% 12/15/57 Aa3 520,488 1,900 BBVA International 5.919% 10/18/49 A1 1,665,975 Preferred S.A., Unipersonal 5,000 Capital One Capital IV 6.745% 2/17/37 Baa1 3,727,445 Corporation 3,000 CBG Florida REIT 7.114% 11/15/49 Baa3 2,792,169 Corporation 900 DBS Capital Funding 7.657% 3/15/49 Aa3 962,381 Corporation, 144A 4,400 Den Norske Bank, 144A 7.729% 6/29/49 Aa3 4,691,619 1,000 First Empire Capital 8.234% 2/01/27 A3 1,043,385 Trust I 500 First Midwest Bancorp 6.950% 12/01/33 Baa1 458,805 Inc. 1,600 HBOS Capital Funding LP, 6.850% 3/23/49 A1 1,403,211 Notes 4,600 HBOS PLC, Series, 144A 6.413% 4/01/49 A1 3,753,517 1,430 HSBC USA Capital Trust 8.380% 5/15/27 A 1,492,442 II, 144A 1,000 HT1 Funding, GmbH 6.352% 6/30/57 A- 1,344,038 2,500 KBC Bank Fund Trust III, 9.860% 5/02/50 A1 2,686,905 144A 1,000 Lloyds TSB Bank PLC, 6.900% 11/22/49 Aa2 972,115 Subordinated Note 2,000 Mizuho Financial Group 8.375% 4/27/49 Aa3 2,021,380 2,000 Northgroup Preferred 6.378% 10/15/57 A1 1,773,016 Capital Corporation, 144A 1,000 Popular North American 6.564% 9/15/34 Baa1 893,900 Capital Trust I 1,500 Royal Bank of Scotland 7.640% 3/31/49 A1 1,544,777 Group PLC, Series U 3,300 Shinsei Finance II 7.160% 7/25/49 Baa2 2,793,658 Cayman Limited, Perpetual Maturity, 144A 1,500 Standard Chartered PLC, 7.014% 1/30/58 BBB+ 1,424,519 144A 2,660 Swedbank 9.000% 9/17/50 Aa3 2,842,308 ForeningsSparbanken AB, 144A --(3) Union Planters Preferred 7.750% 7/15/53 A2 7,951,563 Fund, 144A 5,600 Washington Mutual 7.250% 3/15/49 BBB 3,683,870 Preferred Funding Cayman, Series A-1, 144A - ----------------------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 64,383,132 ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 3.6% 1,300 Fulton Capital Trust I 6.290% 2/01/36 A3 979,523 6,000 JPMorgan Chase Capital 6.950% 8/17/36 Aa3 5,716,218 Trust XVIII 902 MM Community Funding 8.030% 6/15/31 Aaa 935,384 Trust I Limited 1,800 Old Mutual Capital 8.000% 6/22/53 Baa2 1,805,040 Funding, Notes - ----------------------------------------------------------------------------------------------------------------------------------- Total Diversified 9,436,165 Financial Services ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 2.3% 5 Centaur Funding 9.080% 4/21/20 BBB 6,104,888 Corporation, Series B, 144A - ----------------------------------------------------------------------------------------------------------------------------------- INSURANCE - 11.2% 3,450 Ace Capital Trust II 9.700% 4/01/30 Baa1 4,381,852 3,500 AXA S.A., 144A 6.463% 12/14/49 BBB+ 3,157,599 2,600 Great West Life and 7.153% 5/16/46 A- 2,608,104 Annuity Insurance Company 1,000 Liberty Mutual Group 7.800% 3/15/37 Baa3 891,875 1,000 MetLife Capital Trust IV 7.880% 12/15/67 BBB+ 1,021,832 600 MetLife Inc. 6.400% 12/15/66 BBB+ 551,612 400 Nationwide Financial 7.899% 3/01/37 Baa1 412,116 Services Capital Trust 600 Nationwide Financial 6.750% 5/15/67 Baa1 554,336 Services Inc. 2,400 Oil Insurance Limited, 7.558% 12/30/49 Baa1 2,453,107 144A 4,500 Progressive Corporation 6.700% 6/15/37 A2 4,184,753 500 Prudential PLC 6.500% 6/29/49 A 449,013 6,000 QBE Capital Funding 6.797% 6/01/49 BBB 5,755,182 Trust II, 144A 3,000 XL Capital, Limited 6.500% 10/15/57 BBB 2,627,451 - ----------------------------------------------------------------------------------------------------------------------------------- Total Insurance 29,048,832 ------------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 1.0% 3,000 KN Capital Trust III 7.630% 4/15/28 B1 2,721,000 - ----------------------------------------------------------------------------------------------------------------------------------- ROAD & RAIL - 1.0% 2,785 Burlington Northern 6.613% 12/15/55 BBB 2,607,153 Santa Fe Funding Trust I - -----------------------------------------------------------------------------------------------------------------------------------
31 JHP Nuveen Quality Preferred Income Fund 3 (continued) Portfolio of INVESTMENTS as of December 31, 2007
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 0.6% 2,400 Washington Mutual 6.665% 3/15/57 BBB $ 1,418,062 Preferred Funding Trust II - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL CAPITAL PREFERRED 137,516,991 SECURITIES (COST $148,558,258) =================================================================================================================== SHARES DESCRIPTION (1) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT COMPANIES - 6.5% (4.0% OF TOTAL INVESTMENTS) 97,685 Blackrock Preferred and $ 1,567,844 Corporate Income Strategies Fund 230,226 Blackrock Preferred 3,667,500 Income Strategies Fund 46,226 Blackrock Preferred 800,172 Opportunity Trust 241,169 Flaherty and 3,897,291 Crumrine/Claymore Preferred Securities Income Fund Inc. 158,064 Flaherty and 2,668,120 Crumrine/Claymore Total Return Fund Inc. 19,342 John Hancock Preferred 366,918 Income Fund 24,126 John Hancock Preferred 451,639 Income Fund II 188,671 John Hancock Preferred 3,403,625 Income Fund III - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT 16,823,109 COMPANIES (COST $20,757,565) =================================================================================================================== PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 2.6% (1.6% OF TOTAL INVESTMENTS) $ 6,831 Repurchase Agreement 1.000% 1/02/08 $ 6,831,159 with Fixed Income Clearing Corporation, dated 12/31/07, repurchase price $6,831,539, collateralized by $6,460,000 U.S. Treasury Notes, 4.875%, due 8/15/16, value $6,968,725 ========== ------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM 6,831,159 INVESTMENTS (COST $6,831,159) ------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (COST 424,187,484 $482,911,794) - 162.5% ------------------------------------------------------------------------------------------------------------------- OTHER ASSETS LESS 2,893,805 LIABILITIES - 1.1% ------------------------------------------------------------------------------------------------------------------- FUNDPREFERRED SHARES, AT (166,000,000) LIQUIDATION VALUE - (63.6)% (4) ------------------------------------------------------------------------------------------------------------------- NET ASSETS APPLICABLE TO $ 261,081,289 COMMON SHARES - 100% ===================================================================================================================
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2007:
FUND FIXED RATE UNREALIZED NOTIONAL PAY/RECEIVE FLOATING RATE FIXED RATE PAYMENT TERMINATION APPRECIATION COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION) ----------------------------------------------------------------------------------------------------------------------- Citigroup Inc. $42,000,000 Receive 1-Month USD-LIBOR 3.255% Monthly 2/06/08 $ 163,755 Citigroup Inc. 42,000,000 Receive 1-Month USD-LIBOR 3.815 Monthly 2/06/10 (17,800) ----------------------------------------------------------------------------------------------------------------------- $ 145,955 =======================================================================================================================
USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. (3) Principal Amount (000)/Shares rounds to less than $1,000. (4) FundPreferred Shares, at Liquidation Value as a percentage of total investments is (39.1)%. 144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. CORTS Corporate Backed Trust Securities. PPLUS PreferredPlus Trust. SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements. 32 Statement of ASSETS & LIABILITIES December 31, 2007
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - ---------------------------------------------------------------------------------------------------------------- ASSETS Investments, at value (cost $1,296,954,406, $2,448,041,788 and $482,911,794, respectively) $1,147,610,708 $2,172,707,865 $424,187,484 Cash 1,160,808 863,704 255,945 Cash denominated in foreign currencies (cost $-, $155,530 and $-, respectively) -- 155,056 -- Unrealized appreciation on interest rate swaps -- -- 145,955 Receivables: Dividends 1,514,518 2,200,160 425,791 Interest 5,105,876 10,038,580 1,528,795 Investments sold 1,036,658 2,920,311 950,010 Reclaims -- 142,729 32,914 Other assets 110,242 201,748 28,019 - ---------------------------------------------------------------------------------------------------------------- Total assets 1,156,538,810 2,189,230,153 427,554,913 - ---------------------------------------------------------------------------------------------------------------- LIABILITIES Unrealized depreciation on interest rate swaps 987,076 418,657 -- Payable for investments purchased 307,543 359,688 1,873 Accrued expenses: Management fees 621,578 1,130,088 208,349 Other 384,808 645,901 130,811 FundPreferred shares dividends payable 293,236 550,390 132,591 - ---------------------------------------------------------------------------------------------------------------- Total liabilities 2,594,241 3,104,724 473,624 - ---------------------------------------------------------------------------------------------------------------- FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000 - ---------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares $ 713,944,569 $1,386,125,429 $261,081,289 ================================================================================================================ Common shares outstanding 64,557,648 119,845,699 23,690,909 ================================================================================================================ Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 11.06 $ 11.57 $ 11.02 ================================================================================================================ NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: - ---------------------------------------------------------------------------------------------------------------- Common shares, $.01 par value per share $ 645,576 $ 1,198,457 $ 236,909 Paid-in surplus 897,894,532 1,686,854,230 329,654,258 Undistributed (Over-distribution of) net investment income 193,921 (3,668,866) 639,113 Accumulated net realized gain (loss) from investments and derivative transactions (34,465,403) (22,518,627) (10,872,945) Net unrealized appreciation (depreciation) of investments and derivative transactions (150,324,057) (275,739,765) (58,576,046) - ---------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares $ 713,944,569 $1,386,125,429 $261,081,289 ================================================================================================================ Authorized shares: Common Unlimited Unlimited Unlimited FundPreferred Unlimited Unlimited Unlimited ================================================================================================================
See accompanying notes to financial statements. 33 Statement of OPERATIONS Year Ended December 31, 2007
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - -------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign tax withheld of $--, $5,063 and $1,971, respectively) $ 56,601,945 $ 108,431,962 $ 23,376,546 Interest 36,089,577 67,723,485 10,910,592 - -------------------------------------------------------------------------------------------------------------------- Total investment income 92,691,522 176,155,447 34,287,138 - -------------------------------------------------------------------------------------------------------------------- EXPENSES Management fees 11,085,785 20,302,072 4,228,068 FundPreferred shares - auction fees 1,100,000 2,000,000 415,000 FundPreferred shares - dividend disbursing agent fees 29,724 42,017 14,493 Shareholders' servicing agent fees and expenses 8,208 9,942 1,604 Custodian's fees and expenses 231,269 418,670 94,771 Trustees' fees and expenses 30,448 60,273 11,675 Professional fees 87,741 123,288 39,158 Shareholders' reports - printing and mailing expenses 194,074 345,820 78,047 Stock exchange listing fees 23,270 43,236 9,698 Investor relations expense 168,550 313,010 64,585 Other expenses 50,055 66,649 27,676 - -------------------------------------------------------------------------------------------------------------------- Total expenses before custodian fee credit and expense reimbursement 13,009,124 23,724,977 4,984,775 Custodian fee credit (17,571) (28,670) (5,188) Expense reimbursement (3,615,359) (7,321,205) (1,531,578) - -------------------------------------------------------------------------------------------------------------------- Net expenses 9,376,194 16,375,102 3,448,009 - -------------------------------------------------------------------------------------------------------------------- Net investment income 83,315,328 159,780,345 30,839,129 - -------------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments (5,132,013) (574,703) (4,501,418) Interest rate swaps 2,033,771 6,499,835 1,505,963 Futures (11,881,039) (19,893,208) (4,429,499) Foreign currencies 1,097 16,390 (2,751) Change in net unrealized appreciation (depreciation) of: Investments (172,487,627) (330,937,014) (63,538,229) Interest rate swaps (3,782,365) (9,742,683) (2,319,574) Foreign currencies 5,317 10,163 1,793 - -------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) (191,242,859) (354,621,220) (73,283,715) - -------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS From net investment income (22,627,872) (40,051,092) (8,630,819) From accumulated net realized gains -- (1,169,215) -- - -------------------------------------------------------------------------------------------------------------------- Decrease in net assets applicable to Common shares from distributions to FundPreferred shareholders (22,627,872) (41,220,307) (8,630,819) - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from operations $ (130,555,403) $ (236,061,182) $(51,075,405) - --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 34 Statement of CHANGES in NET ASSETS
QUALITY PREFERRED INCOME (JTP) QUALITY PREFERRED INCOME 2 (JPS) ------------------------------- --------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/07 12/31/06 12/31/07 12/31/06 - --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ 83,315,328 $ 82,501,402 $ 159,780,345 $ 159,268,122 Net realized gain (loss) from: Investments (5,132,013) 132,407 (574,703) (990,466) Interest rate swaps 2,033,771 2,298,167 6,499,835 5,781,508 Futures (11,881,039) -- (19,893,208) -- Foreign currencies 1,097 563 16,390 1,066 Change in net unrealized appreciation (depreciation) of: Investments (172,487,627) (940,681) (330,937,014) (5,130,313) Interest rate swaps (3,782,365) (215,813) (9,742,683) (1,630,640) Foreign currencies 5,317 1,400 10,163 2,652 Distributions to FundPreferred shareholders: From net investment income (22,627,872) (20,743,697) (40,051,092) (37,501,376) From accumulated net realized gains -- -- (1,169,215) -- - --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from operations (130,555,403) 63,033,748 (236,061,182) 119,800,553 - --------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (59,742,151) (69,630,812) (124,716,189) (133,434,611) From accumulated net realized gains -- -- (5,233,037) -- Tax return of capital (6,091,299) -- (4,179,641) -- - --------------------------------------------------------------------------------------------------------------------------------- Decrease in net assets applicable to Common shares from distributions to Common shareholders (65,833,450) (69,630,812) (134,128,867) (133,434,611) - --------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Net proceeds from Common shares issued to shareholders due to reinvestment of distributions 725,059 607,703 2,923,173 1,483,854 - --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from capital share transactions 725,059 607,703 2,923,173 1,483,854 - --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares (195,663,794) (5,989,361) (367,266,876) (12,150,204) - --------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the beginning of year 909,608,363 915,597,724 1,753,392,305 1,765,542,509 - --------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the end of year $713,944,569 $909,608,363 $1,386,125,429 $1,753,392,305 - --------------------------------------------------------------------------------------------------------------------------------- Undistributed (Over-distribution of) net investment income at the end of year $ 193,921 $ (1,329,743) $ (3,668,866) $ (3,968,873) - ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 35
QUALITY PREFERRED INCOME 3 (JHP) --------------------------------- YEAR ENDED YEAR ENDED 12/31/07 12/31/06 - ----------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ 30,839,129 $ 30,871,981 Net realized gain (loss) from: Investments (4,501,418) (2,688,895) Interest rate swaps 1,505,963 1,379,809 Futures (4,429,499) -- Foreign currencies (2,751) 208 Change in net unrealized appreciation (depreciation) of: Investments (63,538,229) 3,328,270 Interest rate swaps (2,319,574) (567,278) Foreign currencies 1,793 516 Distributions to FundPreferred shareholders: From net investment income (8,630,819) (7,912,599) From accumulated net realized gains -- -- - ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from operations (51,075,405) 24,412,012 - ----------------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (22,471,014) (25,661,097) From accumulated net realized gains -- -- Tax return of capital (2,322,309) (327,326) - ----------------------------------------------------------------------------------------------- Decrease in net assets applicable to Common shares from distributions to Common shareholders (24,793,323) (25,988,423) - ----------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Net proceeds from Common shares issued to shareholders due to reinvestment of distributions 409,712 259,052 - ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from capital share transactions 409,712 259,052 - ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares (75,459,016) (1,317,359) - ----------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the beginning of year 336,540,305 337,857,664 - ----------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the end of year $261,081,289 $336,540,305 =============================================================================================== Undistributed (Over-distribution of) net investment income at the end of year $ 639,113 $ (881,169) ===============================================================================================
See accompanying notes to financial statements. 36 Notes to FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES The funds (the "Funds") covered in this report and their corresponding Common share New York Stock Exchange symbols are Nuveen Quality Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred Income Fund 3 (JHP). The Funds are registered under the Investment Company Act of 1940, as amended, as non-diversified, closed-end management investment companies. Each Fund seeks to provide high current income consistent with capital preservation by investing primarily in a portfolio of preferred securities, debt securities including convertible debt securities and convertible preferred securities. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with U.S. generally accepted accounting principles. Investment Valuation Exchange-listed securities 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. Futures contracts are valued using the closing settlement price or, in the absence of such a price, at the mean of the bid and asked prices. The prices of fixed-income securities and interest rate swap contracts are generally provided by an independent pricing service approved by the Funds' Board of Trustees. When price quotes are not readily available, the pricing service or, in the absence of a pricing service for a particular investment, the Board of Trustees of the Funds, or its designee, may establish fair value using a wide variety of market data including yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor's credit characteristics considered relevant by the pricing service or the Board of Trustees' designee. If the pricing service is unable to supply a price for an investment or derivative instrument, the Funds may use market quotes provided by major broker/dealers in such investments. If it is determined that the market price for an investment or derivative instrument is unavailable or inappropriate, the Board of Trustees of the Funds, or its designee, may establish fair value in accordance with procedures established in good faith by the Board of Trustees. Short-term investments are valued at amortized cost, which approximates market value. Investment Transactions Investment transactions are recorded on a trade date basis. Realized gains and losses from investment transactions are determined on the specific identification method. Investments purchased on a when-issued/delayed delivery basis may have extended settlement periods. Any investments so purchased are subject to market fluctuation during this period. The Funds have instructed the custodian to segregate assets with a current value at least equal to the amount of the when-issued/delayed delivery purchase commitments. At December 31, 2007, there were no such outstanding purchase commitments in any of the Funds. Investment Income Dividend income is recorded on the ex-dividend date or, for foreign securities, when information is available. Interest income, which includes the amortization of premiums and accretion of discounts for financial reporting purposes, is recorded on an accrual basis. Interest income also includes paydown gains and losses, if any. Federal Income Taxes Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to distribute substantially all net investment income and net capital gains to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required. Effective June 29, 2007, the Funds adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the affirmative evaluation of tax positions taken or expected to be taken in the course of preparing the Funds' tax returns to determine whether it is "more-likely-than-not" (i.e. greater than 50-percent) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold may result in a tax benefit or expense in the current year. 37 Notes to FINANCIAL STATEMENTS (continued) Implementation of FIN 48 required management of the Funds to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes federal and certain states. Open tax years are those that are open for examination by taxing authorities (i.e. the last four tax year ends and the interim tax period since then). The Funds have no examinations in progress. For all open tax years and all major taxing jurisdictions through the end of the reporting period, management of the Funds has reviewed all tax positions taken or expected to be taken in the preparation of the Funds' tax returns and concluded the adoption of FIN 48 resulted in no impact to the Funds' net assets or results of operations as of and during the fiscal year ended December 31, 2007. The Funds are also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Dividends and Distributions to Common Shareholders Distributions to Common shareholders are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Distributions to Common shareholders are declared monthly. Net realized capital gains from investment transactions, if any, are distributed to shareholders not less frequently than annually. Futhermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards. FundPreferred Shares The Funds have issued and outstanding FundPreferred shares, $25,000 stated value per share, as a means of effecting financial leverage. Each Fund's FundPreferred shares are issued in more than one Series. The dividend rate paid by the Funds on each Series is determined every seven days, pursuant to a dutch auction process overseen by the auction agent, and is payable at the end of each rate period. The number of FundPreferred shares outstanding, by Series and in total, for each Fund is as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Number of shares: Series M 3,520 4,800 3,320 Series T 3,520 4,800 -- Series T2 -- 4,000 -- Series W 3,520 4,800 -- Series TH 3,520 4,800 3,320 Series TH2 -- 4,000 -- Series F 3,520 4,800 -- - --------------------------------------------------------------------------------------------------------------------------- Total 17,600 32,000 6,640 - ---------------------------------------------------------------------------------------------------------------------------
Interest Rate Swap Transactions The Funds are authorized to invest in interest rate swap transactions. The Funds' use of interest rate swap transactions is intended to mitigate the negative impact that an increase in short-term interest rates could have on Common share net earnings as a result of leverage. Interest rate swap transactions involve each Fund's agreement with the counterparty to pay or receive a fixed rate payment in exchange for the counterparty paying or receiving a variable rate payment that is intended to approximate each Fund's variable rate payment obligation on FundPreferred shares or any variable rate borrowing. The payment obligation is based on the notional amount of the interest rate swap contract. Interest rate swaps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the net amount of interest payments that each Fund is to receive. Interest rate swap positions are valued daily. Although there are economic advantages of entering into interest rate swap transactions, there are also additional risks. The Funds help manage the credit risks associated with interest rate swap transactions by entering into agreements only with counterparties Nuveen Asset Management (the "Adviser"), a wholly owned subsidiary of Nuveen Investments Inc. ("Nuveen"), believes have the financial resources to honor their obligations and by having the Adviser continually monitor the financial stability of the swap counterparties. 38 Futures Contracts The Funds are authorized to invest in futures contracts. Upon entering into a futures contract, a Fund is required to deposit with the broker an amount of cash or liquid securities equal to a specified percentage of the contract amount. This is known as the "initial margin." Subsequent payments ("variation margin") are made or received by a Fund each day, depending on the daily fluctuation of the value of the contract. During the period the futures contract is open, changes in the value of the contract are recognized as an unrealized gain or loss by "marking-to-market" on a daily basis to reflect the changes in market value of the contract. When the contract is closed or expired, a Fund records a realized gain or loss equal to the difference between the value of the contract on the closing date and the value of the contract when originally entered into. Cash held by the broker to cover initial margin requirements on open futures contracts, if any, is recognized in the Statement of Assets and Liabilities. Additionally, the Statement of Assets and Liabilities reflects a receivable or payable for the variation margin when applicable. During the fiscal year ended December 31, 2007 each Fund invested in futures contracts. As of December 31, 2007, there were no outstanding futures contracts in any of the Funds. Risks of investments in futures contracts include the possible adverse movement of the securities or indices underlying the contracts, the possibility that there may not be a liquid secondary market for the contracts and/or that a change in the value of the contract may not correlate with a change in the value of the underlying securities or indices. Foreign Currency Transactions The Funds are authorized to engage in foreign currency exchange transactions, including foreign currency forward, options and futures contracts. To the extent that the Funds invest in securities and/or contracts that are denominated in a currency other than U.S. dollars, the Funds will be subject to currency risk, which is the risk that an increase in the U.S. dollar relative to the foreign currency will reduce returns or portfolio value. Generally, when the U.S. dollar rises in value against a foreign currency, the Funds' investments denominated in that currency will lose value because its currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value. Investments and other assets and liabilities denominated in foreign currencies are converted into U.S. dollars on a spot (i.e. cash) basis at the spot rate prevailing in the foreign currency exchange market at the time of valuation. Purchases and sales of investments and income denominated in foreign currencies are translated into U.S. dollars on the respective dates of such transactions. The gains or losses resulting from changes in foreign exchange rates are included in "Realized gain (loss) on foreign currencies" and "Change in net unrealized appreciation (depreciation) of foreign currencies" in the Statement of Operations. The books and records of the Funds are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at 4:00 p.m. Eastern time. Investments and income and expenses are translated on the respective dates of such transactions. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date of the transactions, foreign currency transactions, and the difference between the amounts of interest and dividends recorded on the books of a Fund and the amounts actually received. Repurchase Agreements In connection with transactions in repurchase agreements, it is the Funds' policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral may be delayed or limited. Custodian Fee Credit Each Fund has an arrangement with the custodian bank whereby certain custodian fees and expenses are reduced by net credits earned on each Fund's cash on deposit with the bank. Such deposit arrangements are an alternative to overnight investments. Credits for cash balances may be offset by charges for any days on which the Fund overdraws its account at the custodian bank. Indemnifications Under the Funds' organizational documents, their Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnifications to other parties. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote. 39 Notes to FINANCIAL STATEMENTS (continued) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets applicable to Common shares from operations during the reporting period. Actual results may differ from those estimates. 2. FUND SHARES Transactions in Common shares were as follows:
QUALITY PREFERRED QUALITY PREFERRED QUALITY PREFERRED INCOME (JTP) INCOME 2 (JPS) INCOME 3 (JHP) ------------------------ ------------------------ ------------------------ YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED 12/31/07 12/31/06 12/31/07 12/31/06 12/31/07 12/31/06 - --------------------------------------------------------------------------------------------------------------------------------- Shares issued to shareholders due to reinvestment of distributions 52,207 43,337 202,230 101,627 29,874 18,314 - ---------------------------------------------------------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS Purchases and sales (including maturities but excluding short-term investments and derivative transactions) during the fiscal year ended December 31, 2007, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Purchases: Investment securities $422,748,494 $728,959,254 $165,766,536 U.S. Government and agency obligations 1,011,328 1,004,141 -- Sales and maturities: Investment securities 403,151,787 756,290,322 171,275,438 U.S. Government and agency obligations -- -- -- - ---------------------------------------------------------------------------------------------------------------------------
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 recognition of premium amortization, recognition of income on REIT investments, timing differences in the recognition of income and timing differences in recognizing certain gains and losses on investment transactions. To the extent that differences arise that are permanent in nature, such amounts are reclassified within the capital accounts on the Statement of Assets and Liabilities presented in the annual report, based on their federal tax basis treatment; temporary differences do not require reclassification. Temporary and permanent differences do not impact the net asset values of the Funds. At December 31, 2007, the cost of investments was as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Cost of investments $1,296,481,002 $2,451,160,434 $482,057,296 - ---------------------------------------------------------------------------------------------------------------------------
40 Gross unrealized appreciation and gross unrealized depreciation of investments at December 31, 2007, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Gross unrealized: Appreciation $ 10,574,821 $ 18,261,957 $ 4,111,824 Depreciation (159,445,115) (296,714,526) (61,981,636) - --------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments $(148,870,294) $(278,452,569) $(57,869,812) - ---------------------------------------------------------------------------------------------------------------------------
The tax components of undistributed net ordinary income and net long-term capital gains at July 31, 2007, the Funds' last tax year end, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Undistributed net ordinary income * $ -- $ -- $ -- Undistributed net long-term capital gains -- -- -- - ---------------------------------------------------------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends, interest and net short-term capital gains, if any. The tax character of distributions paid during the Funds' tax years ended July 31, 2007 and July 31, 2006, was designated for purposes of the dividends paid deduction as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 JULY 31, 2007 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Distributions from net ordinary income * $84,716,262 $168,144,072 $31,830,464 Distributions from net long-term capital gains -- 6,399,646 -- Tax return of capital 6,091,299 4,179,641 2,322,309 - ---------------------------------------------------------------------------------------------------------------------------
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 JULY 31, 2006 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Distributions from net ordinary income * $88,059,972 $166,262,070 $33,448,703 Distributions from net long-term capital gains -- 22,350,529 1,834,281 Tax return of capital -- -- 327,326 - ---------------------------------------------------------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends, interest and net short-term capital gains, if any. At July 31, 2007, the Funds' last tax year end, the Funds had unused capital loss carryforwards available for federal income tax purposes to be applied against future capital gains, if any. If not applied, the carryforwards will expire as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Expiration year: 2011 $16,197,046 $ -- $ -- 2012 -- -- -- 2013 -- -- -- 2014 -- -- -- 2015 1,000,781 -- 1,054,637 - --------------------------------------------------------------------------------------------------------------------------- Total $17,197,827 $ -- $1,054,637 - ---------------------------------------------------------------------------------------------------------------------------
41 Notes to FINANCIAL STATEMENTS (continued) The following Funds have elected to defer net realized losses from investments incurred from November 1, 2006 through July 31, 2007, the Funds' last tax year end, ("post-October losses") in accordance with federal income tax regulations. Post-October losses are treated as having arisen on the first day of the following fiscal year:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- $12,689,093 $16,433,733 $7,874,982 - ---------------------------------------------------------------------------------------------------------------------------
Calculation of certain of the amounts presented above (namely, undistributed net ordinary income for tax purposes) involves the application of complex aspects of the Internal Revenue Code to certain securities held by the Funds. In calculating the amount of taxable income derived from these securities, management made assumptions as to the correct tax treatment of certain of those securities and made estimates about the tax characteristics of income received from those securities, based on information currently available to the Funds. The use of these assumptions and estimates will not affect the qualification of the Funds as regulated investment companies under Subchapter M of the Internal Revenue Code, nor is it expected that these assumptions and estimates will be used in computing taxable income for purposes of preparing the federal and state income and excise tax returns. 5. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Each Fund's management fee is separated into two components - a complex-level component, based on the aggregate amount of all fund assets managed by the Adviser, and a specific fund-level component, based only on the amount of assets within each individual Fund. This pricing structure enables Nuveen fund shareholders to benefit from growth in the assets within each individual fund as well as from growth in the amount of complex-wide assets managed by the Adviser. The annual fund-level fee, payable monthly, for each Fund is based upon the average daily Managed Assets of each Fund as follows:
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE - ----------------------------------------------------------------------------------------------------------------- For the first $500 million .7000% For the next $500 million .6750 For the next $500 million .6500 For the next $500 million .6250 For Managed Assets over $2 billion .6000 - -----------------------------------------------------------------------------------------------------------------
The annual complex-level fee, payable monthly, which is additive to the fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the aggregate amount of total fund assets managed as stated in the tables below. As of December 31, 2007, the complex-level fee rate was .1846%. Effective August 20, 2007, the complex-level fee schedule is as follows:
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL (1) EFFECTIVE RATE AT BREAKPOINT LEVEL - ------------------------------------------------------------------------------------------------ $55 billion .2000% $56 billion .1996 $57 billion .1989 $60 billion .1961 $63 billion .1931 $66 billion .1900 $71 billion .1851 $76 billion .1806 $80 billion .1773 $91 billion .1691 $125 billion .1599 $200 billion .1505 $250 billion .1469 $300 billion .1445 - ------------------------------------------------------------------------------------------------
42 Prior to August 20, 2007, the complex-level fee schedule was as follows:
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL (1) EFFECTIVE RATE AT BREAKPOINT LEVEL - ------------------------------------------------------------------------------------------------ $55 billion .2000% $56 billion .1996 $57 billion .1989 $60 billion .1961 $63 billion .1931 $66 billion .1900 $71 billion .1851 $76 billion .1806 $80 billion .1773 $91 billion .1698 $125 billion .1617 $200 billion .1536 $250 billion .1509 $300 billion .1490 - ------------------------------------------------------------------------------------------------
(1) The complex-level fee component of the management fee for the funds is calculated based upon the aggregate Managed Assets ("Managed Assets" means the average daily net assets of each fund including assets attributable to preferred stock issued by or borrowings by the Nuveen funds) of Nuveen-sponsored funds in the U.S. The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Adviser has entered into Sub-Advisory Agreements with Spectrum Asset Management, Inc. ("Spectrum"), under which Spectrum manages the investment portfolios of the Funds. Spectrum is compensated for its services to the Funds from the management fees paid to the Adviser. Spectrum also receives compensation on certain portfolio transactions for providing brokerage services to the Funds. The Funds pay no compensation directly to those of its Trustees who are affiliated with the Adviser or to its Officers, all of whom receive remuneration for their services to the Funds from the Adviser or its affiliates. The Board of Trustees has adopted a deferred compensation plan for independent Trustees that enables Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from certain Nuveen advised funds. Under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of select Nuveen advised funds. 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. 43 Notes to FINANCIAL STATEMENTS (continued) The Adviser has not agreed to reimburse Quality Preferred Income 2 (JPS) for any portion of its fees and expenses beyond September 30, 2010. For the first eight years of Quality Preferred Income 3's (JHP) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily Managed Assets, for fees and expenses in the amounts and for the time periods set forth below:
YEAR ENDING YEAR ENDING DECEMBER 31, DECEMBER 31, - ----------------------------------------------------------------------------------------------------- 2002 * .32% 2007 .32% 2003 .32 2008 .24 2004 .32 2009 .16 2005 .32 2010 .08 2006 .32 - -----------------------------------------------------------------------------------------------------
* From the commencement of operations. The Adviser has not agreed to reimburse Quality Preferred Income 3 (JHP) for any portion of its fees and expenses beyond December 31, 2010. Agreement and Plan of Merger On June 20, 2007, Nuveen Investments announced that it had entered into a definitive Agreement and Plan of Merger ("Merger Agreement") with Windy City Investments, Inc. ("Windy City"), a corporation formed by investors led by Madison Dearborn Partners, LLC ("Madison Dearborn"), pursuant to which Windy City would acquire Nuveen Investments. Madison Dearborn is a private equity investment firm based in Chicago, Illinois. The merger was consummated on November 13, 2007. The consummation of the merger was deemed to be an "assignment" (as that term is defined in the Investment Company Act of 1940) of the investment management agreement between each Fund and the Adviser and, if applicable, the sub-advisory agreement between the Adviser and the sub-adviser of the Funds, and resulted in the automatic termination of such agreements. The Board of Trustees of each Fund considered and approved a new investment management agreement with the Adviser, and, if applicable, a new sub-advisory agreement between the Adviser and the sub-adviser on the same terms as the previous agreements. Each new ongoing investment management agreement and sub-advisory agreement, if applicable, was approved by the shareholders of each Fund and took effect on November 13, 2007. The investors led by Madison Dearborn includes an affiliate of Merrill Lynch. As a result, Merrill Lynch is an indirect "affiliated person" (as that term is defined in the Investment Company Act of 1940) of each Fund. Certain conflicts of interest may arise as a result of such indirect affiliation. For example, the Funds are generally prohibited from entering into principal transactions with Merrill Lynch and its affiliates. The Adviser does not believe that any such prohibitions or limitations as a result of Merrill Lynch's affiliation will significantly impact the ability of the Funds to pursue their investment objectives and policies. Related Party Holdings At December 31, 2007, Quality Preferred Income (JTP), Quality Preferred Income 2 (JPS) and Quality Preferred Income 3 (JHP) owned 395,313, 753,181 and 180,000 shares, respectively, of Merrill Lynch and Company, Inc. preferred securities with aggregate market values of $8,540,540, $15,912,165 and $3,872,920, respectively. Total income earned by Quality Preferred Income (JTP), Quality Preferred Income 2 (JPS) and Quality Preferred Income 3 (JHP) from such securities amounted to $754,698, $1,471,854 and $324,370, respectively, and is included in dividend income on the Statement of Operations. 6. NEW ACCOUNTING PRONOUNCEMENT Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157 In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements." This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of this standard relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of December 31, 2007, management does not believe the adoption of SFAS No. 157 will impact the financial statement amounts; however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements included within the Statement of Operations for the period. 44 7. SUBSEQUENT EVENTS Distributions to Common Shareholders The Funds declared Common share distributions which were paid on February 1, 2008, to shareholders of record on January 15, 2008, as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Distributions per share $.0810 $.0860 $.0835 - ---------------------------------------------------------------------------------------------------------------------------
During February 2008, regularly scheduled auctions for the FundPreferred shares issued by the Funds began attracting more shares for sale than offers to buy. This meant that these auctions "failed to clear," and that many FundPreferred shareholders who wanted to sell their shares in these auctions were unable to do so. FundPreferred shareholders unable to sell their shares received distributions at the "maximum rate" calculated in accordance with the pre-established terms of the FundPreferred stock. These developments do not affect the management or investment policies of the Funds. However, one implication of these auction failures for Common shareholders is that the Funds' cost of leverage will be higher than it otherwise would have been had the auctions been successful. As a result, the Funds' future Common share earnings may be lower than they otherwise might have been. 45 Financial HIGHLIGHTS Selected data for a Common share outstanding throughout each period:
Investment Operations ------------------------------------------------------------------------- Distributions from Net Distributions Beginning Investment from Capital Common Net Income to Gains to Share Net Realized/ FundPreferred FundPreferred Net Asset Investment Unrealized Share- Share- Value Income(a) Gain (Loss) holders+ holders+ Total - --------------------------------------------------------------------------------------------------------------------------- QUALITY PREFERRED INCOME (JTP) - --------------------------------------------------------------------------------------------------------------------------- Year ended 12/31: 2007 $14.10 $1.29 $(2.96) $(.35) $ -- $(2.02) 2006 14.20 1.28 .02 (.32) -- .98 2005 14.92 1.30 (.68) (.21) -- .41 2004(b) 14.40 .60 .47 (.05) -- 1.02 Year Ended 7/31: 2004(c) 14.10 1.37 .26 (.08) -- 1.55 2003 14.12 1.31 .16 (.09) -- 1.38 QUALITY PREFERRED INCOME 2 (JPS) - --------------------------------------------------------------------------------------------------------------------------- Year ended 12/31: 2007 14.66 1.34 (2.96) (.34) (.01) (1.97) 2006 14.77 1.33 (.01) (.31) -- 1.01 2005 15.66 1.34 (.69) (.18) (.02) .45 2004(b) 15.32 .60 .50 (.04) (.01) 1.05 Year Ended 7/31: 2004(c) 14.97 1.42 .37 (.08) -- 1.71 2003(d) 14.33 1.02 .79 (.07) -- 1.74 QUALITY PREFERRED INCOME 3 (JHP) - --------------------------------------------------------------------------------------------------------------------------- Year ended 12/31: 2007 14.22 1.31 (3.09) (.37) -- (2.15) 2006 14.29 1.31 .05 (.33) -- 1.03 2005 15.15 1.32 (.70) (.21) (.01) .40 2004(b) 14.71 .60 .46 (.05) -- 1.01 Year Ended 7/31: 2004(c) 14.38 1.38 .40 (.08) (.01) 1.69 2003(e) 14.33 .67 .22 (.04) -- .85 - --------------------------------------------------------------------------------------------------------------------------- Less Distributions ---------------------------------------------- Net Tax Offering Costs Investment Capital Return of and Ending Income to Gains to Capital to FundPreferred Common Common Common Common Share Share Ending Share- Share- Share- Underwriting Net Asset Market holders holders holders Total Discounts Value Value - --------------------------------------------------------------------------------------------------------------------------- QUALITY PREFERRED INCOME (JTP) - --------------------------------------------------------------------------------------------------------------------------- Year ended 12/31: 2007 $(.93) $ -- $(.09) $(1.02) $ -- $11.06 $ 10.33 2006 (1.08) -- -- (1.08) -- 14.10 14.84 2005 (1.13) -- -- (1.13) -- 14.20 12.40 2004(b) (.50) -- -- (.50) -- 14.92 14.00 Year Ended 7/31: -- 2004(c) (1.25) -- -- (1.25) -- 14.40 13.96 2003 (1.25) -- -- (1.25) (.15) 14.10 14.59 QUALITY PREFERRED INCOME 2 (JPS) - --------------------------------------------------------------------------------------------------------------------------- Year ended 12/31: 2007 (1.04) (.04) (.04) (1.12) -- 11.57 $ 10.81 2006 (1.12) -- -- (1.12) -- 14.66 15.12 2005 (1.16) (.18) -- (1.34) -- 14.77 12.80 2004(b) (.53) (.18) -- (.71) -- 15.66 14.40 Year Ended 7/31: 2004(c) (1.32) (.04) -- (1.36) -- 15.32 14.61 2003(d) (.95) -- -- (.95) (.15) 14.97 14.65 QUALITY PREFERRED INCOME 3 (JHP) - --------------------------------------------------------------------------------------------------------------------------- Year ended 12/31: 2007 (.95) -- (.10) (1.05) -- 11.02 $ 10.51 2006 (1.09) -- (.01) (1.10) -- 14.22 14.92 2005 (1.17) (.09) -- (1.26) -- 14.29 12.92 2004(b) (.51) (.06) -- (.57) -- 15.15 14.44 Year Ended 7/31: 2004(c) (1.24) (.12) -- (1.36) -- 14.71 14.34 2003(e) (.62) -- -- (.62) (.18) 14.38 14.36 - ---------------------------------------------------------------------------------------------------------------------------
* Annualized. ** Total Return on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period takes place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. Total Return on Common Share Net Asset Value is the combination of changes in Common share net asset value, reinvested dividend income at net asset value and reinvested capital gains distributions at net asset value, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending net asset value. The actual reinvest price for the last dividend declared in the period may often be based on the Fund's market price (and not its net asset value), and therefore may be different from the price used in the calculation. 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. - For the periods presented below each ratio includes the effect of the interest expense paid on interest rate swap transactions as follows:
Ratios of Net Interest Expense to Average Net Assets Applicable to Common Shares - ----------------------------------------------------------------------------------- QUALITY PREFERRED INCOME (JTP) Year Ended 7/31: 2003 .80% QUALITY PREFERRED INCOME 2 (JPS) Year Ended 7/31: 2003(d) .58* QUALITY PREFERRED INCOME 3 (JHP) Year Ended 7/31: 2003(e) .51*
46
Ratios/Supplemental Data ----------------------------------------------------------------------------------------- Ratios to Average Net Assets Ratios to Average Net Assets Applicable to Common Shares Applicable to Common Shares Total Returns Before Credit/Reimbursement After Credit/Reimbursement*** ----------------- ----------------------------- ----------------------------- Based on Common Ending Net Based Share Assets on Net Applicable to Net Net Portfolio Market Asset Common Investment Investment Turnover Value** Value** Shares (000) Expenses++ Income++ Expenses++ Income++ Rate - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ (24.60)% (15.32)% $ 713,945 1.54% 9.43% 1.11% 9.86% 32% 29.51 7.26 909,608 1.50 8.70 1.02 9.18 34 (3.69) 2.89 915,598 1.49 8.47 1.02 8.94 19 3.79 7.10 961,583 1.49* 9.15* 1.02* 9.62* 8 4.20 11.17 927,892 1.51 8.87 1.04 9.33 18 4.95 9.15 907,746 2.38 8.84 1.91 9.31 45 - ------------------------------------------------------------------------------------------------------------------ (22.24)% (14.32)% 1,386,125 1.45 9.35 1.00 9.80 31 27.75 7.09 1,753,392 1.42 8.72 .95 9.19 34 (2.06) 3.01 1,765,543 1.40 8.32 .94 8.78 17 3.34 6.94 1,872,283 1.40* 8.69* .94* 9.14* 6 8.98 11.60 1,830,878 1.41 8.64 .95 9.10 19 4.02 11.22 1,789,809 1.99* 7.59* 1.54* 8.04* 35 - ------------------------------------------------------------------------------------------------------------------ (23.61)% (16.01)% 261,081 1.60 9.38 1.10 9.87 35 25.00 7.49 336,540 1.56 8.81 1.08 9.29 39 (2.16) 2.88 337,858 1.54 8.48 1.07 8.96 16 4.64 6.81 358,197 1.54* 9.03* 1.07* 9.50* 7 9.36 11.93 347,900 1.55 8.75 1.08 9.22 17 (.19) 4.62 339,499 1.97* 7.14* 1.53* 7.58* 57 - ------------------------------------------------------------------------------------------------------------------ FundPreferred Shares at End of Period --------------------------------------- Aggregate Liquidation Amount and Market Asset Outstanding Value Per Coverage (000) Share Per Share - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ $440,000 $25,000 $65,565 440,000 25,000 76,682 440,000 25,000 77,023 440,000 25,000 79,635 440,000 25,000 77,721 440,000 25,000 76,577 - ------------------------------------------------------------------------------------------------------------------ 800,000 25,000 68,316 800,000 25,000 79,794 800,000 25,000 80,173 800,000 25,000 83,509 800,000 25,000 82,215 800,000 25,000 80,932 - ------------------------------------------------------------------------------------------------------------------ 166,000 25,000 64,319 166,000 25,000 75,684 166,000 25,000 75,882 166,000 25,000 78,945 166,000 25,000 77,395 166,000 25,000 76,129 - ---
(a) Per share Net Investment Income is calculated using the average daily shares method. (b) For the period August 1, 2004, through December 31,2004. (c) The Funds changed their method of presentation for net interest expense on interest rate swap transactions. The effect of this reclassification for the fiscal year ended July 31, 2004, was as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) -------------------------------------------------------------------------------------------------------------------- Increase of Net Investment Income per share with a corresponding decrease in Net Realized/Unrealized Gain (Loss) $.14 $.11 $.11 Decrease in each of the Ratios of Expenses to Average Net Assets Applicable to Common Shares with a corresponding increase in each of the Ratios of Net Investment Income to Average Net Assets Applicable to Common Shares .94% .71% .73%
(d) For the period September 24, 2002 (commencement of operations) through July 31, 2003. (e) For the period December 18, 2002 (commencement of operations) through July 31, 2003. See accompanying notes to financial statements. 47 BOARD MEMBERS & OFFICERS The management of the Funds, including general supervision of the duties performed for the Funds by the Adviser, is the responsibility of the Board Members of the Funds. The number of board members of the Fund is currently set at eight. None of the board members who are not interested persons of the Funds has ever been a director or employee of, or consultant to, Nuveen or its affiliates. The names and business addresses of the board members and officers of the Funds, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below.
NAME, BIRTHDATE POSITION(S) HELD WITH YEAR FIRST NUMBER OF PORTFOLIOS & ADDRESS THE FUNDS ELECTED OR IN FUND COMPLEX PRINCIPAL OCCUPATION(S) APPOINTED OVERSEEN BY INCLUDING OTHER DIRECTORSHIPS AND TERM(2) BOARD MEMBER DURING PAST 5 YEARS BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS: - - TIMOTHY R. SCHWERTFEGER(1) 3/28/49 Chairman of 1994 Former director 333 W. Wacker Drive the Board ANNUAL (1994-November 12, 2007), Chicago, IL 60606 and Board Member Chairman (1996-June 30, 2007), Non-Executive Chairman (July 1, 2007-November 12, 2007) and Chief Executive Officer (1996-June 30, 2007) 184 of Nuveen Investments, Inc. and Nuveen Asset Management and certain other subsidiaries of Nuveen Investments, Inc.; formerly, Director (1992-2006) of Institutional Capital Corporation. BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS: - - ROBERT P. BREMNER 8/22/40 Lead Independent 1997 184 Private Investor and 333 W. Wacker Drive Board member CLASS III Management Consultant. Chicago, IL 60606 - - JACK B. EVANS 10/22/48 1999 President, The Hall-Perrine 333 W. Wacker Drive Board member CLASS III Foundation, a private Chicago, IL 60606 philanthropic corporation (since 1996); Director and Vice Chairman, United Fire Group, a publicly held company; Member of the Board of Regents Companies; for the State of Iowa University System; Director, Gazette Life Trustee of Coe College 184 and Iowa College Foundation; Member of the Advisory Council of the Department of Finance in the Tippie College of Business, University of Iowa; formerly, Director, Alliant Energy; formerly, Director, Federal Reserve Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., a regional financial services firm.
48
NAME, BIRTHDATE POSITION(S) HELD WITH YEAR FIRST NUMBER OF PORTFOLIOS & ADDRESS THE FUNDS ELECTED OR IN FUND COMPLEX PRINCIPAL OCCUPATION(S) APPOINTED OVERSEEN BY INCLUDING OTHER DIRECTORSHIPS AND TERM(2) BOARD MEMBER DURING PAST 5 YEARS BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED): - - WILLIAM C. HUNTER 3/6/48 2004 Dean, Tippie College of 333 W. Wacker Drive Board member CLASS II Business, University of Iowa Chicago, IL 60606 (since July 2006); formerly, Dean and Distinguished Professor of Finance, School of Business at the University of Connecticut (2003-2006); previously, Senior Vice President and Director of Research at the Federal 184 Reserve Bank of Chicago (1995-2003); Director (since 1997), Credit Research Center at George Washington University; Director (since 2004) of Xerox Corporation; Director (since 2005) Beta Gamma Sigma International Honor Society; Director, SS&C Technologies, Inc. (May 2005-October 2005). - - DAVID J. KUNDERT 10/28/42 2005 Director, Northwestern Mutual 333 W. Wacker Drive Board member CLASS II Wealth Management Company; Chicago, IL 60606 Retired (since 2004) as Chairman, JPMorgan Fleming Asset Management, President and CEO, Banc One Investment Advisors Corporation, and President, One Group Mutual Funds; prior thereto, Executive Vice President, 182 Banc One Corporation and Chairman and CEO, Banc One Investment Management Group; Member, Board of Regents, Luther College; member of the Wisconsin Bar Association; member of Board of Directors, Friends of Boerner Botanical Gardens; member of Investment Committee, Greater Milwaukee Foundation. - - WILLIAM J. SCHNEIDER 9/24/44 1997 Chairman of Miller-Valentine 333 W. Wacker Drive Board member ANNUAL Partners Ltd., a real estate Chicago, IL 60606 investment company, formerly, Senior Partner and Chief 184 Operating Officer (retired, 2004); Director, Dayton Development Coalition; formerly, Member, Business Advisory Council, Cleveland Federal Reserve Bank. - - JUDITH M. STOCKDALE 12/29/47 1997 Executive Director, Gaylord 333 W. Wacker Drive Board member CLASS I and Dorothy Donnelley Chicago, IL 60606 Foundation (since 1994); 184 prior thereto, Executive Director, Great Lakes Protection Fund (from 1990 to 1994). - - CAROLE E. STONE 6/28/47 2007 Director, Chicago Board 333 W. Wacker Drive Board member CLASS I Options Exchange (since Chicago, IL 60606 2006); Chair New York Racing Association Oversight Board (2005-12/2007); Commissioner, New York State Commission on Public Authority Reform 184 (since 2005); formerly Director, New York State Division of the Budget (2000-2004), Chair, Public Authorities Control Board (2000-2004) and Director, Local Government Assistance Corporation (2000-2004).
49
NAME, BIRTHDATE POSITION(S) HELD WITH NUMBER OF PORTFOLIOS & ADDRESS THE FUNDS YEAR FIRST IN FUND COMPLEX PRINCIPAL ELECTED OR OVERSEEN OCCUPATION(S) APPOINTED(4) BY OFFICER DURING PAST 5 YEARS OFFICERS OF THE FUND: - - GIFFORD R. ZIMMERMAN 9/9/56 Chief Administrative Managing Director (since 333 W. Wacker Drive Officer 1988 2002), Assistant Chicago, IL 60606 Secretary and Associate General Counsel, formerly, Vice President and Assistant General Counsel, of Nuveen Investments, LLC; Managing Director (since 2002), Associate General Counsel and Assistant Secretary, of Nuveen Asset Management; Vice President and Assistant Secretary of NWQ Investment Management Company, LLC. (since 2002), Nuveen Investments Advisers Inc. (since 2002), Symphony Asset Management LLC, and NWQ 184 Investment Management Company, LLC (since 2003), Tradewinds Global Investors, LLC, and Santa Barbara Asset Management, LLC (since 2006); Nuveen HydePark Group LLC and Richards & Tierney, Inc. (since 2007); Managing Director, Associate General Counsel and Assistant Secretary of Rittenhouse Asset Management, Inc. (since 2003); Managing Director (since 2004) and Assistant Secretary (since 1994) of Nuveen Investments, Inc., Assistant Secretary (since 2003) of Symphony Asset Management LLC. - - WILLIAM ADAMS IV 6/9/55 Executive Vice President, 333 W. Wacker Drive Vice President 2007 U.S. Structured Products Chicago, IL 60606 of Nuveen Investments, 120 LLC, (since 1999), prior thereto, Managing Director of Structured Investments. - - JULIA L. ANTONATOS 9/22/63 Managing Director (since 333 W. Wacker Drive Vice President 2004 2005), formerly Vice Chicago, IL 60606 184 President (2002-2005) of Nuveen Investments, LLC; Chartered Financial Analyst. - - CEDRIC H. ANTOSIEWICZ 1/11/62 Managing Director, (since 333 W. Wacker Drive Vice President 2007 120 2004) previously, Vice Chicago, IL 60606 President (1993-2004) of Nuveen Investments, LLC. - - MICHAEL T. ATKINSON 2/3/66 Vice President Vice President (since 333 W. Wacker Drive and Assistant 2000 184 2002) of Nuveen Chicago, IL 60606 Secretary Investments, LLC. - - PETER H. D(#)ARRIGO 11/28/67 Vice President and 333 W. Wacker Drive Vice President 1999 Treasurer of Nuveen Chicago, IL 60606 Investments, LLC and Nuveen Investments, Inc.; Vice President and Treasurer of Nuveen Asset Management (since 2002), Nuveen Investments Advisers Inc. (since 2002); NWQ Investment Management Company, LLC. (since 2002); Rittenhouse Asset Management, Inc. (since 2003), Tradewinds NWQ Global Investors, LLC 184 (since 2006), Santa Barbara Asset Management, LLC (since 2006) and Nuveen HydePark Group, LLC and Richards & Tierney, Inc. (since 2007); Treasurer of Symphony Asset Management LLC (since 2003); formerly, Vice President and Treasurer (1999-2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3), Chartered Financial Analyst.
50
NAME, BIRTHDATE POSITION(S) HELD WITH NUMBER OF PORTFOLIOS & ADDRESS THE FUNDS YEAR FIRST IN FUND COMPLEX PRINCIPAL ELECTED OR OVERSEEN OCCUPATION(S) APPOINTED(4) BY OFFICER DURING PAST 5 YEARS OFFICERS OF THE FUND (CONTINUED): - - LORNA C. FERGUSON 10/24/45 Managing Director (since 333 W. Wacker Drive Vice President 1998 2004), formerly, Vice Chicago, IL 60606 President of Nuveen Investments, LLC, Managing Director (2004) 184 formerly, Vice President (1998-2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); Managing Director (since 2005) of Nuveen Asset Management. - - STEPHEN D. FOY 5/31/54 Vice President Vice President (since 333 W. Wacker Drive and Controller 1998 1993) and Funds Chicago, IL 60606 Controller (since 1998) of Nuveen Investments, LLC; Vice President (since 2005) of Nuveen 184 Asset Management; formerly, Vice President and Funds Controller (1998-2004) of Nuveen Investments, Inc.; Certified Public Accountant. - - WALTER M. KELLY 2/24/70 Chief Compliance Vice President (since 333 W. Wacker Drive Officer and 2003 2006) formerly, Assistant Chicago, IL 60606 Vice President Vice President and Assistant General Counsel (2003-2006) of Nuveen Investments, LLC; 184 Assistant Vice President and Assistant Secretary of the Nuveen Funds (2003-2006); previously, Associate (2001-2003) at the law firm of VedderPrice P.C. - - DAVID J. LAMB 3/22/63 Vice President (since 333 W. Wacker Drive Vice President 2000 2000) of Nuveen Chicago, IL 60606 184 Investments, LLC; Certified Public Accountant. - - TINA M. LAZAR 8/27/61 Vice President of Nuveen 333 W. Wacker Drive Vice President 2002 184 Investments, LLC (since Chicago, IL 60606 1999). - - LARRY W. MARTIN 7/27/51 Vice President Vice President, Assistant 333 W. Wacker Drive and Assistant 1988 Secretary and Assistant Chicago, IL 60606 Secretary General Counsel of Nuveen Investments, LLC; formerly, Vice President and Assistant Secretary of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); Vice President (since 2005) and Assistant Secretary of Nuveen Investments, Inc.; Vice President (since 2005) and Assistant Secretary (since 1997) of Nuveen Asset Management; Vice President (since 2000), Assistant Secretary and 184 Assistant General Counsel (since 1998) of Rittenhouse Asset Management, Inc.; Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); NWQ Investment Management Company, LLC (since 2002), Symphony Asset Management LLC (since 2003), Tradewinds Global Investors, LLC, Santa Barbara Asset Management LLC (since 2006) and of Nuveen HydePark Group, LLC and Richards & Tierney, Inc. (since 2007).
51
NAME, BIRTHDATE POSITION(S) HELD WITH NUMBER OF PORTFOLIOS & ADDRESS THE FUNDS YEAR FIRST IN FUND COMPLEX PRINCIPAL ELECTED OR OVERSEEN OCCUPATION(S) APPOINTED(4) BY OFFICER DURING PAST 5 YEARS OFFICERS OF THE FUND (CONTINUED): - - KEVIN J. MCCARTHY 3/26/66 Vice President Vice President, Nuveen 333 W. Wacker Drive and Secretary 2007 Investments, LLC (since Chicago, IL 60606 2007); Vice President, and Assistant Secretary, Nuveen Asset Management, Rittenhouse Asset Management, Inc., Nuveen Investment Advisers Inc., Nuveen Investment Institutional Services Group LLC, NWQ Investment Management Company, LLC, Tradewinds Global 184 Investors LLC, NWQ Holdings, LLC, Symphony Asset Management LLC, Santa Barbara Asset Management LLC, Nuveen HydePark Group, LLC and Richards & Tierney, Inc. (since 2007); Vice President and Assistant General Counsel, Nuveen Investments, Inc. (since 2007). Prior thereto, Partner, Bell, Boyd & Lloyd LLP (1997-2007). - - JOHN V. MILLER 4/10/67 Managing Director (since 333 W. Wacker Drive Vice President 2007 2007), formerly, Vice Chicago, IL 60606 184 President (2002-2007) of Nuveen Investments, LLC; Chartered Financial Analyst. - - JAMES F. RUANE 7/3/62 Vice President Vice President, Nuveen 333 W. Wacker Drive and Assistant 2007 Investments (since 2007); Chicago, IL 60606 Secretary prior thereto, Partner, 184 Deloitte & Touche USA LLP (since 2005), formerly, senior tax manager (since 2002); Certified Public Accountant. - - MARK L. WINGET 12/21/68 Vice President Vice President, Nuveen 333 W. Wacker Drive and Assistant 2008 Investments, LLC (since Chicago, IL 60606 Secretary 2008); Vice President and Assistant Secretary, Nuveen Asset Management, Rittenhouse Asset Management, Inc., Nuveen Investment Advisers Inc., Nuveen Investment Institutional Services Group LLC, NWQ Investment Management Company, LLC, Tradewinds Global 184 Investors, LLC, NWQ Holdings, LLC, Symphony Asset Management LLC, Santa Barbara Asset Management, LLC, Nuveen HydePark Group, LLC and Richards & Tierney, Inc. (since 2008); Vice President and Assistant General Counsel, Nuveen Investments Inc. (since 2008); prior thereto, Counsel, VedderPrice P.C. (1997-2007).
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the Investment Company Act of 1940, by reason of being the former Chairman and Chief Executive Officer of Nuveen Investments, Inc. and having previously served in various other capacities with Nuveen Investments, Inc. and its subsidiaries. It is expected that Mr. Schwertfeger will resign from the Board of Trustees by the end of the second quarter of 2008. (2) Board Members serve three year terms, except for two board members who are elected by the holders of Preferred Shares. The Board of Trustees is divided into three classes, Class I, Class II, and Class III, with each being elected to serve until the third succeeding annual shareholders' meeting subsequent to its election or thereafter in each case when its respective successors are duly elected or appointed, except two board members are elected by the holders of Preferred Shares to serve until the next annual shareholders' meeting subsequent to its election or thereafter in each case when its respective successors are duly elected or appointed. The first year elected or appointed represents the year in which the board member was first elected or appointed to any fund in the Nuveen Complex. (3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were reorganized into Nuveen Asset Management, effective January 1, 2005. (4) Officers serve one year terms through July of each year. The year first elected or appointed represents the year in which the Officer was first elected or appointed to any fund in the Nuveen Complex. 52 Reinvest Automatically EASILY and CONVENIENTLY NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET UP YOUR REINVESTMENT ACCOUNT. NUVEEN CLOSED-END FUNDS DIVIDEND REINVESTMENT PLAN Your Nuveen Closed-End Fund allows you to conveniently reinvest dividends and/or capital gains distributions in additional Fund shares. By choosing to reinvest, you'll be able to invest money regularly and automatically, and watch your investment grow through the power of tax-free compounding. Just like dividends or distributions in cash, there may be times when income or capital gains taxes may be payable on dividends or distributions that are reinvested. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market. EASY AND CONVENIENT To make recordkeeping easy and convenient, each month you'll receive a statement showing your total dividends and distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own. HOW SHARES ARE PURCHASED The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the greater of the net asset value or 95% of the then-current market price. If the shares are trading at less than net asset value, shares for your account will be purchased on the open market. If the Plan Agent begins purchasing Fund shares on the open market while shares are trading below net asset value, but the Fund's shares subsequently trade at or above their net asset value before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in newly-issued Fund shares at a price equal to the greater of the shares' net asset value or 95% of the shares' market value on the last business day immediately prior to the purchase date. Dividends and distributions received to purchase shares in the open market will normally be invested shortly after the dividend payment date. No interest will be paid on dividends and distributions awaiting reinvestment. Because the market price of the shares may increase before purchases are completed, the average purchase price per share may exceed the market price at the time of valuation, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid by Plan participants. These commissions usually will be lower than those charged on individual transactions. 53 FLEXIBLE You may change your distribution option or withdraw from the Plan at any time, should your needs or situation change. Should you withdraw, you can receive a certificate for all whole shares credited to your reinvestment account and cash payment for fractional shares, or cash payment for all reinvestment account shares, less brokerage commissions and a $2.50 service fee. You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan. The Fund reserves the right to amend or terminate the Plan at any time. Although the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time. CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS For more information on the Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial advisor or call us at (800) 257-8787. 54 Glossary of TERMS USED in this REPORT Average Annual Total Return: This is a commonly used method to express an investment's performance over a particular, usually multi-year time period. It expresses the return that would have been necessary each year to equal the investment's actual cumulative performance (including change in NAV or market price and reinvested dividends and capital gains distributions, if any) over the time period being considered. Market Yield (also known as Dividend Yield or Current Yield): Market yield is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Fund's cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital. Net Asset Value (NAV): A Fund's common share NAV per share is calculated by subtracting the liabilities of the Fund (including any Preferred shares issued in order to leverage the Fund) from its total assets and then dividing the remainder by the number of shares outstanding. Fund NAVs are calculated at the end of each business day. 55 NOTES 56 NOTES 57 NOTES 58 OTHER USEFUL INFORMATION QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION Each Fund's (i) quarterly portfolio of investments, (ii) information regarding how the Funds voted proxies relating to portfolio securities held during the most recent twelve-month period ended June 30, 2007, and (iii) a description of the policies and procedures that the Funds used to determine how to vote proxies relating to portfolio securities are available without charge, upon request, by calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at www.nuveen.com. You may also obtain this and other Fund information directly from the Securities and Exchange Commission ("SEC"). The SEC may charge a copying fee for this information. Visit the SEC on-line at http://www.sec.gov or in person at the SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours and operation. You may also request Fund information by sending an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section at 450 Fifth Street NW, Washington, D.C. 20549. CEO Certification Disclosure Each Fund's Chief Executive Officer has submitted to the New York Stock Exchange the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual. Each Fund has filed with the Securities and Exchange Commission the certification of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act. Distribution Information Nuveen Quality Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred Income Fund 3 (JHP) hereby designate 12.63%, 12.89% and 13.02%, respectively, of dividends paid from ordinary income as dividends qualifying for the 70% dividends received deduction for corporations and 29.87%, 30.64% and 30.27%, respectively, as qualified dividend income for individuals under Section 1(h)(11) of the Internal Revenue Code. Board of Trustees Robert P. Bremner Jack B. Evans William C. Hunter David J. Kundert William J. Schneider Timothy R. Schwertfeger Judith M. Stockdale Carol E. Stone Fund Manager Nuveen Asset Management 333 West Wacker Drive Chicago, IL 60606 Custodian State Street Bank & Trust Company Boston, MA Transfer Agent and Shareholder Services State Street Bank & Trust Company Nuveen Funds P.O. Box 43071 Providence, RI 02940-3071 (800) 257-8787 Legal Counsel Chapman and Cutler LLP Chicago, IL Independent Registered Public Accounting Firm Ernst & Young LLP Chicago, IL The Fund intends to repurchase shares of its own common or preferred stock in the future at such times and in such amounts as is deemed advisable. No shares were repurchased during the period covered by this report. Any future repurchases will be reported to shareholders in the next annual or semi-annual report. 59 Nuveen Investments: - ----------------------------------------------------------------------- SERVING INVESTORS FOR GENERATIONS Since 1898, financial advisors and their clients have relied on Nuveen Investments to provide dependable investment solutions. For the past century, Nuveen Investments has adhered to the belief that the best approach to investing is to apply conservative risk-management principles to help minimize volatility. Building on this tradition, we today offer a range of high quality equity and fixed-income solutions that are integral to a well-diversified core portfolio. Our clients have come to appreciate this diversity, as well as our continued adherence to proven, long-term investing principles. We offer many different investing solutions for our clients' different needs. Managing $170 billion in assets, as of September 30, 2007, Nuveen Investments offers access to a number of different asset classes and investing solutions through a variety of products. Nuveen Investments markets its capabilities under six distinct brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in value-style equities; Rittenhouse, a leader in growth-style equities; Symphony, a leading institutional manager of market-neutral alternative investment portfolios; Santa Barbara, a leader in growth equities; and Tradewinds, a leader in global equities. Find out how we can help you reach your financial goals. To learn more about the products and services Nuveen Investments offers, talk to your financial advisor, or call us at (800) 257-8787. Please read the information provided carefully before you invest. Be sure to obtain a prospectus, where applicable. Investors should consider the investment objective and policies, risk considerations, charges and expenses of the Fund carefully before investing. The prospectus contains this and other information relevant to an investment in the Fund. For a prospectus, please contact your securities representative or Nuveen Investments, 333 W. Wacker Dr., Chicago, IL 60606. Please read the prospectus carefully before you invest or send money. EAN-E-1207D Learn more about Nuveen Funds at: WWW.NUVEEN.COM/CEF Share prices Fund details Daily financial news Investor education Interactive planning tools ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. [There were no amendments to or waivers from the Code during the period covered by this report.] The registrant has posted the code of ethics on its website at www.nuveen.com/etf. (To view the code, click on the Shareholder Resources drop down menu box, click on Fund Governance and then click on Code of Conduct.) ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Directors (the "Board") determined that the registrant has at least one "audit committee financial expert" (as defined in Item 3 of Form N-CSR) serving on its Audit Committee. The registrant's audit committee financial expert is Jack B. Evans, Chairman of the Audit Committee, who is "independent" for purposes of Item 3 of Form N-CSR. Mr. Evans was formerly President and Chief Operating Officer of SCI Financial Group, Inc., a full service registered broker-dealer and registered investment adviser ("SCI"). As part of his role as President and Chief Operating Officer, Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and actively supervised the CFO's preparation of financial statements and other filings with various regulatory authorities. In such capacity, Mr. Evans was actively involved in the preparation of SCI's financial statements and the resolution of issues raised in connection therewith. Mr. Evans has also served on the audit committee of various reporting companies. At such companies, Mr. Evans was involved in the oversight of audits, audit plans, and the preparation of financial statements. Mr. Evans also formerly chaired the audit committee of the Federal Reserve Bank of Chicago. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Nuveen Quality Preferred Income Fund 2 The following tables show the amount of fees that Ernst & Young LLP, the Fund's auditor, billed to the Fund during the Fund's last two full fiscal years. For engagements with Ernst & Young LLP the Audit Committee approved in advance all audit services and non-audit services that Ernst & Young LLP provided to the Fund, except for those non-audit services that were subject to the pre-approval exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The pre-approval exception for services provided directly to the Fund waives the pre-approval requirement for services other than audit, review or attest services if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid by the Fund to its accountant during the fiscal year in which the services are provided; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee's attention, and the Committee (or its delegate) approves the services before the audit is completed. The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee). SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES FISCAL YEAR ENDED TO FUND (1) BILLED TO FUND (2) BILLED TO FUND (3) BILLED TO FUND (4) - ----------------- ----------------- ------------------ ------------------ ------------------ December 31, 2007 $32,472 $0 $1,000 $4,300 ------- --- ------ ------ Percentage approved pursuant to pre-approval exception 0% 0% 0% 0% ------- --- ------ ------ December 31, 2006 $30,313 $0 $ 800 $3,950 ------- --- ------ ------ Percentage approved pursuant to pre-approval exception 0% 0% 0% 0%
(1) "Audit Fees" are the aggregate fees billed for professional services for the audit of the Fund's annual financial statements and services provided in connection with statutory and regulatory filings or engagements. (2) "Audit Related Fees" are the aggregate fees billed for assurance and related services reasonably related to the performance of the audit or review of financial statements and are not reported under "Audit Fees". (3) "Tax Fees" are the aggregate fees billed for professional services for tax advice, tax compliance, and tax planning. (4) "All Other Fees" are the aggregate fees billed for products and services for agreed upon procedures engagements performed for leveraged funds. SERVICES THAT THE FUND'S AUDITOR BILLED TO THE ADVISER AND AFFILIATED FUND SERVICE PROVIDERS The following tables show the amount of fees billed by Ernst & Young LLP to Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling, controlled by or under common control with NAM ("Control Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for engagements directly related to the Fund's operations and financial reporting, during the Fund's last two full fiscal years. The tables also show the percentage of fees subject to the pre-approval exception. The pre-approval exception for services provided to the Adviser and any Affiliated Fund Service Provider (other than audit, review or attest services) waives the pre-approval requirement if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund Service Providers during the fiscal year in which the services are provided that would have to be pre-approved by the Audit Committee; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee's attention, and the Committee (or its delegate) approves the services before the Fund's audit is completed.
AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND FISCAL YEAR ENDED SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS - ----------------- --------------------- ------------------ ------------------- December 31, 2007 $0 $0 $0 --- --- --- Percentage approved pursuant to pre-approval exception 0% 0% 0% --- --- --- December 31, 2006 $0 $0 $0 --- --- --- Percentage approved pursuant to pre-approval exception 0% 0% 0%
NON-AUDIT SERVICES The following table shows the amount of fees that Ernst & Young LLP billed during the Fund's last two full fiscal years for non-audit services. For engagements entered into on or after May 6, 2003, the Audit Committee is required to pre-approve non-audit services that Ernst & Young LLP provides to the Adviser and any Affiliated Fund Services Provider, if the engagement related directly to the Fund's operations and financial reporting (except for those subject to the de minimis exception described above). The Audit Committee requested and received information from Ernst & Young LLP about any non-audit services that Ernst & Young LLP rendered during the Fund's last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating Ernst & Young LLP's independence.
TOTAL NON-AUDIT FEES BILLED TO ADVISER AND AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER FISCAL YEAR ENDED BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL - ----------------- -------------------- ------------------------ ----------------------- ------ December 31, 2007 $5,300 $0 $0 $5,300 December 31, 2006 $4,750 $0 $0 $4,750
"Non-Audit Fees billed to Adviser" for both fiscal year ends represent "Tax Fees" billed to Adviser in their respective amounts from the previous table. Audit Committee Pre-Approval Policies and Procedures. Generally, the Audit Committee must approve (i) all non-audit services to be performed for the Fund by the Fund's independent accountants and (ii) all audit and non-audit services to be performed by the Fund's independent accountants for the Affiliated Fund Service Providers with respect to operations and financial reporting of the Fund. Regarding tax and research projects conducted by the independent accountants for the Fund and Affiliated Fund Service Providers (with respect to operations and financial reports of the Fund) such engagements will be (i) pre-approved by the Audit Committee if they are expected to be for amounts greater than $10,000; (ii) reported to the Audit Committee chairman for his verbal approval prior to engagement if they are expected to be for amounts under $10,000 but greater than $5,000; and (iii) reported to the Audit Committee at the next Audit Committee meeting if they are expected to be for an amount under $5,000. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. The registrant's Board has a separately designated Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78c(a)(58)(A)). The members of the audit committee are Robert P. Bremner, Jack B. Evans, David J. Kundert and William J. Schneider. Mr. Eugene S. Sunshine, who also served as a member of the Committee during this reporting period, has resigned from the Board. His resignation became effective on July 31, 2007. ITEM 6. SCHEDULE OF INVESTMENTS. See Portfolio of Investments in Item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The Adviser has engaged Spectrum Asset Management, Inc. ("Spectrum" or "Sub-Adviser") as Sub-Adviser to provide discretionary investment advisory services. As part of these services, the Adviser has also delegated to the Sub-Adviser the full responsibility for proxy voting and related duties in accordance with the Sub-Adviser's policy and procedures. The Adviser periodically will monitor the Sub-Adviser's voting to ensure that they are carrying out their duties. The Sub-Adviser's proxy voting policies and procedures are summarized as follows: Spectrum has adopted a Policy on Proxy Voting for Investment Advisory Clients (the "Voting Policy"), which provides that Spectrum aims to ensure that, when delegated proxy voting authority by a client, Spectrum act (1) solely in the interest of the client in providing for ultimate long-term stockholder value, and (2) without undue influence from individuals or groups who may have an economic interest in the outcome of a proxy vote. Spectrum relies on the custodian bank to deliver proxies to Spectrum for voting. Spectrum has selected Institutional Shareholder Services, Inc. ("ISS") to assist with Spectrum's proxy voting responsibilities. Spectrum generally follows ISS standard proxy voting guidelines which embody the positions and factors Spectrum considers important in casting proxy votes. In connection with each proxy vote, ISS prepares a written analysis and recommendation based on its guidelines. In order to avoid any conflict of interest for ISS, the CCO will require ISS to deliver additional information or certify that ISS has adopted policies and procedures to detect and mitigate such conflicts of interest in issuing voting recommendations. Spectrum also may obtain voting recommendations from two proxy voting services as an additional check on the independence of ISS' voting recommendations. Spectrum may, on any particular proxy vote, diverge from ISS' guidelines or recommendations. In such a case, Spectrum's Voting Policy requires that: (i) the requesting party document the reason for the request; (ii) the approval of the Chief Investment Officer; (iii) notification to appropriate compliance personnel; (iv) a determination that the decision is not influenced by any conflict of interest; and (v) a written record of the process. When Spectrum determines not to follow ISS' guidelines or recommendations, Spectrum classifies proxy voting issues into three broad categories: (1) Routine Administrative Items; (2) Special Interest Issues; and (3) Issues having the Potential for Significant Economic Impact, and casts proxy votes in accordance with the philosophy and decision guidelines developed for that category in the Voting Policy. - Routine Administrative Items. Spectrum is willing to defer to management on matters a routine administrative nature. Examples of issues on which Spectrum will normally defer to management's recommendation include selection of auditors, increasing the authorized number of common shares and the election of unopposed directors. - Special Interest Issues. In general, Spectrum will abstain from voting on shareholder social, political, environmental proposals because their long-term impact on share value cannot be calculated with any reasonable degree of confidence. - Issues Having the Potential for Significant Economic Impact. Spectrum is not willing to defer to management on proposals which have the potential for major economic impact on the corporation and value of its shares and believes such issues should be carefully analyzed and decided by shareholders. Examples of such issues are classification of board of directors' cumulative voting and supermajority provisions, defensive strategies (e.g., greenmail prevention), business combinations and restructurings and executive and director compensation. Conflicts of Interest. There may be a material conflict of interest when Spectrum votes, on behalf of a client, a proxy that is solicited by an affiliated person of Spectrum or another Spectrum client. To avoid such conflicts, Spectrum has established procedures under its Voting Policy to seek to ensure that voting decisions are based on a client's best interests and are not the product of a material conflict. In addition to employee monitoring for potential conflicts, the CCO reviews Spectrum's and its affiliates' material business relationships and personal and financial relationships of senior personnel of Spectrum and its affiliates to monitor for conflicts of interest. If a conflict of interest is identified, Spectrum considers both financial and non-financial materiality to determine if a conflict of interest is material. If a material conflict of interest is found to exist, the CCO discloses the conflict to affected clients and obtains consent from each client in the manner in which Spectrum proposed to vote. Spectrum clients can obtain a copy of the Voting Policy or information on how Spectrum voted their proxies by calling Spectrum's Compliance Department at (203) 322-0189. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The Adviser has engaged Spectrum Asset Management, Inc. (the "Sub-Adviser"), as sub-adviser to provide discretionary investment advisory services. The following section provides information on the portfolio managers at the Sub-Adviser. ITEM 8(a)(1). PORTFOLIO MANAGER BIOGRAPHIES MARK A. LIEB - Mr. Lieb is Chief Financial Officer and is responsible for business development. Prior to founding Spectrum in 1987, Mr. Lieb was a Founder, Director and Partner of DBL Preferred Management, Inc., a wholly owned corporate cash management subsidiary of Drexel Burnham Lambert, Inc. Mr. Lieb was instrumental in the formation and development of all aspects of DBL Preferred Management, Inc., including the daily management of preferred stock portfolios for institutional clients, hedging strategies, and marketing strategies. Mr. Lieb's prior employment included the development of the preferred stock trading desk at Mosley Hallgarten & Estabrook. BA Economics, Central Connecticut State College; MBA Finance, University of Hartford. L. PHILLIP JACOBY, IV - Managing Director and Senior Portfolio Manager. Mr. Jacoby joined Spectrum in 1995 as Portfolio Manager. Previously, Mr. Jacoby was a Senior Investment Officer at USL Capital Corporation (a subsidiary of Ford Motor Corporation) and was a co-manager of a the preferred stock portfolio of its US Corporate Financing Division for six years. Mr. Jacoby began his career in 1981 with The Northern Trust Company, Chicago and then moved to Los Angeles to join E.F. Hutton & Co. as a Vice President and Institutional Salesman, Generalist Fixed Income Sales through most of the 1980s. BSBA (Finance), Boston University School of Management. BERNARD M. SUSSMAN - Mr. Sussman is Chief Investment Officer and Chairman of Spectrum's Investment Committee. Prior to joining Spectrum in 1995, Mr. Sussman was with Goldman Sachs & Co. for nearly 18 years. A General Partner and head of the Preferred Stock Department, he was in charge of sales, trading and underwriting for all preferred products and was instrumental in the development of the hybrid (MIPS) market. He was a Limited Partner at Goldman Sachs from December 1994 through November 1996. BS Industrial Relations and MBA Finance, Cornell University. NASD Series 55 "Equity Trader Limited Representative". ITEM 8(a)(2). OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
TYPE OF ACCOUNT NUMBER OF PORTFOLIO MANAGER MANAGED ACCOUNTS ASSETS* - ----------------- ------------------------------ --------- --------------- Phillip Jacoby Separately Managed accounts 43 $2,765,773,535 Pooled Accounts 11 $1,887,834,020 Registered Investment Vehicles 11 $5,398,941,863 Mark Lieb Separately Managed accounts 52 $2,775,356,100 Pooled Accounts 11 $1,887,834,020 Registered Investment Vehicles 11 $5,398,941,863 Bernard Sussman Separately Managed accounts 46 $2,772,486,173 Pooled Accounts 11 $1,887,834,020 Registered Investment Vehicles 11 $5,398,941,863
POTENTIAL MATERIAL CONFLICTS OF INTEREST There are no material conflicts of interest to report. ITEM 8(a)(3). FUND MANAGER COMPENSATION All employees of Spectrum Asset Management are paid a base salary and discretionary bonus. The bonus is paid quarterly and may represent a significant proportion of an individual's total annual compensation. Discretionary bonuses are determined by management after consideration of several factors including but not necessarily limited to: - Changes in overall firm assets under management (employees have no direct incentive to increase assets) - Portfolio performance relative to benchmarks - Contribution to client servicing - Compliance with firm and/or regulatory policies and procedures - Work ethic - Seniority and length of service - Contribution to overall functioning of organization ITEM 8(a)(4). OWNERSHIP OF JPS SECURITIES AS OF DECEMBER 31, 2007
DOLLAR RANGE OF EQUITY SECURITIES NAME OF PORTFOLIO MANAGER BENEFICIALLY OWNED IN FUND - ------------------------- --------------------------------- Phillip Jacoby $0 Mark Lieb $100,001-$500,000 Bernard Sussman $100,001-$500,000
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's Board implemented after the registrant last provided disclosure in response to this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable because the code is posted on registrant's website at www.nuveen.com/etf and there were no amendments during the period covered by this report. (To view the code, click on the Shareholder Resources drop down menu box, click on Fund Governance and then Code of Conduct.) (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: See Ex-99.CERT Attached hereto. (a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons: Not applicable. (b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR 270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: See 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/ Kevin J. McCarthy ------------------------------------------ Kevin J. McCarthy Vice President and Secretary Date: March 7, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Gifford R. Zimmerman ------------------------------------------ Gifford R. Zimmerman Chief Administrative Officer (principal executive officer) Date: March 7, 2008 By (Signature and Title)* /s/ Stephen D. Foy ------------------------------------------ Stephen D. Foy Vice President and Controller (principal financial officer) Date: March 7, 2008 * Print the name and title of each signing officer under his or her signature. EX-99.CERT 2 c22786bexv99wcert.txt CERTIFICATION 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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board (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: March 7, 2008 /s/ Gifford R. Zimmerman ----------------------------- Gifford R. Zimmerman Chief Administrative Officer (principal executive officer) 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 officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board (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: March 7, 2008 /s/ Stephen D. Foy ------------------------ Stephen D. Foy Vice President and Controller (principal financial officer) EX-99.906CERT 3 c22786bexv99w906cert.txt 906 CERTIFICATION 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 December 31, 2007 (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: March 7, 2008 s/ Gifford R. Zimmerman -------------------------- Gifford R. Zimmerman Chief Administrative Officer (principal executive officer) s/ Stephen D. Foy -------------------------- Stephen D. Foy Vice President, Controller (principal financial officer) -----END PRIVACY-ENHANCED MESSAGE-----