UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-21137 --------------------- Nuveen Quality Preferred Income Fund 2 ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Jessica R. Droeger Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------ (Name and address of agent for service) Registrant's telephone number, including area code: (312) 917-7700 ------------------- Date of fiscal year end: December 31 ------------------ Date of reporting period: December 31, 2004 ------------------ Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. Annual Report December 31, 2004 Nuveen Investments Closed-End Exchange-Traded Funds NUVEEN QUALITY PREFERRED INCOME FUND JTP NUVEEN QUALITY PREFERRED INCOME FUND 2 JPS NUVEEN QUALITY PREFERRED INCOME FUND 3 JHP Photo of: Man and woman sitting on porch. Photo of: 2 children sitting in the grass. HIGH CURRENT INCOME FROM A PORTFOLIO OF INVESTMENT-GRADE PREFERRED SECURITIES Logo: NUVEEN Investments Photo of: Woman Photo of: Man and child Photo of: Woman NOW YOU CAN RECEIVE YOUR NUVEEN FUND REPORTS FASTER. NO MORE WAITING. SIGN UP TODAY TO RECEIVE NUVEEN FUND INFORMATION BY E-MAIL. It only takes a minute to sign up for E-Reports. Once enrolled, you'll receive an e-mail as soon as your Nuveen Investments Fund information is ready -- no more waiting for delivery by regular mail. Just click on the link within the e-mail to see the report, and save it on your computer if you wish. ------------------ DELIVERY DIRECT TO YOUR E-MAIL INBOX ------------------ IT'S FAST, EASY & FREE: www.investordelivery.com if you get your Nuveen Fund dividends and statements from your financial advisor or brokerage account. OR www.nuveen.com/accountaccess if you get your Nuveen Fund dividends and statements directly from Nuveen. (Be sure to have the address sheet that accompanied this report handy. You'll need it to complete the enrollment process.) Logo: NUVEEN Investments Photo of: Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board Chairman's Letter to Shareholders I am pleased to report that for the year ended December 31, 2004, your Fund continued to provide you with attractive monthly income from a diversified portfolio of quality preferred securities. The date of this report represents a change that aligns your Fund's fiscal year with the calendar year. We believe this change in your Fund's shareholder reporting cycle will lead to greater efficiencies and other benefits in the operation of your Fund. "We continue to believe that your Fund provides a valuable source of regular monthly income, and that it also may provide an opportunity to reduce the overall risk of your entire investment portfolio." As you'll see as you review this report, there has been no change in the objectives or management of your Fund. We continue to believe that your Fund provides a valuable source of regular monthly income, and that it also may provide an opportunity to reduce the overall risk of your entire investment portfolio. This is because the price of your Fund's shares may move differently than the prices of other investments that you may own. Your financial advisor can explain the advantages of portfolio diversification in more detail. I urge you to contact him or her soon for more information on this important investment strategy. I also urge you to consider receiving future Fund reports and other Fund information faster by using e-mail and the Internet. Sign up is quick and easy - see the inside front cover of this report for instructions. For more than 100 years, Nuveen has specialized in offering quality investments such as your Fund to those seeking to accumulate and preserve wealth. Our mission continues to be to assist you and your financial advisor by offering the investment solutions and services that can help you secure your long-term financial goals. We thank you for choosing us as a partner as you work toward that objective. Sincerely, /s/ Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board February 15, 2005 Nuveen Closed-End Exchange-Traded Funds (JTP, JPS, JHP) Portfolio Managers' Perspective The Nuveen Quality Preferred Income Funds are subadvised by a team of specialists at Spectrum Asset Management, Inc., an affiliate of Principal Capital(SM). Mark Lieb, Bernie Sussman and Phil Jacoby, who have more than 50 years of combined experience in the preferred securities markets, lead the team. Here Mark, Bernie and Phil talk about their management strategy and the performance of each Fund for the 12-month period ended December 31, 2004. What were the general economic and market conditions for the 12-month period ended December 31, 2004? Generally, the U.S. economy presented a slowly improving picture in 2004. The Gross Domestic Product (GDP) grew at a preliminary estimate of 4.4% over the course of the full year. Inflation remained largely in check, as the Consumer Price Index rose 3.3% due primarily to increased energy costs. Corporate profits grew by an average of about 20%, and there was an increase of approximately 2 million jobs with the unemployment rate dropping to 5.4% at the end of 2004 from 5.7% at the beginning of the year. The fourth quarter stock market rally seemed to reflect a belief by some that the economic recovery had become more self-sustaining. In the fixed-income markets, the Federal Reserve raised the fed funds rate five times between June 30 and December 14. At the close of the year, this benchmark rate stood at 2.25%, compared with 1.00% one year earlier. (On February 2, 2005, after the close of this reporting period, the Federal Reserve raised the fed funds rate by another 0.25% to 2.50%.) At the same time, rates remained essentially unchanged at the long end of the yield curve, with the yield on 10-year U.S. Treasuries standing at 4.22% on December 31, 2004, compared with 4.26% at the beginning of the year. Despite this significant flattening of the yield curve, longer duration investments such as preferred securities continued to enjoy generally wide yield spreads over money market funds and other short-term instruments. As a result, individual investors remained aggressive buyers throughout the year in the $25 par sector of the market. Within the $1000 par capital securities sector, buying interest also was strong throughout the year as U.S. and European insurance companies joined other institutional investors who sought to garner incremental yield. Encouraging this demand was the continued improvement in the general credit quality of many issuers, especially among the financial-oriented companies that make up a large proportion of the holdings of these Funds. The ratio of upgrades to downgrades was more favorable over this year period than at any time since the Funds' inceptions. 4 What was your overall management strategy for the 12-month period ended December 31, 2004? We continued to maintain a balance between the two major preferred sectors - the $25 par and the $1000 par capital securities. While both sectors presented attractive investment opportunities at particular points in time, by the end of 2004 the relative weighting between the two in each Fund was essentially unchanged from the beginning of the period. Over the course of 2004, our investment focus centered on buying high quality, higher coupon preferred issues that usually traded on the basis of their yield-to-call rather than their yield-to-maturity. Within the $25 par sector, this meant seeking securities with coupons of 7.00% or more and call dates two or three years in the future. Early in the year these types of preferreds had yields-to-call that generally were about 2.00% higher than short-term U.S. Treasury securities (it is important to note that U.S. Treasury securities are backed by the full faith and credit of the U.S. Government while preferred securities are not). As the yield curve flattened over the course of the year, these spreads closed to about 1.50%. In the $1000 par capital securities sector, much of our investment focus was on "Yankee step-up" securities. These are $US-denominated preferreds issued primarily by highly-rated European financial institutions. They pay a fixed rate for a period of time and then move to a wide spread above LIBOR (London Interbank Offered Rate) if the issuer does not call the security. This step-up feature makes the exercise of the call option more likely and creates a shorter duration, less interest rate sensitive investment vehicle. One of our longer-term goals is to position each of these Funds so that they provide return variability and interest rate risk exposure roughly comparable to the variability and risk of the markets in which they invest. As one strategy to reach this goal, we attempted to reduce some of their inherent interest rate risk (the risk that the value of a Fund's portfolio will decline if market interest rates rise) by utilizing U.S. Treasury note and bond futures to hedge some of this risk. Our only objective with these hedges was to reduce the duration of these Funds without having a negative impact on their dividends. These hedges do not affect the Funds' income streams or dividend-paying capabilities over the short-term. Instead, the costs of the hedges are reflected as an addition or subtraction from each Fund's net asset value as the value of the hedge fluctuates. Some of the 5 hedges had a negative impact on Fund performance as of December 31, 2004, because interest rates fell and bond prices rose during the periods in which the hedges were in place. However, this loss in value was at least partly offset by the fact that some of the securities in each Fund's portfolio, because they had longer-than-target durations, increased in value by more as a result of these interest rate decreases than if the securities had the shorter, targeted duration. How did the Funds perform over the 12-months ended December 31, 2004? Each of the Funds performed well during the 12 months ended December 31, 2004. Their performance, as well as the performance of several widely followed market indexes, is shown in the nearby chart. Total Return on Net Asset Value For 12 months ended December 31, 2004 JTP 7.65% - -------------------------------------------------------------------------------- JPS 7.99% - -------------------------------------------------------------------------------- JHP 7.73% - -------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index(1) 4.34% - -------------------------------------------------------------------------------- Merrill Lynch Preferred Stock Hybrid Securities Index(2) 5.51% - -------------------------------------------------------------------------------- Past performance does not guarantee future results. Returns do not reflect the deduction of taxes that a shareholder may have to pay on Fund distributions or upon the sale of Fund shares. For more information, please see the individual Performance Overview pages in this report. For the 12 months ended December 31, 2004, all three Funds outperformed the Lehman Brothers and Merrill Lynch indexes. One of the primary factors benefiting the performance of these Funds relative to that of the unmanaged indexes was the Funds' use of financial leverage. While leveraging can add volatility to a Fund's NAV and share price, especially during periods of rising interest rates, this strategy can also provide opportunities for additional income and total returns for common shareholders when short-term interest rates remain relatively low and long-term rates fall or remain relatively constant, as they did during this reporting period. Individual security selection also played a prominent role in each Fund's strong relative performance for the year. Highly-rated preferreds issued by financial institutions, especially banks, were the mainstays of their portfolios. Over the course of the year, (1) The Lehman Brothers Aggregate Bond Index is an unmanaged index that includes all investment-grade, publicly issued, fixed-rate, dollar-denominated, nonconvertible debt issues and commercial mortgage backed securities with maturities of at least one year and outstanding par values of $150 million or more. (2) The Merrill Lynch Preferred Stock Hybrid Securities Index is an unmanaged index of investment-grade, exchange-traded preferred stocks with outstanding market values of at least $30 million and at least one year to maturity. 6 these securities often performed better than lower-rated securities. This was especially true for some of the securities issued by non-US companies that we were able to purchase at attractive yields relative to similarly rated preferreds from U.S. issuers. Seasoned "repackaged preferreds" also provided some good returns for the Funds. These securities are created when an investment bank buys a specific tranche of bonds or $1000 par preferred securities of a particular issuer, places them in a trust, and then issues $25 par preferreds backed by this trust. The repackaged preferreds are often not widely followed in the secondary market, which can produce some very attractive pricing and yields. In addition to their attractive return potential, they also provided the Funds with exposure to some issuers who have little or no other preferreds outstanding, such as IBM, BellSouth and Safeco. This helped improve the overall diversification of each portfolio. Within the $1000 par capital securities sector, our focus increased on $US-denominated preferreds from foreign issuers and on preferreds that trade in the "Euro listed" sector. These provided good returns to the portfolios as these two areas were among the best performing sectors in the overall corporate market. Other actions that positively impacted Fund performance over this period included our participation in a tender offer for Safeco preferreds, opportunistic buying of some insurance company securities that we believed were unfairly discounted because of the ongoing investigations of the industry, and the year end purchase of a very attractively priced Fannie Mae floating rate preferred stock that appreciated 12% in two days. While it was generally a very good year from a credit standpoint, there were a few blemishes that hurt overall Fund performance. While we limited the Funds' exposure to the auto sector (and actually reduced it as the year went on), the prices on Ford and GM preferreds and bonds tended to weaken over the period, given concerns over eroding market share and unfunded pension and health care obligations. Another position that negatively impacted performance was Converium. The Swiss reinsurance company surprised the markets with a large addition to reserves due to losses in their U.S. operations, and the company was subsequently downgraded to below investment grade. 7 While we liquidated the entire position, the prices we were able to obtain were well below our costs. One event that indirectly had a positive impact on the market and the Funds was an increasing sense among many market participants that the 15% tax rate for individuals on qualifying dividend income may become permanent. While the Funds do not specifically target this type of tax-advantaged income, many of our non-U.S. holdings qualify for the lower rate, and we saw increased buying interest in these securities toward the end of the year. What about Fund dividends and share prices? Each of these Funds uses financial leverage in an effort to enhance its dividend-paying capabilities. While this strategy adds volatility to a Fund's net asset value and share price, it generally enhances the amount of income the Fund has to distribute to its common shareholders. The extent of this benefit is tied in part to the short-term rates these Funds pay their FundPreferred(TM) shareholders. As short-term rates rose through the second half of the 12-month period, the Funds paid higher dividends to their FundPreferred shareholders. As a result, the leveraging strategy - while still beneficial - did not provide as much income enhancement as it did before short-term interest rates began to rise. This had an impact on all three of the Funds' dividends. Over the 12-month period, JPS and JHP each had one monthly dividend reduction and JTP had two dividend reductions. All of these Funds seek to pay stable dividends at rates that reflect each Fund's past results and projected future performance. During certain periods, each Fund may pay dividends at a rate that may be more or less than the amount of net investment income actually earned by the Fund during the period. If a Fund has cumulatively earned more than it has paid in dividends, it holds the excess in reserve as undistributed net investment income (UNII) as part of the Fund's NAV. Conversely, if a Fund has cumulatively paid dividends in excess of its earnings, the excess constitutes negative UNII that is likewise reflected in the Fund's NAV. Each Fund will, over time, pay all of its net investment income as dividends to shareholders. As of December 31, 2004, each of the Funds in this report had positive UNII balances for both financial statement purposes and tax purposes. 8 As of December 31, 2004, the Funds were trading at discounts to their net asset values as shown in the accompanying chart. Fund 12/31 Discount Period Avg. Discount - -------------------------------------------------------------------------------- JTP -6.17% -0.87% - -------------------------------------------------------------------------------- JPS -8.05% -4.30% - -------------------------------------------------------------------------------- JHP -4.69% -2.08% - -------------------------------------------------------------------------------- 9 Nuveen Quality Preferred Income Fund JTP Performance Overview As of December 31, 2004 Pie Chart: PORTFOLIO ALLOCATION (as a % of total investments) $25 Par (or similar) Securities 45.7% Capital Preferred Securities 45.2% Convertible Preferred Securities 5.4% Corporate Bonds 3.2% Repurchase Agreements 0.5% Bar Chart: 2004 MONTHLY DIVIDENDS PER SHARE Jan 0.105 Feb 0.105 Mar 0.105 Apr 0.105 May 0.105 Jun 0.101 Jul 0.101 Aug 0.101 Sep 0.101 Oct 0.101 Nov 0.101 Dec 0.097 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 1/1/04 15.8 15.89 15.93 15.89 15.86 15.96 16.09 15.83 15.85 15.86 15.97 15.97 15.95 15.93 15.8 15.77 15.76 15.78 15.84 15.87 15.87 15.91 15.89 15.81 15.8 15.87 15.93 15.93 15.8 15.87 15.88 15.85 15.9 15.82 15.75 15.73 15.71 15.75 15.9 16 16 16.01 16.06 16 15.98 16.04 16.16 16.12 16.13 16.09 16.1 16.08 15.96 16.03 16.02 16.01 16.07 16.02 16.05 15.9 15.97 16.02 16.08 16.14 16.18 15.58 14.91 15.15 15.29 15.29 15 14.5 14.3 14.52 14.62 14.69 14.41 14.19 14.14 13.91 13.45 13.69 13.94 14.1 14.23 14 13.81 13.73 13.53 12.91 12.5 13.19 13.25 13.14 13.39 13.32 13.55 13.63 13.52 13.57 13.77 13.8 13.9 13.99 14.04 14.04 14.13 13.99 13.78 13.82 13.74 13.62 13.53 13.41 13.09 13.2 13.25 13.31 13.34 13.41 13.28 13.25 13.17 13.33 13.27 13.34 13.46 13.6 13.69 13.89 13.88 13.92 13.9 13.99 13.71 13.72 13.77 13.83 13.87 13.82 13.65 13.64 13.74 13.69 13.58 13.72 13.86 13.96 13.96 14.04 14.13 14.13 14.01 14.1 14.16 14.2 14.13 14.2 14.26 14.27 14.3 14.36 14.44 14.38 14.37 14.2 14.27 14.46 14.46 14.5 14.6 14.55 14.48 14.54 14.55 14.54 14.59 14.55 14.5 14.56 14.55 14.56 14.57 14.59 14.61 14.67 14.58 14.62 14.58 14.7 14.61 14.6 14.56 14.57 14.65 14.69 14.69 14.75 14.79 14.77 14.7 14.63 14.65 14.62 14.63 14.68 14.63 14.64 14.58 14.62 14.67 14.72 14.8 14.8 14.85 14.92 14.94 14.97 14.63 14.22 14.47 14.52 14.55 14.49 14.57 14.59 14.71 14.7 14.73 14.75 14.75 14.77 14.86 14.74 14.65 14.6 14.42 14.55 14.66 14.6 14.52 14.49 14.51 14.36 14.15 13.96 13.81 13.61 13.65 13.83 13.83 13.73 13.71 13.74 13.82 13.93 12/31/04 14 Portfolio Statistics - -------------------------------------------------------------------------------- Share Price $14.00 - -------------------------------------------------------------------------------- Common Share Net Asset Value $14.92 - -------------------------------------------------------------------------------- Premium/Discount to NAV -6.17% - -------------------------------------------------------------------------------- Latest Dividend $.0970 - -------------------------------------------------------------------------------- Market Yield 8.31% - -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $961,583 - -------------------------------------------------------------------------------- Industries (as a % of total investments) - -------------------------------------------------------------------------------- Commercial Banks 28.3% - -------------------------------------------------------------------------------- Real Estate 15.1% - -------------------------------------------------------------------------------- Insurance 14.4% - -------------------------------------------------------------------------------- Diversified Financial Services 9.9% - -------------------------------------------------------------------------------- Capital Markets 9.1% - -------------------------------------------------------------------------------- Thrifts & Mortgage Finance 4.2% - -------------------------------------------------------------------------------- Oil & Gas 3.8% - -------------------------------------------------------------------------------- Automobiles 3.2% - -------------------------------------------------------------------------------- Repurchase Agreements 0.5% - -------------------------------------------------------------------------------- Other 11.5% - -------------------------------------------------------------------------------- Top Five Issuers (excluding repurchase agreements) (as a % of total investments) - -------------------------------------------------------------------------------- Wachovia Corporation 3.4% - -------------------------------------------------------------------------------- Abbey National Public Limited Company 3.2% - -------------------------------------------------------------------------------- ING Groep NV 3.1% - -------------------------------------------------------------------------------- Zurich Financial Services 2.8% - -------------------------------------------------------------------------------- HSBC Holdings Public Limited Company 2.5% - -------------------------------------------------------------------------------- Average Annual Total Return (Inception 6/25/02) - -------------------------------------------------------------------------------- On Share Price On NAV - -------------------------------------------------------------------------------- 1-Year -3.80% 7.65% - -------------------------------------------------------------------------------- Since Inception 5.58% 10.31% - -------------------------------------------------------------------------------- 10 Nuveen Quality Preferred Income Fund 2 JPS Performance Overview As of December 31, 2004 Pie Chart: PORTFOLIO ALLOCATION (as a % of total investments) $25 Par (or similar) Securities 47.2% Capital Preferred Securities 44.4% Convertible Preferred Securities 5.1% Corporate Bonds 3.3% Bar Chart: 2004 MONTHLY DIVIDENDS PER SHARE1 Jan 0.105 Feb 0.105 Mar 0.105 Apr 0.105 May 0.105 Jun 0.105 Jul 0.105 Aug 0.105 Sep 0.105 Oct 0.105 Nov 0.105 Dec 0.102 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 1/1/04 15.94 15.96 15.99 15.92 15.95 16 16.05 15.99 15.96 15.92 16 16.08 16.15 16.03 15.84 15.76 15.75 15.82 15.82 15.89 15.89 15.93 15.97 15.99 15.9 15.97 15.97 15.99 15.92 15.97 15.9 15.99 16.02 15.89 15.83 15.88 15.75 15.83 16.02 16.07 16.07 16.13 16.1 16.06 16.09 16.11 16.26 16.34 16.32 16.23 16.3 16.31 16.31 16.3 16.35 16.39 16.39 16.42 16.29 16.28 16.31 16.4 16.48 16.57 16.51 15.8 15 15.28 15.37 15.4 15.24 14.85 14.54 14.75 14.89 14.87 14.58 14.38 14.4 14.22 13.83 13.83 14.04 14.21 14.38 14.26 14.2 14.04 13.92 13.3 12.73 13.35 13.41 13.38 13.55 13.55 13.69 13.68 13.64 13.67 13.78 13.86 13.97 14.06 14.14 14.14 14.24 14.24 14.06 14.14 14.14 14.07 13.93 13.91 13.54 13.62 13.67 13.76 13.84 13.81 13.75 13.61 13.6 13.8 13.85 13.85 14.05 14.2 14.32 14.33 14.31 14.46 14.48 14.65 14.47 14.44 14.43 14.6 14.55 14.47 14.34 14.45 14.43 14.25 14.24 14.45 14.52 14.61 14.61 14.73 14.7 14.72 14.61 14.77 14.8 14.89 14.8 14.88 14.87 14.82 14.85 14.9 14.92 14.88 14.84 14.81 14.81 14.96 15.02 15.01 15.1 15.06 14.95 15.04 15.09 15.09 15.06 15.12 15.01 15.04 15.06 15.13 15.16 15.15 15.13 15.09 15.11 15.06 15.13 15.19 15.07 15 15.06 15.09 15.13 15.13 15.12 15.13 15.19 15.24 15.15 15.12 15.15 15.18 15.21 15.2 15.13 15.09 15.06 15.13 15.25 15.31 15.33 15.33 15.33 15.41 15.54 15.64 15.07 14.72 14.93 15.12 15.06 15.03 15.11 15.16 15.2 15.27 15.26 15.16 15.18 15.22 15.23 15.06 14.94 14.95 14.77 14.8 14.92 14.94 14.92 14.88 14.94 14.8 14.66 14.54 14.36 14.3 14.36 14.55 14.59 14.5 14.4 14.41 14.35 14.36 12/31/04 14.4 Portfolio Statistics - -------------------------------------------------------------------------------- Share Price $14.40 - -------------------------------------------------------------------------------- Common Share Net Asset Value $15.66 - -------------------------------------------------------------------------------- Premium/Discount to NAV -8.05% - -------------------------------------------------------------------------------- Latest Dividend $.1020 - -------------------------------------------------------------------------------- Market Yield 8.50% - -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $1,872,283 - -------------------------------------------------------------------------------- Industries (as a % of total investments) - -------------------------------------------------------------------------------- Commercial Banks 25.9% - -------------------------------------------------------------------------------- Insurance 16.6% - -------------------------------------------------------------------------------- Real Estate 12.7% - -------------------------------------------------------------------------------- Capital Markets 11.1% - -------------------------------------------------------------------------------- Diversified Financial Services 9.0% - -------------------------------------------------------------------------------- Thrifts & Mortgage Finance 4.8% - -------------------------------------------------------------------------------- Electric Utilities 3.9% - -------------------------------------------------------------------------------- Diversified Telecommunication Services 3.5% - -------------------------------------------------------------------------------- Automobiles 3.4% - -------------------------------------------------------------------------------- Other 9.1% - -------------------------------------------------------------------------------- Top Five Issuers (excluding repurchase agreements) (as a % of total investments) - -------------------------------------------------------------------------------- Wachovia Corporation 3.6% - -------------------------------------------------------------------------------- Abbey National Public Limited Company 3.3% - -------------------------------------------------------------------------------- ING Groep NV 3.0% - -------------------------------------------------------------------------------- Everest Reinsurance Holdings Inc. 2.7% - -------------------------------------------------------------------------------- Vodafone Airtouch Public Limited Company 2.2% - -------------------------------------------------------------------------------- Average Annual Total Return (Inception 9/24/02) - -------------------------------------------------------------------------------- On Share Price On NAV - -------------------------------------------------------------------------------- 1-Year -0.66% 7.99% - -------------------------------------------------------------------------------- Since Inception 7.23% 13.28% - -------------------------------------------------------------------------------- (1) The Fund also paid shareholders capital gains and net ordinary income distributions in December 2004 of $0.1887 per share. 11 Nuveen Quality Preferred Income Fund 3 JHP Performance Overview As of December 31, 2004 Pie Chart: PORTFOLIO ALLOCATION (as a % of total investments) $25 Par (or similar) Securities 51.0% Capital Preferred Securities 40.4% Convertible Preferred Securities 5.3% Corporate Bonds 3.2% Repurchase Agreements 0.1% Bar Chart: 2004 MONTHLY DIVIDENDS PER SHARE1 Jan 0.103 Feb 0.103 Mar 0.103 Apr 0.103 May 0.103 Jun 0.103 Jul 0.103 Aug 0.103 Sep 0.103 Oct 0.103 Nov 0.103 Dec 0.1 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 1/1/04 15.85 15.71 15.93 15.79 15.89 15.89 15.94 15.68 15.67 15.66 15.73 15.81 15.75 15.74 15.74 15.68 15.55 15.55 15.49 15.48 15.48 15.55 15.61 15.58 15.63 15.7 15.7 15.75 15.6 15.54 15.58 15.64 15.72 15.68 15.6 15.5 15.49 15.58 15.78 15.87 15.87 15.89 15.8 15.83 15.8 15.86 15.9 16.05 15.99 15.85 15.92 15.99 15.96 15.96 15.87 15.89 16 15.93 15.9 15.89 15.93 15.9 15.97 16.03 16.1 15.57 14.7 14.91 15.12 15.05 14.85 14.43 14.17 14.25 14.59 14.65 14.53 14.14 14.22 14.02 13.45 13.55 13.7 13.77 13.85 14.04 13.88 13.71 13.45 12.76 12.28 13.04 12.97 13.02 13.21 13.18 13.16 13.25 13.2 13.27 13.44 13.58 13.58 13.69 13.89 13.89 13.96 14 13.85 13.92 13.88 13.83 13.85 13.73 13.38 13.45 13.48 13.45 13.4 13.4 13.42 13.45 13.5 13.45 13.5 13.42 13.53 13.71 13.89 14.1 14.11 14.25 14.28 14.45 14.36 14.31 14.27 14.37 14.3 14.32 14.16 14.23 14.22 14.15 14.24 14.35 14.34 14.34 14.34 14.44 14.43 14.47 14.42 14.49 14.46 14.54 14.39 14.42 14.52 14.61 14.6 14.64 14.57 14.57 14.6 14.51 14.53 14.61 14.68 14.87 14.91 14.92 14.89 14.91 14.98 14.98 14.88 14.95 14.98 14.95 14.93 14.92 15 14.93 14.97 14.94 14.86 14.97 14.95 14.95 14.94 14.82 14.88 14.89 14.93 14.93 14.93 14.95 14.95 15.02 14.92 14.97 14.91 14.87 14.88 14.92 14.9 14.91 14.9 14.84 14.93 14.94 14.99 14.99 15 15.09 15.09 15.19 14.93 14.66 14.85 14.85 14.9 14.89 14.94 14.99 14.92 15 14.96 15 15.01 15.03 15.06 15 14.86 14.82 14.72 14.77 14.87 14.83 14.82 14.83 14.93 14.72 14.62 14.49 14.3 14.25 14.21 14.23 14.23 14.29 14.22 14.3 14.32 14.38 12/31/04 14.44 Portfolio Statistics - -------------------------------------------------------------------------------- Share Price $14.44 - -------------------------------------------------------------------------------- Common Share Net Asset Value $15.15 - -------------------------------------------------------------------------------- Premium/Discount to NAV -4.69% - -------------------------------------------------------------------------------- Latest Dividend $.1000 - -------------------------------------------------------------------------------- Market Yield 8.31% - -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $358,197 - -------------------------------------------------------------------------------- Industries (as a % of total investments) - -------------------------------------------------------------------------------- Commercial Banks 23.3% - -------------------------------------------------------------------------------- Insurance 20.3% - -------------------------------------------------------------------------------- Real Estate 11.7% - -------------------------------------------------------------------------------- Diversified Financial Services 10.6% - -------------------------------------------------------------------------------- Capital Markets 10.0% - -------------------------------------------------------------------------------- Thrifts & Mortgage Finance 3.3% - -------------------------------------------------------------------------------- Diversified Telecommunication Services 3.3% - -------------------------------------------------------------------------------- Oil & Gas 3.3% - -------------------------------------------------------------------------------- Automobiles 3.3% - -------------------------------------------------------------------------------- Repurchase Agreements 0.1% - -------------------------------------------------------------------------------- Other 10.8% - -------------------------------------------------------------------------------- Top Five Issuers (excluding repurchase agreements) (as a % of total investments) - -------------------------------------------------------------------------------- Wachovia Corporation 3.6% - -------------------------------------------------------------------------------- ING Groep NV 3.4% - -------------------------------------------------------------------------------- Zurich Financial Services 2.9% - -------------------------------------------------------------------------------- Union Planters Corporation 2.4% - -------------------------------------------------------------------------------- Citigroup 2.3% - -------------------------------------------------------------------------------- Average Annual Total Return (Inception 12/18/02) - -------------------------------------------------------------------------------- On Share Price On NAV - -------------------------------------------------------------------------------- 1-Year -0.41% 7.73% - -------------------------------------------------------------------------------- Since Inception 6.75% 11.60% - -------------------------------------------------------------------------------- (1) The Fund also paid shareholders a capital gains distribution in December 2004 of $0.0588 per share. 12 Shareholder Meeting Report The Shareholder Meeting was held in the Embassy Room of the Mandarin Oriental Hotel, 222 Sansome Street, San Francisco, California on November 17, 2004. JTP JPS JHP - ------------------------------------------------------------------------------------------------------------------------------------ Approval of the board members was reached as follows: Common and Common and Common and FundPreferred FundPreferred FundPreferred FundPreferred FundPreferred FundPreferred shares voting shares voting shares voting shares voting shares voting shares voting together together together together together together as a class as a class as a class as a class as a class as a class ==================================================================================================================================== Robert P. Bremner For 63,063,195 -- 116,546,845 -- 23,271,219 -- Withhold 499,423 -- 826,148 -- 108,796 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total 63,562,618 -- 117,372,993 -- 23,380,015 -- ==================================================================================================================================== Lawrence H. Brown For 63,051,475 -- 116,540,309 -- 23,274,468 -- Withhold 511,143 -- 832,684 -- 105,547 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total 63,562,618 -- 117,372,993 -- 23,380,015 -- ==================================================================================================================================== Jack B. Evans For 63,056,823 -- 116,543,695 -- 23,270,868 -- Withhold 505,795 -- 829,298 -- 109,147 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total 63,562,618 -- 117,372,993 -- 23,380,015 -- ==================================================================================================================================== William C. Hunter For 63,056,206 -- 116,541,537 -- 23,272,901 -- Withhold 506,412 -- 831,456 -- 107,114 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total 63,562,618 -- 117,372,993 -- 23,380,015 -- ==================================================================================================================================== William J. Schneider For -- 16,732 -- 30,095 -- 5,972 Withhold -- 64 -- 119 -- 111 - ------------------------------------------------------------------------------------------------------------------------------------ Total -- 16,796 -- 30,214 -- 6,083 ==================================================================================================================================== Timothy R. Schwertfeger For -- 16,728 -- 30,095 -- 5,972 Withhold -- 68 -- 119 -- 111 - ------------------------------------------------------------------------------------------------------------------------------------ Total -- 16,796 -- 30,214 -- 6,083 ==================================================================================================================================== Judith M. Stockdale For 63,055,783 -- 116,513,937 -- 23,274,251 -- Withhold 506,835 -- 859,056 -- 105,764 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total 63,562,618 -- 117,372,993 -- 23,380,015 -- ==================================================================================================================================== 13 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Trustees of 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 of Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 (the "Funds"), including the portfolios of investments, as of December 31, 2004, and the related statements of operations and changes in net assets and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes 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, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 at December 31, 2004, the results of their operations, the changes in their net assets and the financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois February 17, 2005 14 Nuveen Quality Preferred Income Fund (JTP) Portfolio of Investments December 31, 2004 Ratings* ------------------ Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ $25 PAR (or similar) SECURITIES - 66.3% (45.7% of Total Investments) Auto Components - 1.1% 422,441 Delphi Trust I 8.250% Baa3 BB $ 10,523,005 - ------------------------------------------------------------------------------------------------------------------------------------ Automobiles - 0.2% 32,900 Ford Motor Company (CORTS) 8.000% Baa1 BBB- 878,759 51,600 General Motors Acceptance Corporation 7.350% Baa1 BBB- 1,317,864 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Markets - 5.9% 1,250 ABN AMRO North America, Series L, 144A (a) 6.460% A3 NA 1,322,656 122,000 BCH Capital Ltd., Series B 9.430% A2 BBB+ 3,242,150 60,000 Bear Stearns Capital Trust III 7.800% A2 BBB 1,590,000 31,100 BNY Capital Trust V, Series F 5.950% A1 A- 784,031 270,650 BSCH Finance Ltd., Series Q 8.625% A2 BBB+ 7,077,498 228,095 Compass Capital Trust III 7.350% A3 BBB- 5,996,618 29,400 First Union Capital II, Series II (CORTS) 7.500% A1 BBB+ 790,860 11,300 First Union Institutional Capital II (CORTS) 8.200% A1 BBB+ 319,790 81,500 JPMorgan Chase Capital Trust IX, Series I 7.500% A1 A- 2,154,860 108,549 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 BBB+ 2,773,427 43,500 Lehman Brothers Holdings Capital Trust IV, Series L 6.375% A2 BBB+ 1,121,430 13,200 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 BBB+ 328,680 35,000 Lehman Brothers Holdings Inc., Series C (a) 5.940% NA BBB+ 1,790,250 74,500 Merrill Lynch Capital Trust 7.000% A1 A- 1,998,090 192,500 Merrill Lynch Preferred Capital Trust 7.750% A1 A- 5,149,375 59,700 Merrill Lynch Preferred Capital Trust IV 7.120% A1 A- 1,605,333 77,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 A- 2,101,410 157,200 Morgan Stanley Capital Trust II 7.250% A1 A- 4,159,512 226,700 Morgan Stanley Capital Trust III 6.250% A1 A- 5,764,981 249,095 Morgan Stanley Capital Trust IV 6.250% A1 A- 6,309,576 10,800 Morgan Stanley Capital Trust V 5.750% A1 A+ 264,708 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks - 8.3% 24,800 Abbey National plc, Series B 7.250% A1 A- 653,728 67,800 Abbey National plc, Series B 7.375% A2 A 1,864,500 100,000 ABN AMRO Capital Fund Trust V 5.900% A2 A 2,450,000 102,800 ASBC Capital I 7.625% Baa1 BBB- 2,760,180 7,200 BAC Capital Trust I 7.000% Aa3 A- 189,648 64,500 BAC Capital Trust II 7.000% Aa3 A- 1,723,440 80,000 BAC Capital Trust III 7.000% Aa3 A- 2,148,000 52,300 Banco Totta & Acores Finance, Series A 8.875% A3 NA 1,426,812 68,300 Bank One Capital II 8.500% A1 A- 1,771,019 59,400 Bank One Capital Trust VI 7.200% A1 A- 1,577,664 198,200 Chittenden Capital Trust I 8.000% Baa1 BB+ 5,373,202 66,300 Citigroup Inc., Series H (a) 6.231% Aa3 NA 3,571,913 116,800 Cobank ABC, 144A (a) 7.000% NA NA 6,204,416 124,700 Comerica Capital Trust I 7.600% A3 BBB+ 3,277,116 87,000 Fleet Capital Trust VI 8.800% Aa3 A- 2,234,160 33,900 Fleet Capital Trust VII 7.200% Aa3 A- 900,045 62,900 KeyCorp (PCARS) 7.500% A3 NA 1,656,786 18,000 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 BBB 485,100 29,800 KeyCorp, Series B (CORTS) 8.250% A3 BBB 777,780 63,500 National Commerce Capital Trust II 7.700% A1 A- 1,701,800 55,300 National Westminster Bank plc, Series A 7.875% Aa2 A+ 1,430,058 29,200 Regions Finance Trust I 8.000% A2 BBB+ 762,412 15 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of Investments December 31, 2004 Ratings* ------------------ Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks (continued) 10,700 Royal Bank of Scotland Group plc, Series L 5.750% A1 A $ 262,257 22,800 Royal Bank of Scotland Group plc, Series M 6.400% A1 A 598,044 23,500 SunTrust Capital Trust IV 7.125% A1 A- 618,285 71,800 SunTrust Capital Trust V 7.050% A1 A- 1,896,956 174,400 USB Capital Trust III 7.750% Aa3 A- 4,632,064 419,005 USB Capital Trust IV 7.350% Aa3 A- 11,149,723 46,100 USB Capital Trust V 7.250% Aa3 A- 1,222,111 35,800 VNB Capital Trust I 7.750% Baa1 BBB 952,996 27,300 Washington Mutual Capital Trust I, Series 2001-22, Class A-1 (CORTS) 7.650% Baa1 BBB 712,803 11,800 Wells Fargo Capital Trust IV 7.000% Aa2 A 313,880 130,100 Wells Fargo Capital Trust V 7.000% Aa2 A 3,419,028 5,600 Wells Fargo Capital Trust VI 6.950% Aa2 A- 149,128 340,000 Zions Capital Trust B 8.000% Baa1 BB+ 9,316,000 - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Finance - 0.6% 127,000 Household Capital Trust V, Series X 10.000% A2 BBB+ 3,267,710 60,300 Household Capital Trust VI 8.250% A2 BBB+ 1,600,362 24,700 Household Capital Trust VII 7.500% A2 BBB+ 660,972 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Financial Services - 6.1% 17,000 BBVA Preferred Capital Ltd., Series B 7.750% A1 A- 451,180 25,200 Chase Capital Trust VIII, Series H 8.300% A1 A- 656,208 30,376 CIT Group Incorporated (CORTS) 7.750% A3 BBB+ 834,581 160,500 Citigroup Capital Trust VII 7.125% Aa2 A 4,237,200 95,200 Citigroup Capital Trust VIII 6.950% Aa2 A 2,498,048 40,800 Citigroup Inc., Series M (a) 5.864% Aa3 A 2,162,400 30,300 ING Capital Funding Trust II 9.200% A2 A- 779,316 563,900 ING Group NV 7.050% NA A- 15,168,910 1,015,458 ING Group NV 7.200% A2 A- 27,589,994 32,600 JPM Capital Trust I, Series 2001-1, Class A-1 (CORTS) 7.850% A1 A- 881,178 73,600 JPMorgan Chase Capital Trust X 7.000% A1 NA 1,967,328 20,000 JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS) 7.125% A1 A- 534,400 46,000 Merrill Lynch Capital Trust II 8.000% A1 A- 1,252,120 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Telecommunication Services - 0.1% 14,800 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A2 A 385,244 18,100 SBC Communications Inc. 7.000% A2 A 475,668 16,500 Verizon New England Inc., Series B 7.000% A2 NA 440,550 - ------------------------------------------------------------------------------------------------------------------------------------ Electric Utilities - 2.2% 77,740 DTE Energy Trust I 7.800% Baa3 BB+ 2,081,877 95,305 Entergy Louisiana Inc. 7.600% Baa1 A- 2,547,503 117,951 Georgia Power Company 5.900% A2 A 2,972,365 251,220 Interstate Power and Light Company, Series B (a) 8.375% Baa3 BBB- 8,541,480 7,000 Tennessee Valley Authority, Series D 6.750% Aaa AAA 175,000 187,000 Virginia Power Capital Trust 7.375% Baa1 BBB- 5,039,650 - ------------------------------------------------------------------------------------------------------------------------------------ Food Products - 0.7% 65,000 Dairy Farmers of America Inc., 144A (a) 7.875% Baa3 BBB- 6,784,375 - ------------------------------------------------------------------------------------------------------------------------------------ Gas Utilities - 0.1% 32,300 AGL Capital Trust II 8.000% Baa2 BBB 856,919 - ------------------------------------------------------------------------------------------------------------------------------------ Industrial Conglomerates - 0.1% 19,400 General Electric Company (CORTS) 6.800% Aaa AAA 517,786 - ------------------------------------------------------------------------------------------------------------------------------------ Insurance - 9.8% 14,900 ACE Capital Trust I, Series 1999 8.875% Baa1 BBB- 376,523 673,700 Ace Ltd., Series C 7.800% Baa2 BBB- 17,974,316 1,800 Allstate Corporation (PCARS) 7.150% A2 A- 47,610 21,500 AMBAC Financial Group Inc. 5.950% Aa2 AA 540,510 18,700 American General Capital III 8.050% Aa1 AA 488,070 201,000 Delphi Financial Group Inc. 8.000% Baa3 BBB 5,477,250 262,700 EverestRe Capital Trust II 6.200% Baa1 BBB 6,157,688 16 Ratings* ------------------ Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Insurance (continued) 72,300 EverestRe Group Limited 7.850% Baa1 BBB $ 1,999,818 156,877 Hartford Capital Trust III, Series C 7.450% Baa1 BBB 4,113,315 46,700 Hartford Life Capital Trust II, Series B 7.625% Baa1 BBB 1,236,149 77,100 Lincoln National Capital Trust V, Series E 7.650% Baa1 BBB 2,044,692 26,900 Lincoln National Capital Trust VI 6.750% Baa1 BBB 720,651 26,100 MBIA Inc. 8.000% Aa2 AA 685,125 113,700 PartnerRe Limited 7.900% A3 BBB+ 3,024,420 250,000 PartnerRe Limited, Series C 6.750% Baa1 BBB+ 6,485,000 67,000 PartnerRe Limited, Series D 6.500% Baa1 BBB+ 1,685,720 72,100 PLC Capital Trust III 7.500% Baa1 BBB+ 1,904,882 410,000 PLC Capital Trust IV 7.250% Baa1 BBB+ 10,906,000 264,165 Prudential plc 6.750% Baa1 A 6,849,798 111,450 RenaissanceRe Holdings Ltd., Series A 8.100% Baa2 BBB+ 2,973,486 59,100 RenaissanceRe Holdings Ltd., Series B 7.300% Baa2 BBB+ 1,586,244 13,900 RenaissanceRe Holdings Ltd., Series C 6.080% Baa2 BBB+ 331,793 35,800 Safeco Capital Trust I (CORTS) 8.700% Baa2 BBB- 976,624 31,300 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 BBB- 845,100 61,600 Torchmark Capital Trust I 7.750% Baa1 A- 1,652,420 4,200 W.R. Berkley (CORTS) 8.250% Baa3 BBB- 111,699 391,854 XL Capital Ltd., Series A 8.000% Baa1 BBB+ 10,701,533 72,400 XL Capital Ltd., Series B 7.625% Baa1 BBB+ 1,949,732 - ------------------------------------------------------------------------------------------------------------------------------------ IT Services - 0.1% 22,800 Vertex Indsutries Inc. (PPLUS) 7.625% A2 A+ 614,688 - ------------------------------------------------------------------------------------------------------------------------------------ Media - 0.3% 119,000 Viacom Inc. 7.300% A3 A- 3,117,800 - ------------------------------------------------------------------------------------------------------------------------------------ Multi-Utilities & Unregulated Power - 0.7% 93,600 Dominion CNG Capital Trust I 7.800% Baa1 BBB- 2,506,608 57,600 Dominion Resources Capital Trust II 8.400% Baa2 BBB- 1,552,320 97,700 Energy East Capital Trust I 8.250% Baa3 BBB- 2,621,291 - ------------------------------------------------------------------------------------------------------------------------------------ Oil & Gas - 1.5% 445,632 Nexen Inc. 7.350% Baa3 BB+ 12,000,870 108,500 TransCanada Pipeline 8.250% A3 BBB 2,803,640 - ------------------------------------------------------------------------------------------------------------------------------------ Pharmaceuticals - 0.1% 20,000 Bristol Myers Squibb Company (CORTS) 6.250% A1 A+ 519,900 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate - 22.0% 49,658 AMB Property Corporation, Series M 6.750% Baa2 BBB- 1,276,211 13,400 AvalonBay Communities, Inc., Series H 8.700% Baa2 BBB 378,148 608,700 BRE Properties, Series B 8.080% Baa3 BBB- 16,343,595 85,000 BRE Properties, Series D 6.750% Baa3 BBB- 2,133,500 547,145 CarrAmerica Realty Corporation, Series E 7.500% Baa3 BBB- 14,532,171 55,600 Developers Diversified Realty Corporation, Series F 8.600% Ba1 BBB- 1,493,972 45,100 Developers Diversified Realty Corporation, Series G 8.000% Ba1 BBB- 1,206,425 119,000 Developers Diversified Realty Corporation, Series H 7.375% Ba1 BBB- 3,083,290 114,179 Duke-Weeks Realty Corporation, Series B 7.990% Baa2 BBB 5,780,312 10,800 Duke-Weeks Realty Corporation, Series I 8.450% Baa2 BBB 284,040 1,097,400 Equity Office Properties Trust, Series G 7.750% Baa3 BBB 29,629,800 30,400 Equity Residential Properties Trust 9.125% Baa2 BBB 787,056 23,100 Equity Residential Properties Trust, Series D 8.600% Baa2 BBB 632,478 10,600 First Industrial Realty Trust, Inc., Series C 8.625% Baa3 BBB- 291,500 19,000 Firstar Realty LLC, 144A 8.875% Aa3 A 24,174,650 57,900 Harris Preferred Capital Corporation, Series A 7.375% A1 A 1,473,555 1,008,900 HRPT Properties Trust, Series B 8.750% Baa3 BBB- 27,901,130 22,000 New Plan Excel Realty Trust, Series D 7.800% Baa3 BBB- 1,119,939 416,000 New Plan Excel Realty Trust, Series E 7.625% NA BBB- 10,957,440 101,000 Prologis Trust, Series G 6.750% Baa2 BBB 2,548,230 328,400 PS Business Parks Inc. 7.000% Ba1 BBB- 8,141,036 57,000 PS Business Parks Inc., Series I 6.875% Ba1 BBB- 1,407,900 240,000 PS Business Parks Inc., Series L 7.600% Ba1 BBB- 6,134,400 17 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of Investments December 31, 2004 Ratings* ------------------ Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate (continued) 60,900 Public Storage Inc., Series C 6.600% Baa2 BBB+ $ 1,532,853 14,200 Public Storage Inc., Series E 10.000% Baa2 BBB+ 356,846 22,800 Public Storage Inc., Series F 9.750% Baa2 BBB+ 582,084 25,100 Public Storage Inc., Series Q 8.600% Baa2 BBB+ 657,369 101,300 Public Storage Inc., Series R 8.000% Baa2 BBB+ 2,671,281 200,000 Public Storage Inc., Series S 7.875% Baa2 BBB+ 5,266,000 35,380 Public Storage Inc., Series U 7.625% Baa2 BBB+ 942,523 345,600 Public Storage Inc., Series V 7.500% Baa2 BBB+ 9,158,400 70,000 Realty Income Corporation 7.375% Baa3 BBB- 1,822,800 47,500 Regency Centers Corporation 7.450% Baa3 BBB- 1,266,113 15,500 Regency Centers Corporation 7.250% Baa3 BBB- 408,813 20,500 Simon Property Group, Inc., Series F 8.750% Baa2 BBB- 551,655 176,200 Simon Property Group, Inc., Series G 7.890% Baa2 BBB 9,377,364 191,900 Vornado Realty Trust 6.625% Baa3 BBB- 4,739,930 16,970 Vornado Realty Trust, Series C 8.500% Ba1 BBB- 425,608 315,500 Wachovia Preferred Funding Corporation 7.250% A2 BBB+ 8,953,890 - ------------------------------------------------------------------------------------------------------------------------------------ Thrifts & Mortgage Finance - 4.5% 4,200 Countrywide Capital Trust II, Series II (CORTS) 8.000% Baa1 BBB+ 112,308 618,420 Countrywide Capital Trust IV 6.750% Baa1 BBB+ 15,899,578 364,400 Fannie Mae (a) 0.000% Aa3 AA- 20,634,150 61,300 Fannie Mae (a) 3.780% Aa3 AA- 3,080,325 53,200 Federal Home Loan Mortgage Corporation (a) 1.140% Aa3 AA- 2,021,600 39,000 Federal Home Loan Mortgage Corporation (a) 5.100% Aa3 AA- 1,700,400 - ------------------------------------------------------------------------------------------------------------------------------------ Wireless Telecommunication Services - 1.9% 312,846 Telephone and Data Systems Inc. 7.600% Baa1 A- 8,252,877 157,600 United States Cellular Corporation 8.750% Baa1 A- 4,409,648 224,400 United States Cellular Corporation 7.500% Baa1 A- 6,081,240 - ------------------------------------------------------------------------------------------------------------------------------------ Total $25 Par (or similar) Securities (cost $602,793,267) 637,107,959 -------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED SECURITIES - 7.7% (5.4% of Total Investments) Diversified Financial Services - 0.8% 154,000 Citigroup Global Markets 2.000% Aa1 AA- 7,241,542 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Telecommunication Services - 1.4% 263,200 Alltel Corporation 7.750% A2 NA 13,920,648 - ------------------------------------------------------------------------------------------------------------------------------------ Electric Utilities - 1.2% 266,200 Ameren Corporation 9.750% A3 BBB+ 7,655,912 10,000 American Electric Power 9.250% Baa3 BBB 476,500 60,000 DTE Energy Company 8.750% Baa2 BBB- 1,564,200 30,000 FPL Group Inc. 8.000% NA A- 1,807,200 - ------------------------------------------------------------------------------------------------------------------------------------ Gas Utilities - 1.6% 299,400 Keyspan Corporation 8.750% A3 NA 15,619,698 - ------------------------------------------------------------------------------------------------------------------------------------ Healthcare Equipment & Supplies - 0.3% 54,500 Baxter International Inc. 7.000% Baa1 NA 3,077,070 - ------------------------------------------------------------------------------------------------------------------------------------ Insurance - 0.1% 50,000 XL Capital Ltd. 6.500% A2 A 1,272,500 - ------------------------------------------------------------------------------------------------------------------------------------ Multi-Utilities & Unregulated Power - 2.3% 260,200 Dominion Resources Inc. 8.750% Baa1 BBB+ 14,357,836 115,200 Public Service Enterprise Group 10.250% Baa3 BBB- 7,755,264 - ------------------------------------------------------------------------------------------------------------------------------------ Total Convertible Preferred Securities (cost $66,619,068) 74,748,370 -------------------------------------------------------------------------------------------------------------------- 18 Principal Ratings* Amount (000)/ ------------------- Market Shares Description(1) Coupon Maturity Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED SECURITIES - 65.4% (45.2% of Total Investments) Capital Markets - 7.2% 2,500 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 A- $ 2,770,360 2,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 A- 2,237,212 1,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 A- 1,107,440 7,900 BT Preferred Capital Trust II 7.875% 2/25/27 A2 NR 8,913,791 2,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 A 2,357,001 11,250 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 A 11,731,928 2,500 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A3 BBB+ 3,099,568 26,463 First Union Institutional Capital 8.040% 12/01/26 A1 BBB+ 28,894,950 Securities I 7,000 UBS Preferred Funding Trust I 8.622% 10/29/49 A1 AA- 8,423,912 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks - 32.8% 9,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 Aa3 AA- 9,118,917 30,000 Abbey National Capital Trust I 8.963% 12/30/49 A2 A- 41,938,830 3,100 AgFirst Farm Credit Bank 7.300% 12/15/53 NA NA 3,131,911 2,800 ANZ Capital Trust I, 144A 5.360% 12/29/49 A2 A- 2,845,240 2,500 Bank One Capital III 8.750% 9/01/30 A1 A- 3,394,460 2,000 BankAmerica Institutional Capital Trust, 7.700% 12/31/26 Aa3 A- 2,156,138 Series B, 144A 5,700 BankBoston Capital Trust II, Series B 7.750% 12/15/26 Aa3 A- 6,176,081 1,500 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 BBB- 1,650,147 7,200 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 A+ 8,778,535 10 BBVA Privanza International Gibraltar, 7.764% 9/30/47 A1 NA 10,600,000 144A (b) 3,000 Centura Capital Trust I, 144A 8.845% 6/01/27 A2 BBB+ 3,470,808 3,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 A- 3,280,455 1,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 A- 1,968,275 1,800 Farm Credit Bank of Texas 7.561% 11/05/49 NA NA 1,854,745 1,000 First Chicago NBD Institutional Capital, 7.950% 12/01/26 A1 NA 1,087,886 144A 1,000 First Empire Capital Trust II 8.277% 6/01/27 Baa1 BBB 1,112,938 1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 BBB- 1,639,731 5,750 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 A- 7,171,613 17,150 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 A- 26,631,652 12,000 KBC Bank Fund Trust III, 144A 9.860% 11/02/49 A2 A- 14,737,008 2,000 KeyCorp Capital III 7.750% 7/15/29 A3 BBB 2,402,784 2,000 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 BBB 2,171,914 8,850 Lloyds TSB Bank plc, Subordinate Note 6.900% 11/22/49 Aa2 A+ 9,289,385 11,150 NB Capital Trust II 7.830% 12/15/26 Aa3 A- 12,273,942 7,655 Nordbanken AB, 144A 8.950% 11/29/49 A2 A- 9,076,564 1,000 North Fork Capital Trust I, Capital 8.700% 12/15/26 A3 BBB- 1,110,862 Securities 8,000 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 Baa1 BB+ 9,072,096 19,000 PNC Institutional Capital Securities, 7.950% 12/15/26 A3 BBB+ 20,783,568 144A 2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 BBB- 2,112,396 15,750 RBS Capital Trust B 6.800% 12/31/49 A1 A 16,291,784 17,500 Reliance Capital Trust I, Series B 8.170% 5/01/28 NA NA 19,618,445 1,400 Republic New York Capital II, Capital 7.530% 12/04/26 A1 A- 1,507,254 Securities 1,100 Royal Bank of Scotland Group plc 7.648% 8/31/49 A1 A 1,343,409 3,000 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 A 3,292,737 5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 NA 5,100,250 23,000 Summit Capital Trust I, Capital 8.400% 3/15/27 Aa3 A- 25,487,059 Securities 6,676 Union Planters Capital Trust A 8.200% 12/15/26 A2 BBB+ 7,251,498 4,000 Wachovia Capital Trust I, Capital 7.640% 1/15/27 A1 BBB+ 4,454,912 Securities, 144A 5,000 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 BBB 5,558,925 1,050 Wells Fargo Capital Securities 7.950% 12/01/26 Aa2 A 1,148,452 3,000 Zions Institutional Capital Trust, 8.536% 12/15/26 Baa1 BBB- 3,402,762 Series A - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Financial Services - 7.1% 4,250 BNP Paribas Capital Trust 7.200% 12/31/49 A1 A+ 4,501,099 1,500 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A1 A+ 1,850,589 5,000 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 A- 5,390,285 25,500 HBOS Capital Funding LP, Notes 6.850% 3/01/49 A1 A 26,279,127 19 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of Investments December 31, 2004 Principal Ratings* Amount (000)/ ------------------- Market Shares Description(1) Coupon Maturity Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Financial Services (continued) 19,500 JPM Capital Trust II 7.950% 2/01/27 A1 A- $ 21,334,638 8,100 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 NA 8,570,764 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Telecommunication Services - 1.8% 13,250 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 Baa1 BBB+ 17,485,866 - ------------------------------------------------------------------------------------------------------------------------------------ Insurance - 10.9% 7,570 Ace Capital Trust II 9.700% 4/01/30 Baa1 BBB- 10,087,033 1,000 Allstate Financing II 7.830% 12/01/45 A2 A- 1,082,689 1,000 American General Capital II 8.500% 7/01/30 Aa1 AA 1,348,959 7,500 Berkeley Capital Trust 8.197% 12/15/45 Baa3 BBB- 7,962,555 2,500 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 Baa1 BBB+ 2,488,970 4,000 MIC Financing Trust I 8.375% 2/01/27 A1 A+ 4,240,444 7,000 Prudential plc 6.500% 6/29/49 Baa1 A 7,043,575 2,000 RenaissanceRe Capital Trust 8.540% 3/01/27 Baa1 BBB+ 2,177,150 26,216 Sun Life Canada Capital Trust, Capital 8.526% 5/06/47 A1 A+ 29,113,052 Securities, 144A 35,095 Zurich Capital Trust I, 144A 8.376% 6/01/37 Baa2 A- 39,522,375 - ------------------------------------------------------------------------------------------------------------------------------------ Oil & Gas - 4.0% 4,000 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 BB+ 4,455,388 8,860 KN Capital Trust III 7.630% 4/15/28 Baa3 BB+ 9,937,500 20,900 Phillips 66 Capital Trust II 8.000% 1/15/37 Baa2 BBB 24,005,238 - ------------------------------------------------------------------------------------------------------------------------------------ Thrifts & Mortgage Finance - 1.6% 8,500 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 BBB 9,667,331 5,000 Great Western Financial Trust II, 8.206% 2/01/27 Baa1 BBB 5,464,065 Series A - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred Securities (cost $593,863,120) 629,041,222 -------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 4.7% (3.2% of Total Investments) Automobiles - 4.4% 5,000 Ford Motor Company 8.900% 1/15/32 Baa1 BBB- 5,699,895 3,400 Ford Motor Company, Debenture 7.400% 11/01/46 Baa1 BBB- 3,250,267 5,700 Ford Motor Company, Debenture 7.700% 5/15/97 Baa1 BBB- 5,523,494 24,500 General Motors Acceptance Corporation, 8.000% 11/01/31 Baa1 BBB- 25,253,664 Notes 2,760 General Motors Corporation, Senior 8.375% 7/15/33 Baa2 BBB- 2,867,508 Debentures - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks - 0.3% 2,500 Washington Mutual Bank FA 5.125% 1/15/15 A3 A- 2,487,835 - ------------------------------------------------------------------------------------------------------------------------------------ Total Corporate Bonds (cost $40,532,449) 45,082,663 -------------------------------------------------------------------------------------------------------------------- 20 Principal Market Amount (000) Description(1) Value - ----------------------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS - 0.7% (0.5% of Total Investments) $ 6,355 State Street Bank, 1.000%, dated 12/31/04, due 1/03/05, repurchase price $6,355,582, ============= collateralized by $5,045,000 U.S. Treasury Bonds, 7.500%, due 11/15/16, value $6,485,186 $ 6,355,052 ------------------------------------------------------------------------------------------------------------------- Total Repurchase Agreements (cost $6,355,052) 6,355,052 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,310,162,956) - 144.8% 1,392,335,266 ------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.0% 9,247,663 ------------------------------------------------------------------------------------------------------------------- FundPreferred Shares, at Liquidation Value - (45.8)% (440,000,000) ------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 961,582,929 =================================================================================================================== Interest Rate Swap Contracts outstanding at December 31, 2004: Unrealized Notional Termination Appreciation Counterparty Amount Fixed Rate Floating Rate** Date (Depreciation) -------------------------------------------------------------------------------------------------------------------- Citibank, N.A. $110,000,000 3.1300% 2.4175% 8/29/05 $ (206,840) Citibank, N.A. 110,000,000 3.8600 2.4175 8/29/07 (990,584) Citibank, N.A. 110,000,000 4.3500 2.4175 8/29/09 (2,276,366) -------------------------------------------------------------------------------------------------------------------- $ (3,473,790) =================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. * Ratings (not covered by the report of independent registered public accounting firm): Below Baa by Moody's Investor Service, Inc. or BBB by Standard & Poor's Group are considered to be below investment grade. ** Based on LIBOR (London Inter-bank Offered Rate). (a) Security is eligible for the Dividends Received Deduction. (b) Security valued at fair value using methods determined in good faith by or at the direction of the Board of Trustees. 144A 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. (CORTS) Corporate Backed Trust Securities. (PCARS) Public Credit and Repackaged Securities. (PPLUS) PreferredPlus Trust. (SATURNS) Structured Asset Trust Unit Repackaging. NA Security is not rated. See accompanying notes to financial statements. 21 Nuveen Quality Preferred Income Fund 2 (JPS) Portfolio of Investments December 31, 2004 Ratings* ------------------ Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ $25 PAR (or similar) SECURITIES - 67.0% (47.2% of Total Investments) Auto Components - 1.1% 800,357 Delphi Trust I 8.250% Baa3 BB $ 19,936,893 - ------------------------------------------------------------------------------------------------------------------------------------ Automobiles - 0.1% 23,300 DaimlerChrysler Corp. (PPLUS) 7.250% A3 BBB 605,334 14,500 Ford Motor Company 0.000% Baa1 BBB- 389,180 38,000 Ford Motor Company, Series F (CORTS) 8.000% Baa1 BBB- 1,014,980 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Markets - 5.2% 340,500 BCH Capital Ltd., Series B 9.430% A2 BBB+ 9,048,788 101,400 Bear Stearns Capital Trust III 7.800% A2 BBB 2,687,100 19,300 BNY Capital Trust IV, Series E 6.875% A1 A- 487,904 46,800 BNY Capital Trust V, Series F 5.950% A1 A- 1,179,828 446,100 BSCH Finance Ltd., Series Q 8.625% A2 BBB+ 11,665,515 381,125 Compass Capital Trust III 7.350% A3 BBB- 10,019,776 24,300 CSFB USA, Series 2002-10 (SATURNS) 7.000% Aa3 A+ 626,940 63,300 First Union Capital II, Series II (CORTS) 7.500% A1 BBB+ 1,702,770 31,300 First Union Institutional Capital II (CORTS) 8.200% A1 BBB+ 885,790 221,100 JPMorgan Chase Capital Trust IX, Series I 7.500% A1 A- 5,845,884 279,300 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 BBB+ 7,136,115 102,900 Lehman Brothers Holdings Capital Trust IV, Series L 6.375% A2 BBB+ 2,652,762 37,300 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 BBB+ 928,770 42,000 Lehman Brothers Holdings Inc., Series C (a) 5.940% NA BBB+ 2,148,300 171,900 Merrill Lynch Capital Trust 7.000% A1 A- 4,610,358 103,500 Merrill Lynch Preferred Capital Trust 7.750% A1 A- 2,768,625 89,400 Merrill Lynch Preferred Capital Trust IV 7.120% A1 A- 2,403,966 152,800 Merrill Lynch Preferred Capital Trust V 7.280% A1 A- 4,148,520 47,700 Morgan Stanley (PPLUS) 7.050% Aa3 A+ 1,264,527 161,408 Morgan Stanley Capital Trust II 7.250% A1 A- 4,270,856 457,500 Morgan Stanley Capital Trust III 6.250% A1 A- 11,634,225 380,000 Morgan Stanley Capital Trust IV 6.250% A1 A- 9,625,400 20,700 Morgan Stanley Capital Trust V 5.750% A1 A+ 507,357 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks - 8.0% 152,060 ASBC Capital I 7.625% Baa1 BBB- 4,082,811 135,900 BAC Capital Trust I 7.000% Aa3 A- 3,579,606 168,500 BAC Capital Trust II 7.000% Aa3 A- 4,502,320 218,300 BAC Capital Trust III 7.000% Aa3 A- 5,861,355 44,100 Banco Totta & Acores Finance, Series A 8.875% A3 NA 1,203,105 81,600 BancWest Capital I 9.500% A3 A- 2,158,320 621,000 Banesto Holdings, Series A, 144A 10.500% A2 NA 19,348,062 85,800 Bank One Capital II 8.500% A1 A- 2,224,794 198,500 Bank One Capital Trust VI 7.200% A1 A- 5,272,160 47,400 Bank One Capital V 8.000% A1 A- 1,250,886 57,300 BankNorth Capital Trust II 8.000% Baa1 BB+ 1,535,067 120,000 Chittenden Capital Trust I 8.000% Baa1 BB+ 3,253,200 36,900 Citigroup Inc., Series H (a) 6.231% Aa3 NA 1,987,988 225,500 Cobank ABC, 144A (a) 7.000% NA NA 11,978,560 239,700 Comerica Capital Trust I 7.600% A3 BBB+ 6,299,316 128,300 Fleet Capital Trust VI 8.800% Aa3 A- 3,294,744 22 Ratings* ------------------ Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks (continued) 34,400 KeyCorp (PCARS) 7.500% A3 NA $ 906,096 32,100 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 BBB 865,095 91,300 KeyCorp, Series B (CORTS) 8.250% A3 BBB 2,382,930 239,800 National Commerce Capital Trust II 7.700% A1 A- 6,426,640 112,200 National Westminster Bank plc, Series A 7.875% Aa2 A+ 2,901,492 38,100 Regions Finance Trust I 8.000% A2 BBB+ 994,791 139,600 SunTrust Capital Trust IV 7.125% A1 A- 3,672,876 110,200 SunTrust Capital Trust V 7.050% A1 A- 2,911,484 658,100 USB Capital Trust III 7.750% Aa3 A- 17,479,136 225,900 USB Capital Trust IV 7.350% Aa3 A- 6,011,199 95,900 USB Capital Trust V 7.250% Aa3 A- 2,542,309 90,800 VNB Capital Trust I 7.750% Baa1 BBB 2,417,096 41,400 Washington Mutual Capital Trust I, Series 2001-22, 7.650% Baa1 BBB 1,080,954 Class A-1 (CORTS) 14,900 Well Fargo Capital Trust IX 5.625% Aa2 A 359,388 17,800 Wells Fargo Capital Trust IV 7.000% Aa2 A 473,480 182,200 Wells Fargo Capital Trust V 7.000% Aa2 A 4,788,216 25,700 Wells Fargo Capital Trust VI 6.950% Aa2 A- 684,391 539,200 Zions Capital Trust B 8.000% Baa1 BB+ 14,774,080 - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Finance - 2.2% 528,700 Household Capital Trust V, Series X 10.000% A2 BBB+ 13,603,451 620,196 Household Capital Trust VI 8.250% A2 BBB+ 16,460,002 66,100 Household Capital Trust VII 7.500% A2 BBB+ 1,768,836 360,600 HSBC Finance Corporation 6.875% A1 A 9,797,502 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Finanacial Services - 6.8% 75,800 BBVA Preferred Capital Ltd., Series B 7.750% A1 A- 2,011,732 73,800 Chase Capital Trust VIII, Series H 8.300% A1 A- 1,921,752 33,900 CIT Group Incorporated (CORTS) 7.750% A3 BBB+ 931,403 1,800 Citigroup Capital Trust IX 6.000% Aa2 A 45,360 264,300 Citigroup Capital Trust VII 7.125% Aa2 A 6,977,520 415,000 Citigroup Capital Trust VIII 6.950% Aa2 A 10,889,600 40,490 Citigroup Inc., Series M (a) 5.864% Aa3 A 2,145,970 300,000 General Electric Capital Corporation 6.100% Aaa AAA 7,863,000 199,700 General Electric Capital Corporation 6.625% Aaa AAA 5,341,975 63,600 ING Capital Funding Trust II 9.200% A2 A- 1,635,792 1,406,955 ING Group NV 7.050% NA A- 37,847,090 1,476,400 ING Group NV 7.200% A2 A- 40,113,788 5,000 ING Group NV 6.200% A2 A- 126,850 5,000 JP Morgan Chase Capital XII Trust 6.250% A1 A- 128,500 88,300 JPM Capital Trust (CORTS) 7.200% A2 A- 2,341,716 10,600 JPM Capital Trust I, Series 2001-1, Class A-1 (CORTS) 7.850% A1 A- 286,518 120,500 JPMorgan Chase Capital Trust X 7.000% A1 NA 3,220,965 11,000 JPMorgan Chase Capital Trust XI 5.875% A1 A- 269,610 49,600 JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS) 7.125% A1 A- 1,325,312 117,500 Merrill Lynch Capital Trust II 8.000% A1 A- 3,198,350 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Telecommunication Services - 0.2% 15,300 BellSouth Corporation 7.125% Aa2 A 396,423 11,000 BellSouth Inc. (CORTS) 7.000% A2 A 289,300 12,100 BellSouth Telecommunications (PPLUS) 7.300% Aa3 A 312,785 31,800 SBC Communications Inc. 7.000% A2 A 835,704 29,900 Verizon Communications (CORTS) 7.625% A2 A+ 804,310 6,600 Verizon Communications (CORTS) 7.375% A2 A+ 176,781 62,600 Verizon Global Funding Corporation (SATURNS) 7.500% A2 A+ 1,677,680 4,000 Verizon South Inc., Series F 7.000% A2 A+ 106,000 - ------------------------------------------------------------------------------------------------------------------------------------ Electric Utilities - 4.6% 189,500 Alabama Power Company (a) 5.830% Baa1 BBB+ 4,860,675 17,200 Consolidated Edison Company of New York Inc. 7.500% A1 A 454,768 1,000 Detroit Edison Company 7.540% Baa2 BB+ 25,250 9,500 Detroit Edison Company 7.625% Baa2 BB+ 240,255 27,400 DTE Energy Trust I 7.800% Baa3 BB+ 733,772 23 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of Investments December 31, 2004 Ratings* ------------------ Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Electric Utilities (continued) 5,500 Entergy Arkansas Inc. 6.700% Aaa AAA $ 145,915 49,000 Entergy Louisiana Inc. 7.600% Baa1 A- 1,309,770 1,298,000 Entergy Mississippi Inc. 7.250% Baa2 A- 35,370,500 3,000 Georgia Power Capital Trust V 7.125% A3 BBB+ 80,550 942,120 Interstate Power and Light Company, Series B (a) 8.375% Baa3 BBB- 32,032,080 20,000 National Rural Utilities Cooperative Finance Corporation 6.100% A3 BBB+ 501,400 51,000 Public Service Company of Oklahoma, Series B 6.000% Aaa AAA 1,313,250 56,700 Tennessee Valley Authority, Series D 6.750% Aaa AAA 1,417,500 254,000 Virginia Power Capital Trust 7.375% Baa1 BBB- 6,845,300 - ------------------------------------------------------------------------------------------------------------------------------------ Food Products - 0.7% 125,000 Dairy Farmers of America Inc., 144A (a) 7.875% Baa3 BBB- 13,046,875 - ------------------------------------------------------------------------------------------------------------------------------------ Gas Utilities - 0.1% 51,700 AGL Capital Trust II 8.000% Baa2 BBB 1,371,601 - ------------------------------------------------------------------------------------------------------------------------------------ Insurance - 12.4% 972,600 Ace Ltd., Series C 7.800% Baa2 BBB- 25,948,968 62,900 Aetna Incorporated 8.500% Baa2 BBB+ 1,685,091 31,500 AMBAC Financial Group Inc. 5.950% Aa2 AA 791,910 33,900 American General Capital III 8.050% Aa1 AA 884,790 472,557 Delphi Financial Group Inc. 8.000% Baa3 BBB 12,877,178 2,591,000 EverestRe Group Limited 7.850% Baa1 BBB 71,667,060 43,400 Financial Security Assurance Holdings 6.875% Aa2 AA 1,145,760 693,000 Financial Security Assurance Holdings 6.250% Aa2 AA 17,761,590 287,800 Hartford Capital Trust III, Series C 7.450% Baa1 BBB 7,546,116 63,300 Hartford Life Capital Trust II, Series B 7.625% Baa1 BBB 1,675,551 81,000 Lincoln National Capital Trust V, Series E 7.650% Baa1 BBB 2,148,120 34,100 Lincoln National Capital Trust VI 6.750% Baa1 BBB 913,539 22,200 MBIA Inc. 8.000% Aa2 AA 582,750 7,500 Metlife Inc. 5.875% A2 A 187,200 233,681 PartnerRe Limited 7.900% A3 BBB+ 6,215,915 449,720 PartnerRe Limited, Series C 6.750% Baa1 BBB+ 11,665,737 21,600 PartnerRe Limited, Series D 6.500% Baa1 BBB+ 543,456 107,800 PLC Capital Trust III 7.500% Baa1 BBB+ 2,848,076 440,940 PLC Capital Trust IV 7.250% Baa1 BBB+ 11,729,004 10,200 PLC Capital Trust V 6.125% Baa1 BBB+ 250,920 218,000 Prudential plc 6.750% Baa1 A 5,652,740 304,360 RenaissanceRe Holdings Ltd., Series A 8.100% Baa2 BBB+ 8,120,325 139,000 RenaissanceRe Holdings Ltd., Series B 7.300% Baa2 BBB+ 3,730,760 6,200 RenaissanceRe Holdings Ltd., Series C 6.080% Baa2 BBB+ 147,994 16,500 Safeco Capital Trust I (CORTS) 8.750% Baa2 BBB- 504,075 78,900 Safeco Capital Trust I (CORTS) 8.700% Baa2 BBB- 2,152,392 59,700 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 BBB- 1,611,900 2,900 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 BBB- 78,692 64,700 Torchmark Capital Trust I 7.750% Baa1 A- 1,735,578 17,900 W.R. Berkley (CORTS) 8.250% Baa3 BBB- 476,051 558,900 XL Capital Ltd., Series A 8.000% Baa1 BBB+ 15,263,559 537,617 XL Capital Ltd., Series B 7.625% Baa1 BBB+ 14,478,026 - ------------------------------------------------------------------------------------------------------------------------------------ IT Services - 0.0% 5,400 Vertex Indsutries Inc. (PPLUS) 7.625% A2 A+ 145,584 - ------------------------------------------------------------------------------------------------------------------------------------ Media - 0.1% 79,400 Viacom Inc. 7.300% A3 A- 2,080,280 - ------------------------------------------------------------------------------------------------------------------------------------ Multi-Utilities & Unregulated Power - 0.4% 92,900 Dominion CNG Capital Trust I 7.800% Baa1 BBB- 2,487,862 46,200 Dominion Resources Capital Trust II 8.400% Baa2 BBB- 1,245,090 111,100 Energy East Capital Trust I 8.250% Baa3 BBB- 2,980,813 - ------------------------------------------------------------------------------------------------------------------------------------ Oil & Gas - 1.3% 789,511 Nexen Inc. 7.350% Baa3 BB+ 21,261,531 151,900 TransCanada Pipeline 8.250% A3 BBB 3,925,096 24 Ratings* ------------------ Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Pharmaceuticals - 0.0% 14,500 Bristol Myers Squibb Company (CORTS) 6.250% A1 A+ $ 376,928 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate - 18.2% 97,800 AvalonBay Communities, Inc., Series H 8.700% Baa2 BBB 2,759,916 15,500 BRE Properties, Series B 8.080% Baa3 BBB- 416,175 45,300 BRE Properties, Series C 6.750% Baa3 BBB- 1,135,671 100,000 BRE Properties, Series D 6.750% Baa3 BBB- 2,510,000 1,002,995 CarrAmerica Realty Corporation, Series E 7.500% Baa3 BBB- 26,639,547 103,300 Developers Diversified Realty Corporation, Series F 8.600% Ba1 BBB- 2,775,671 489,800 Developers Diversified Realty Corporation, Series G 8.000% Ba1 BBB- 13,102,150 115,000 Developers Diversified Realty Corporation, Series H 7.375% Ba1 BBB- 2,979,650 165,000 Duke Realty Corporation, Series L 6.600% Baa2 BBB 4,125,000 200,650 Duke-Weeks Realty Corporation, Series B 7.990% Baa2 BBB 10,157,906 38,600 Duke-Weeks Realty Corporation, Series I 8.450% Baa2 BBB 1,015,180 327,300 Equity Office Properties Trust, Series G 7.750% Baa3 BBB 8,837,100 88,800 Equity Residential Properties Trust 9.125% Baa2 BBB 2,299,032 40,000 Equity Residential Properties Trust, Series C 9.125% Baa2 BBB 1,075,600 63,250 Equity Residential Properties Trust, Series D 8.600% Baa2 BBB 1,731,785 46,124 Equity Residential Properties Trust, Series N 6.480% Baa2 BBB 1,169,243 329,500 Federal Realty Investment Trust 8.500% Baa3 BBB- 8,939,335 18,600 First Industrial Realty Trust, Inc., Series C 8.625% Baa3 BBB- 511,500 12,609 Gables Residential Trust, Series D 7.500% Baa3 BBB- 325,312 16,800 Harris Preferred Capital Corporation, Series A 7.375% A1 A 427,560 200,000 HRPT Properties Trust, Series A 9.875% Baa3 BBB- 5,410,000 1,542,125 HRPT Properties Trust, Series B 8.750% Baa3 BBB- 42,647,467 153,000 Kimco Realty Corporation, Series F 6.650% Baa2 BBB+ 3,953,520 147,350 New Plan Excel Realty Trust, Series D 7.800% Baa3 BBB- 7,501,043 768,000 New Plan Excel Realty Trust, Series E 7.625% NA BBB- 20,229,120 91,728 Prologis Trust, Series G 6.750% Baa2 BBB 2,314,297 734,970 PS Business Parks Inc. 7.000% Ba1 BBB- 18,219,906 107,600 PS Business Parks Inc., Series I 6.875% Ba1 BBB- 2,657,720 400,000 PS Business Parks Inc., Series L 7.600% Ba1 BBB- 10,224,000 6,800 Public Storage Inc. 6.125% Baa2 BBB+ 168,844 13,000 Public Storage Inc., Series F 9.750% Baa2 BBB+ 331,890 63,700 Public Storage Inc., Series Q 8.600% Baa2 BBB+ 1,668,303 218,595 Public Storage Inc., Series R 8.000% Baa2 BBB+ 5,764,350 40,500 Public Storage Inc., Series S 7.875% Baa2 BBB+ 1,066,365 94,865 Public Storage Inc., Series T 7.625% Baa2 BBB+ 2,493,052 94,900 Public Storage Inc., Series U 7.625% Baa2 BBB+ 2,528,136 142,300 Public Storage Inc., Series V 7.500% Baa2 BBB+ 3,770,950 32,900 Public Storage Inc., Series Z 6.250% Baa2 BBB+ 810,985 160,000 Realty Income Corporation 7.375% Baa3 BBB- 4,166,400 300,000 Regency Centers Corporation 7.450% Baa3 BBB- 7,996,500 149,600 Regency Centers Corporation 7.250% Baa3 BBB- 3,945,700 34,500 Simon Property Group, Inc., Series F 8.750% Baa2 BBB- 928,395 326,041 Simon Property Group, Inc., Series G 7.890% Baa2 BBB 17,351,902 208,440 Vornado Realty Trust 6.625% Baa3 BBB- 5,148,468 34,585 Vornado Realty Trust, Series C 8.500% Ba1 BBB- 867,392 2,461,900 Wachovia Preferred Funding Corporation 7.250% A2 BBB+ 69,868,722 156,000 Weingarten Realty Trust, Series E 6.950% Baa1 A- 4,095,000 - ------------------------------------------------------------------------------------------------------------------------------------ Specialty Retail - 0.0% 20,800 Sherwin Williams Company, Series III (CORTS) 7.250% A2 A 562,640 - ------------------------------------------------------------------------------------------------------------------------------------ Thrifts & Mortgage Finance - 3.4% 1,043,000 Countrywide Capital Trust IV 6.750% Baa1 BBB+ 26,815,530 416,400 Fannie Mae (a) 0.000% Aa3 AA- 23,578,650 80,800 Fannie Mae (a) 5.125% Aa3 AA- 3,455,816 47,300 Fannie Mae (a) 3.780% Aa3 AA- 2,376,825 21,700 Federal Home Loan Mortgage Corporation (a) 1.140% Aa3 AA- 824,600 68,000 Federal Home Loan Mortgage Corporation (a) 5.100% Aa3 AA- 2,964,800 80,000 Federal Home Loan Mortgage Corporation (a) 5.000% Aa3 AA- 3,440,000 25 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of Investments December 31, 2004 Ratings* ------------------ Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Wireless Telecommunication Services - 2.2% 157,500 Telephone and Data Systems Inc. 7.600% Baa1 A- $ 4,154,850 1,317,400 United States Cellular Corporation 8.750% Baa1 A- 36,860,852 - ------------------------------------------------------------------------------------------------------------------------------------ Total $25 Par (or similar) Securities (cost $1,183,441,400) 1,255,921,778 -------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED SECURITIES - 7.3% (5.1% of Total Investments) Diversified Financial Services - 0.5% 210,000 Citigroup Global Markets 2.000% Aa1 AA- 9,874,830 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Telecommunication Services - 1.5% 546,000 Alltel Corporation 7.750% A2 NA 28,877,940 - ------------------------------------------------------------------------------------------------------------------------------------ Electric Utilities - 1.0% 357,900 Ameren Corporation 9.750% A3 BBB+ 10,293,204 19,100 American Electric Power 9.250% Baa3 BBB 910,115 126,500 FPL Group Inc. 8.000% NA A- 7,620,360 - ------------------------------------------------------------------------------------------------------------------------------------ Gas Utilities - 1.3% 452,500 Keyspan Corporation 8.750% A3 NA 23,606,925 - ------------------------------------------------------------------------------------------------------------------------------------ Healthcare Equipment & Supplies - 0.4% 128,600 Baxter International Inc. 7.000% Baa1 NA 7,260,756 - ------------------------------------------------------------------------------------------------------------------------------------ Insurance - 0.2% 118,000 XL Capital Ltd. 6.500% A2 A 3,003,100 - ------------------------------------------------------------------------------------------------------------------------------------ Multi-Utilities & Unregulated Power - 2.3% 468,500 Dominion Resources Inc. 8.750% Baa1 BBB+ 25,851,830 250,900 Public Service Enterprise Group 10.250% Baa3 BBB- 16,890,588 - ------------------------------------------------------------------------------------------------------------------------------------ Thrifts & Mortgage Finance - 0.1% 69,700 PMI Group Inc. 5.875% A1 A 1,842,868 - ------------------------------------------------------------------------------------------------------------------------------------ Total Convertible Preferred Securities (cost $116,910,379) 136,032,516 -------------------------------------------------------------------------------------------------------------------- Principal Ratings* Amount (000)/ ----------------- Market Shares Description(1) Coupon Maturity Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED SECURITIES - 63.2% (44.4% of Total Investments) Capital Markets - 10.5% 15,000 ABN AMRO North America Holding Capital, 144A 6.523% 12/31/49 A3 A- $ 16,506,480 15,000 Ahmanson Capital Trust I, 144A 8.360% 12/01/26 Baa1 BBB 16,463,130 1,465 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 A- 1,623,431 4,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 A- 4,474,424 2,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 A- 2,214,880 500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 NR 564,164 5,000 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 A 5,237,780 18,600 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 A 19,396,787 7,500 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A3 BBB+ 9,298,703 5,050 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A3 A- 5,800,612 17,095 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 BBB+ 21,504,245 10,000 Goldman Sachs Group Inc. 6.345% 2/15/34 A1 A- 10,448,280 25,000 M&I Capital Trust A 7.650% 12/01/26 A2 BBB+ 26,954,675 25,000 Mellon Capital Trust I, Series A 7.720% 12/01/26 A2 A- 27,150,100 3,240 State Street Institutional Capital 7.940% 12/30/26 A1 A 3,599,092 Trust, 144A 21,000 UBS Preferred Funding Trust I 8.622% 10/29/49 A1 AA- 25,271,736 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks - 28.9% 19,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 Aa3 AA- 19,251,047 62,474 Abbey National Capital Trust I 8.963% 12/30/49 A2 A- 87,336,216 7,400 AgFirst Farm Credit Bank 7.300% 12/15/53 NA NA 7,476,176 26 Principal Ratings* Amount (000)/ ----------------- Market Shares Description(1) Coupon Maturity Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks (continued) 2,200 ANZ Capital Trust I, 144A 5.360% 12/29/49 A2 A- $ 2,235,545 6,500 Bank One Capital III 8.750% 9/01/30 A1 A- 8,825,596 26,355 BankBoston Capital Trust I, Series B 8.250% 12/15/26 Aa3 A- 28,921,213 3,031 BankBoston Capital Trust II, Series B 7.750% 12/15/26 Aa3 A- 3,284,158 5,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 BBB- 5,500,490 36,000 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 A+ 43,892,676 5,300 Barnett Capital I 8.060% 12/01/26 Aa3 A- 5,798,666 2,229 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 A- 2,437,378 3,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 A- 4,283,893 3,500 Farm Credit Bank of Texas 7.561% 11/05/49 NA NA 3,606,449 5,000 FBS Capital Trust I 8.090% 11/15/26 Aa3 A- 5,457,055 3,500 First Chicago NBD Institutional 7.950% 12/01/26 A1 NA 3,807,601 Capital, 144A 1,500 First Empire Capital Trust I 8.234% 2/01/27 Baa1 BBB 1,661,354 1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 BBB- 1,639,731 22,080 Fleet Capital Trust II 7.920% 12/11/26 Aa3 A- 23,949,337 2,400 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 A- 2,993,369 6,250 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 A- 9,705,413 32,000 KBC Bank Fund Trust III, 144A 9.860% 11/02/49 A2 A- 39,298,688 8,000 KeyCorp Capital III 7.750% 7/15/29 A3 BBB 9,611,136 2,500 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 BBB 2,714,893 13,500 Lloyds TSB Bank plc, Subordinate Note 6.900% 11/22/49 Aa2 A+ 14,170,248 19,500 NB Capital Trust II 7.830% 12/15/26 Aa3 A- 21,465,639 14,000 Nordbanken AB, 144A 8.950% 11/29/49 A2 A- 16,599,856 2,000 North Fork Capital Trust I, Capital 8.700% 12/15/26 A3 BBB- 2,221,724 Securities 8,000 North Fork Capital Trust II 8.000% 12/15/27 A3 BBB- 8,858,552 2,000 Peoples Heritage Capital Trust I, 9.060% 2/01/27 Baa1 BB+ 2,268,024 Series B 33,085 PNC Institutional Capital Securities, 7.950% 12/15/26 A3 BBB+ 36,190,755 144A 2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 BBB- 2,112,396 11,600 RBS Capital Trust B 6.800% 12/31/49 A1 A 11,999,028 8,000 Reliance Capital Trust I, Series B 8.170% 5/01/28 NA NA 8,968,432 500 Republic New York Capital II, Capital 7.530% 12/04/26 A1 A- 538,305 Securities 17,500 Royal Bank of Scotland Group plc 9.118% 3/31/49 A1 A 21,338,363 2,150 Royal Bank of Scotland Group plc 7.648% 8/31/49 A1 A 2,625,754 5,000 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 A 5,487,895 5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 NA 5,100,250 9,000 St. George Funding Company LLC, 144A 8.485% 6/30/47 Baa1 NA 10,307,853 7,500 Union Planters Capital Trust A 8.200% 12/15/26 A2 BBB+ 8,146,530 240 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 BBB- 26,362,512 1,000 Wells Fargo Capital I 7.960% 12/15/26 Aa2 A 1,089,088 10,000 Zions Institutional Capital Trust, 8.536% 12/15/26 Baa1 BBB- 11,342,540 Series A - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Financial Services - 5.4% 2,750 BNP Paribas Capital Trust 7.200% 12/31/49 A1 A+ 2,912,476 1,000 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A1 A+ 1,233,726 8,750 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 A- 9,432,999 44,010 HBOS Capital Funding LP, Notes 6.850% 3/01/49 A1 A 45,354,682 3,600 JPM Capital Trust I 7.540% 1/15/27 A1 A- 3,880,688 22,085 JPM Capital Trust II 7.950% 2/01/27 A1 A- 24,162,845 13,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 NA 14,602,042 27 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of Investments December 31, 2004 Principal Ratings* Amount (000)/ ----------------- Market Shares Description(1) Coupon Maturity Moody's S&P Value - ----------------------------------------------------------------------------------------------------------------------------------- Diversified Telecommunication Services - 3.2% 45,250 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 Baa1 BBB+ $ 59,715,882 - ----------------------------------------------------------------------------------------------------------------------------------- Insurance - 11.0% 14,280 Ace Capital Trust II 9.700% 4/01/30 Baa1 BBB- 19,028,114 2,000 Allstate Financing II 7.830% 12/01/45 A2 A- 2,165,378 28,000 American General Institutional 8.125% 3/15/46 Aa1 AA 36,780,324 Capital, 144A 10,000 Berkeley Capital Trust 8.197% 12/15/45 Baa3 BBB- 10,616,740 2,000 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 Baa1 BBB+ 1,991,176 6,000 MIC Financing Trust I 8.375% 2/01/27 A1 A+ 6,360,666 10,250 Prudential plc 6.500% 6/29/49 Baa1 A 10,313,806 10,000 RenaissanceRe Capital Trust 8.540% 3/01/27 Baa1 BBB+ 10,885,750 51,700 Sun Life Canada Capital Trust, Capital 8.526% 5/06/47 A1 A+ 57,413,212 Securities, 144A 44,515 Zurich Capital Trust I, 144A 8.376% 6/01/37 Baa2 A- 50,130,745 - ----------------------------------------------------------------------------------------------------------------------------------- Oil & Gas - 1.1% 10,750 KN Capital Trust III 7.630% 4/15/28 Baa3 BB+ 12,057,351 7,355 Phillips 66 Capital Trust II 8.000% 1/15/37 Baa2 BBB 8,447,776 - ----------------------------------------------------------------------------------------------------------------------------------- Thrifts & Mortgage Finance - 3.1% 8,595 Countrywide Capital Trust I 8.000% 12/15/26 Baa1 BBB+ 9,054,454 18,460 Countrywide Capital Trust III, Series B 8.050% 6/15/27 Baa1 BBB+ 22,188,459 11,825 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 BBB 13,448,963 13,000 Great Western Financial Trust II, 8.206% 2/01/27 Baa1 BBB 14,206,569 Series A - ----------------------------------------------------------------------------------------------------------------------------------- Total Capital Preferred Securities (cost $1,103,987,806) 1,183,775,166 ------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 4.8% (3.3% of Total Investments) Automobiles - 4.7% 21,500 Ford Motor Company, Debenture 7.400% 11/01/46 Baa1 BBB- 20,553,161 7,525 Ford Motor Company 8.900% 1/15/32 Baa1 BBB- 8,578,342 4,000 Ford Motor Company 7.450% 7/16/31 Baa1 BBB- 4,034,580 52,860 General Motors Acceptance Corporation, 8.000% 11/01/31 Baa1 BBB- 54,486,075 Notes 600 General Motors Corporation, Senior 8.375% 7/15/33 Baa2 BBB- 623,371 Debentures - ----------------------------------------------------------------------------------------------------------------------------------- Commercial Banks - 0.1% 1,000 Washington Mutual Bank FA 5.125% 1/15/15 A3 A- 995,134 - ----------------------------------------------------------------------------------------------------------------------------------- Total Corporate Bonds (cost $79,477,028) 89,270,663 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $2,483,816,613) - 142.3% 2,665,000,123 ------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 0.4% 7,283,209 ------------------------------------------------------------------------------------------------------------------- FundPreferred Shares, at Liquidation Value - (42.7)% (800,000,000) ------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $1,872,283,332 =================================================================================================================== 28 Interest Rate Swap Contracts outstanding at December 31, 2004: Unrealized Notional Termination Appreciation Counterparty Amount Fixed Rate Floating Rate** Date (Depreciation) - ---------------------------------------------------------------------------------------------------------------------------- Citibank, N.A. $200,000,000 2.6300% 2.3313% 11/06/05 $ 511,601 Citibank, N.A. 200,000,000 3.3750 2.3313 11/06/07 831,373 Citibank, N.A. 200,000,000 3.9100 2.3313 11/06/09 (241,023) - ---------------------------------------------------------------------------------------------------------------------------- $1,101,951 ============================================================================================================================ Futures Contracts Outstanding at December 31, 2004: Value at Unrealized Number of Contract Original December 31, Appreciation Type Contracts Expiration Value 2004 (Depreciation) - ---------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds 209 3/05 $23,199,000 $23,512,500 $ (313,500) ============================================================================================================================ (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. * Ratings (not covered by the report of independent registered public accounting firm): Below Baa by Moody's Investor Service, Inc. or BBB by Standard & Poor's Group are considered to be below investment grade. ** Based on LIBOR (London Inter-bank Offered Rate). (a) Security is eligible for the Dividends Received Deduction. 144A 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. (CORTS) Corporate Backed Trust Securities. (PCARS) Public Credit and Repackaged Securities. (PPLUS) PreferredPlus Trust. (SATURNS) Structured Asset Trust Unit Repackaging. NA Security is not rated. See accompanying notes to financial statements. 29 Nuveen Quality Preferred Income Fund 3 (JHP) Portfolio of Investments December 31, 2004 Ratings* ------------------- Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ $25 PAR (or similar) SECURITES - 73.9% (51.0% of Total Investments) Auto Components - 0.9% 129,890 Delphi Trust I 8.250% Baa3 BB $ 3,235,560 - ------------------------------------------------------------------------------------------------------------------------------------ Automobiles - 0.1% 7,500 DaimlerChrysler AG (CORTS) 7.875% A3 BBB 199,050 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Markets - 7.5% 13,000 BCH Capital Ltd., Series B 9.430% A2 BBB+ 345,475 32,000 Bear Stearns Capital Trust III 7.800% A2 BBB 848,000 47,300 BSCH Finance Ltd., Series Q 8.625% A2 BBB+ 1,236,895 47,600 Compass Capital Trust III 7.350% A3 BBB- 1,251,404 37,400 CSFB USA, Series 2002-10 (SATURNS) 7.000% Aa3 A+ 964,920 23,100 First Union Capital II, Series II (CORTS) 7.500% A1 BBB+ 621,390 11,300 First Union Institutional Capital II (CORTS) 8.200% A1 BBB+ 319,790 355,000 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 BBB+ 9,070,250 36,300 Merrill Lynch Preferred Capital Trust 7.750% A1 A- 971,025 18,300 Merrill Lynch Preferred Capital Trust IV 7.120% A1 A- 492,087 75,100 Merrill Lynch Preferred Capital Trust V 7.280% A1 A- 2,038,965 40,900 Morgan Stanley (PPLUS) 7.050% Aa3 A+ 1,084,259 80,000 Morgan Stanley Capital Trust II 7.250% A1 A- 2,116,800 212,600 Morgan Stanley Capital Trust III 6.250% A1 A- 5,406,418 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks - 12.4% 3,700 Abbey National plc, Series B 7.375% A2 A 101,750 31,300 ASBC Capital I 7.625% Baa1 BBB- 840,405 40,894 BAC Capital Trust I 7.000% Aa3 A- 1,077,148 32,700 BAC Capital Trust II 7.000% Aa3 A- 873,744 94,500 BAC Capital Trust III 7.000% Aa3 A- 2,537,325 37,300 Banco Totta & Acores Finance, Series A 8.875% A3 NA 1,017,592 18,600 BancWest Capital I 9.500% A3 A- 491,970 211,000 Banesto Holdings, Series A, 144A 10.500% A2 NA 6,573,979 32,400 Bank One Capital II 8.500% A1 A- 840,132 32,100 Bank One Capital Trust VI 7.200% A1 A- 852,576 11,000 Bank One Capital V 8.000% A1 A- 290,290 3,000 BankNorth Capital Trust II 8.000% Baa1 BB+ 80,370 18,800 Chittenden Capital Trust I 8.000% Baa1 BB+ 509,668 68,500 Citigroup Inc., Series H (a) 6.231% Aa3 NA 3,690,438 44,500 Cobank ABC, 144A (a) 7.000% NA NA 2,363,840 52,500 Comerica Capital Trust I 7.600% A3 BBB+ 1,379,700 37,400 Fleet Capital Trust VI 8.800% Aa3 A- 960,432 153,900 Fleet Capital Trust VII 7.200% Aa3 A- 4,086,045 26,416 Fleet Capital Trust VIII 7.200% Aa3 A- 702,666 5,900 KeyCorp (PCARS) 7.500% A3 NA 155,406 6,400 KeyCorp Capital Trust V 5.875% A3 BBB 158,656 6,300 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 BBB 169,785 11,900 KeyCorp, Series B (CORTS) 8.250% A3 BBB 310,590 22,300 National Commerce Capital Trust II 7.700% A1 A- 597,640 30,400 National Westminster Bank plc, Series A 7.875% Aa2 A+ 786,144 16,500 National Westminster Bank plc, Series B 7.875% Aa3 A+ 420,750 20,000 PNC Capital Trust 6.125% A3 BBB 502,400 40,000 Royal Bank of Scotland Group plc, Series M 6.400% A1 A 1,049,200 30 Ratings* ------------------- Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks (continued) 15,400 SunTrust Capital Trust IV 7.125% A1 A- $ 405,174 22,900 SunTrust Capital Trust V 7.050% A1 A- 605,018 110,300 USB Capital Trust III 7.750% Aa3 A- 2,929,568 58,100 USB Capital Trust IV 7.350% Aa3 A- 1,546,041 48,800 USB Capital Trust V 7.250% Aa3 A- 1,293,688 18,400 VNB Capital Trust I 7.750% Baa1 BBB 489,808 28,400 Washington Mutual Capital Trust I, Series 2001-22, 7.650% Baa1 BBB 741,524 Class A-1 (CORTS) 3,000 Wells Fargo Capital Trust IX 5.625% Aa2 A 72,360 21,700 Wells Fargo Capital Trust V 7.000% Aa2 A 570,276 80,000 Zions Capital Trust B 8.000% Baa1 BB+ 2,192,000 - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Finance - 4.2% 111,700 Household Capital Trust V, Series X 10.000% A2 BBB+ 2,874,041 14,600 Household Capital Trust VI 8.250% A2 BBB+ 387,484 100,500 Household Capital Trust VII 7.500% A2 BBB+ 2,689,380 135,400 HSBC Finance Corporation 6.875% A1 A 3,678,818 95,300 SLM Corporation, Series A (a) 6.970% Baa1 BBB+ 5,479,750 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Financial Services - 7.3% 10,000 BBVA Preferred Capital Ltd., Series B 7.750% A1 A- 265,400 42,900 CIT Group Incorporated (CORTS) 7.750% A3 BBB+ 1,178,678 25,600 Citigroup Capital Trust VII 7.125% Aa2 A 675,840 46,600 Citigroup Capital Trust VIII 6.950% Aa2 A 1,222,784 16,549 Citigroup Inc., Series F (a) 6.365% Aa3 A 883,386 52,941 Citigroup Inc., Series M (a) 5.864% Aa3 A 2,805,873 142,900 ING Group NV 7.050% NA A- 3,844,010 503,600 ING Group NV 7.200% A2 A- 13,682,812 13,000 JPMorgan Chase Capital Trust X 7.000% A1 NA 347,490 25,000 JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS) 7.125% A1 A- 668,000 24,000 Merrill Lynch Capital Trust II 8.000% A1 A- 653,280 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Telecommunication Services - 0.4% 12,900 BellSouth Inc. (CORTS) 7.000% A2 A 339,270 24,900 Verizon Communications (CORTS) 7.625% A2 A+ 669,810 15,300 Verizon New England Inc., Series B 7.000% A2 NA 408,510 - ------------------------------------------------------------------------------------------------------------------------------------ Electric Utilities - 2.1% 2,900 Detroit Edison Company 7.625% Baa2 BB+ 73,341 53,400 Entergy Louisiana Inc. 7.600% Baa1 A- 1,427,382 203,447 Entergy Mississippi Inc. 7.250% Baa2 A- 5,543,931 18,300 Tennessee Valley Authority, Series D 6.750% Aaa AAA 457,500 - ------------------------------------------------------------------------------------------------------------------------------------ Food Products - 0.7% 25,000 Dairy Farmers of America Inc., 144A (a) 7.875% Baa3 BBB- 2,609,375 - ------------------------------------------------------------------------------------------------------------------------------------ Gas Utilities - 0.2% 32,900 AGL Capital Trust II 8.000% Baa2 BBB 872,837 - ------------------------------------------------------------------------------------------------------------------------------------ Insurance - 14.6% 133,000 Ace Ltd., Series C 7.800% Baa2 BBB- 3,548,440 12,500 Aetna Incorporated 8.500% Baa2 BBB+ 334,875 30,700 AMBAC Financial Group Inc. 5.950% Aa2 AA 771,798 95,000 AMBAC Financial Group Inc. 5.875% Aa2 AA 2,388,300 7,700 American General Capital III 8.050% Aa1 AA 200,970 131,000 Delphi Financial Group Inc. 8.000% Baa3 BBB 3,569,750 258,671 EverestRe Group Limited 7.850% Baa1 BBB 7,154,840 151,100 Financial Security Assurance Holdings 6.250% Aa2 AA 3,872,693 60,900 Hartford Capital Trust III, Series C 7.450% Baa1 BBB 1,596,798 104,100 Lincoln National Capital Trust V, Series E 7.650% Baa1 BBB 2,760,732 55,700 PartnerRe Limited 7.900% A3 BBB+ 1,481,620 140,000 PartnerRe Limited, Series C 6.750% Baa1 BBB+ 3,631,600 31 Nuveen Quality Preferred Income Fund 3 (JHP) (continued) Portfolio of Investments December 31, 2004 Ratings* ------------------- Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Insurance (continued) 54,600 PLC Capital Trust III 7.500% Baa1 BBB+ $ 1,442,532 14,800 PLC Capital Trust IV 7.250% Baa1 BBB+ 393,680 52,544 Prudential plc 6.750% Baa1 A 1,362,466 41,500 RenaissanceRe Holdings Ltd., Series A 8.100% Baa2 BBB+ 1,107,220 217,000 RenaissanceRe Holdings Ltd., Series B 7.300% Baa2 BBB+ 5,824,280 16,400 Safeco Capital Trust I (CORTS) 8.700% Baa2 BBB- 447,392 9,300 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 BBB- 251,100 32,200 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 BBB- 852,334 61,800 XL Capital Ltd., Series A 8.000% Baa1 BBB+ 1,687,758 289,400 XL Capital Ltd., Series B 7.625% Baa1 BBB+ 7,793,542 - ------------------------------------------------------------------------------------------------------------------------------------ Multi-Utilities & Unregulated Power - 0.3% 17,800 Dominion CNG Capital Trust I 7.800% Baa1 BBB- 476,684 24,300 Energy East Capital Trust I 8.250% Baa3 BBB- 651,969 - ------------------------------------------------------------------------------------------------------------------------------------ Oil & Gas - 1.3% 137,000 Nexen Inc. 7.350% Baa3 BB+ 3,689,410 34,700 TransCanada Pipeline 8.250% A3 BBB 896,648 - ------------------------------------------------------------------------------------------------------------------------------------ Pharmaceuticals - 0.1% 10,000 Bristol Myers Squibb Company (CORTS) 6.250% A1 A+ 259,950 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate - 17.0% 5,900 AvalonBay Communities, Inc., Series H 8.700% Baa2 BBB 166,498 20,000 BRE Properties, Series D 6.750% Baa3 BBB- 502,000 201,900 CarrAmerica Realty Corporation, Series E 7.500% Baa3 BBB- 5,362,464 26,200 Developers Diversified Realty Corporation, Series F 8.600% Ba1 BBB- 703,994 170,000 Developers Diversified Realty Corporation, Series G 8.000% Ba1 BBB- 4,547,500 30,000 Developers Diversified Realty Corporation, Series H 7.375% Ba1 BBB- 777,300 60,144 Equity Office Properties Trust, Series G 7.750% Baa3 BBB 1,623,888 25,900 Equity Residential Properties Trust 9.125% Baa2 BBB 670,551 18,500 Equity Residential Properties Trust, Series C 9.125% Baa2 BBB 497,465 20,800 Equity Residential Properties Trust, Series D 8.600% Baa2 BBB 569,504 55,300 Federal Realty Investment Trust 8.500% Baa3 BBB- 1,500,289 5,100 First Industrial Realty Trust, Inc., Series C 8.625% Baa3 BBB- 140,250 130,000 HRPT Properties Trust, Series A 9.875% Baa3 BBB- 3,516,500 238,607 HRPT Properties Trust, Series B 8.750% Baa3 BBB- 6,598,677 21,000 New Plan Excel Realty Trust, Series D 7.800% Baa3 BBB- 1,069,032 35,200 New Plan Excel Realty Trust, Series E 7.625% NA BBB- 927,168 20,000 Prologis Trust, Series G 6.750% Baa2 BBB 504,600 136,000 PS Business Parks Inc. 7.000% Ba1 BBB- 3,371,440 36,900 PS Business Parks Inc., Series D 9.500% Ba2 BBB- 989,658 8,300 PS Business Parks Inc., Series F 8.750% Ba2 BBB- 223,063 120,000 PS Business Parks Inc., Series L 7.600% Ba1 BBB- 3,067,200 40,900 Public Storage Inc., Series Q 8.600% Baa2 BBB+ 1,071,171 129,533 Public Storage Inc., Series R 8.000% Baa2 BBB+ 3,415,785 17,600 Public Storage Inc., Series S 7.875% Baa2 BBB+ 463,408 22,500 Public Storage Inc., Series T 7.625% Baa2 BBB+ 591,300 11,000 Public Storage Inc., Series U 7.625% Baa2 BBB+ 293,040 17,000 Public Storage Inc., Series V 7.500% Baa2 BBB+ 450,500 12,600 Regency Centers Corporation 7.450% Baa3 BBB- 335,853 80,000 Regency Centers Corporation 7.250% Baa3 BBB- 2,110,000 7,500 Simon Property Group, Inc., Series F 8.750% Baa2 BBB- 201,825 68,600 Simon Property Group, Inc., Series G 7.890% Baa2 BBB 3,650,892 36,400 United Dominion Realty Trust 8.600% Ba1 BB+ 980,980 60,000 Vornado Realty Trust 6.625% Baa3 BBB- 1,482,000 5,720 Vornado Realty Trust, Series C 8.500% Ba1 BBB- 143,458 252,700 Wachovia Preferred Funding Corporation 7.250% A2 BBB+ 7,171,626 40,000 Weingarten Realty Trust, Series E 6.950% Baa1 A- 1,050,000 - ------------------------------------------------------------------------------------------------------------------------------------ Specialty Retail - 0.2% 20,000 Sherwin Williams Company, Series III (CORTS) 7.250% A2 A 541,000 32 Ratings* ------------------- Market Shares Description(1) Coupon Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Thrifts & Mortgage Finance - 2.9% 13,700 Countrywide Capital Trust II, Series II (CORTS) 8.000% Baa1 BBB+ $ 366,338 152,830 Countrywide Capital Trust IV 6.750% Baa1 BBB+ 3,929,259 43,400 Fannie Mae (a) 0.000% Aa3 AA- 2,457,525 49,100 Fannie Mae (a) 5.125% Aa3 AA- 2,100,007 13,000 Federal Home Loan Mortgage Corporation (a) 5.100% Aa3 AA- 566,800 23,900 Federal Home Loan Mortgage Corporation (a) 5.000% Aa3 AA- 1,027,700 - ------------------------------------------------------------------------------------------------------------------------------------ Wireless Telecommunication Services - 1.7% 69,101 Telephone and Data Systems Inc. 7.600% Baa1 A- 1,822,884 157,500 United States Cellular Corporation 8.750% Baa1 A- 4,406,850 - ------------------------------------------------------------------------------------------------------------------------------------ Total $25 Par (or similar) Securities (cost $255,352,263) 264,615,991 -------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED SECURITIES - 7.6% (5.3% of Total Investments) Diversified Financial Services - 0.8% 61,000 Citigroup Global Markets 2.000% Aa1 AA- 2,868,403 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Telecommunication Services - 1.7% 118,500 Alltel Corporation 7.750% A2 NA 6,267,465 - ------------------------------------------------------------------------------------------------------------------------------------ Electric Utilities - 0.7% 81,900 Ameren Corporation 9.750% A3 BBB+ 2,355,444 900 American Electric Power 9.250% Baa3 BBB 42,885 - ------------------------------------------------------------------------------------------------------------------------------------ Gas Utilities - 1.5% 100,000 Keyspan Corporation 8.750% A3 NA 5,217,000 - ------------------------------------------------------------------------------------------------------------------------------------ Healthcare Equipment & Supplies - 0.4% 28,000 Baxter International Inc. 7.000% Baa1 NA 1,580,880 - ------------------------------------------------------------------------------------------------------------------------------------ Multi-Utilities & Unregulated Power - 2.5% 102,400 Dominion Resources Inc. 8.750% Baa1 BBB+ 5,650,432 49,875 Public Service Enterprise Group 10.250% Baa3 BBB- 3,357,585 - ------------------------------------------------------------------------------------------------------------------------------------ Total Convertible Preferred Securities (cost $24,056,776) 27,340,094 -------------------------------------------------------------------------------------------------------------------- Principal Ratings* Amount (000)/ ------------------- Market Shares Description(1) Coupon Maturity Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED SECURITIES - 58.6% (40.4% of Total Investments) Capital Markets - 7.1% 5,000 Ahmanson Capital Trust I, 144A 8.360% 12/01/26 Baa1 BBB 5,487,710 1,000 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 A- 1,108,144 1,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 A- 1,118,606 1,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 A- 1,107,440 500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 NR 564,164 250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 A 261,889 3,750 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 A 3,910,643 1,000 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A3 A- 1,148,636 8,485 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 BBB+ 10,673,502 - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks - 22.4% 2,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 Aa3 AA- 2,026,426 8,000 Abbey National Capital Trust I 8.963% 12/30/49 A2 A- 11,183,688 2,000 AgFirst Farm Credit Bank 7.300% 12/15/53 NA NA 2,020,588 1,000 BankAmerica Capital II, Series 2 8.000% 12/15/26 Aa3 A- 1,099,391 1,500 BankBoston Capital Trust II, Series B 7.750% 12/15/26 Aa3 A- 1,625,285 1,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 BBB- 1,100,098 6,200 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 A+ 7,559,294 900 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 A- 1,042,028 700 Farm Credit Bank of Texas 7.561% 11/05/49 NA NA 721,290 1,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 NA 1,087,886 33 Nuveen Quality Preferred Income Fund 3 (JHP) (continued) Portfolio of Investments December 31, 2004 Principal Ratings* Amount (000)/ ------------------- Market Shares Description(1) Coupon Maturity Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Banks (continued) 1,000 First Empire Capital Trust I 8.234% 2/01/27 Baa1 BBB $ 1,107,569 500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 BBB- 546,577 1,430 HSBC USA Capital Trust II, 144A 8.380% 5/15/27 NA A- 1,590,453 1,000 KBC Bank Fund Trust III, 144A 9.860% 11/02/49 A2 A- 1,228,084 2,500 Lloyds TSB Bank plc, Subordinate Note 6.900% 11/22/49 Aa2 A+ 2,624,120 4,000 North Fork Capital Trust I, Capital 8.700% 12/15/26 A3 BBB- 4,443,448 Securities 1,500 North Fork Capital Trust II 8.000% 12/15/27 A3 BBB- 1,660,979 3,150 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 Baa1 BB+ 3,572,138 9,200 PNC Institutional Capital Trust B, 144A 8.315% 5/15/27 A3 BBB 10,221,476 1,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 BBB- 1,056,198 2,750 RBS Capital Trust B 6.800% 12/31/49 A1 A 2,844,597 200 Royal Bank of Scotland Group plc 7.648% 8/31/49 A1 A 244,256 1,000 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 A 1,097,579 2,500 St. George Funding Company LLC, 144A 8.485% 6/30/47 Baa1 NA 2,863,293 4,600 Union Planters Capital Trust A 8.200% 12/15/26 A2 BBB+ 4,996,538 70 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 BBB- 7,689,066 3,000 Zions Institutional Capital Trust, 8.536% 12/15/26 Baa1 BBB- 3,402,762 Series A - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Financial Services - 6.5% 1,000 BNP Paribas Capital Trust 7.200% 12/31/49 A1 A+ 1,059,082 1,000 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 A- 1,078,057 9,100 HBOS Capital Funding LP, Notes 6.850% 3/01/49 A1 A 9,378,041 (DD, settling 1/03/05) 9,000 JPM Capital Trust I 7.540% 1/15/27 A1 A- 9,701,721 1,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 NA 1,904,614 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Telecommunication Services - 2.7% 7,260 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 Baa1 BBB+ 9,580,935 - ------------------------------------------------------------------------------------------------------------------------------------ Insurance - 14.8% 3,450 Ace Capital Trust II 9.700% 4/01/30 Baa1 BBB- 4,597,128 500 Allstate Financing II 7.830% 12/01/45 A2 A- 541,345 5,000 Berkeley Capital Trust 8.197% 12/15/45 Baa3 BBB- 5,308,370 750 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 Baa1 BBB+ 746,691 10,000 MIC Financing Trust I 8.375% 2/01/27 A1 A+ 10,601,110 1,500 Prudential plc 6.500% 6/29/49 Baa1 A 1,509,338 3,000 RenaissanceRe Capital Trust 8.540% 3/01/27 Baa1 BBB+ 3,265,725 10,000 Sun Life Canada Capital Trust, Capital 8.526% 5/06/47 A1 A+ 11,105,070 Securities, 144A 13,500 Zurich Capital Trust I, 144A 8.376% 6/01/37 Baa2 A- 15,203,079 - ------------------------------------------------------------------------------------------------------------------------------------ Oil & Gas - 3.5% 6,500 KN Capital Trust III 7.630% 4/15/28 Baa3 BB+ 7,290,491 4,500 Phillips 66 Capital Trust II 8.000% 1/15/37 Baa2 BBB 5,168,592 - ------------------------------------------------------------------------------------------------------------------------------------ Thrifts & Mortgage Finance - 1.6% 1,000 Countrywide Capital Trust I 8.000% 12/15/26 Baa1 BBB+ 1,053,456 4,225 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 BBB 4,805,232 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Preferred Securities (cost $200,825,324) 209,933,918 -------------------------------------------------------------------------------------------------------------------- 34 Principal Ratings* Amount (000)/ ------------------- Market Shares Description(1) Coupon Maturity Moody's S&P Value - ------------------------------------------------------------------------------------------------------------------------------------ CORPORATE BONDS - 4.7% (3.2% of Total Investments) Automobiles - 4.7% 1,000 Ford Motor Company 7.450% 7/16/31 Baa1 BBB- $ 1,008,645 5,100 Ford Motor Company, Debenture 7.400% 11/01/46 Baa1 BBB- 4,875,401 10,500 General Motors Acceptance Corporation, 8.000% 11/01/31 Baa1 BBB- 10,822,998 Notes - ------------------------------------------------------------------------------------------------------------------------------------ Total Corporate Bonds (cost $15,640,817) 16,707,044 -------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS - 0.2 (0.1% of Total Investments) $ 749 State Street Bank, 1.000%, dated 12/31/04, due 1/03/05, repurchase price $748,691, collateralized ============= by $665,000 U.S. Treasury Notes, 6.500%, due 2/15/10, value $768,699 748,629 -------------------------------------------------------------------------------------------------------------------- Total Repurchase Agreements (cost $748,629) 748,629 -------------------------------------------------------------------------------------------------------------------- Total Investments (cost $496,623,809) - 145.0% 519,345,676 -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.3% 4,851,755 -------------------------------------------------------------------------------------------------------------------- FundPreferred Shares, at Liquidation Value - (46.3)% (166,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 358,197,431 ==================================================================================================================== Interest Rate Swap Contracts outstanding at December 31, 2004: Unrealized Notional Termination Appreciation Counterparty Amount Fixed Rate Floating Rate** Date (Depreciation) -------------------------------------------------------------------------------------------------------------------- Citibank, N.A. $42,000,000 2.4125% 2.3313% 03/06/06 $ 341,379 Citibank, N.A. 42,000,000 3.2550 2.3313 03/06/08 434,720 Citibank, N.A. 42,000,000 3.8150 2.3313 03/06/10 249,141 -------------------------------------------------------------------------------------------------------------------- $ 1,025,240 ==================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. * Ratings (not covered by the report of independent registered public accounting firm): Below Baa by Moody's Investor Service, Inc. or BBB by Standard & Poor's Group are considered to be below investment grade. ** Based on LIBOR (London Inter-bank Offered Rate). (a) Security is eligible for the Dividends Received Deduction. (DD) Portion of security purchased on a delayed delivery basis. 144A 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. (CORTS) Corporate Backed Trust Securities. (PCARS) Public Credit and Repackaged Securities. (PPLUS) PreferredPlus Trust. (SATURNS) Structured Asset Trust Unit Repackaging. NA Security is not rated. See accompanying notes to financial statements. 35 Statement of Assets and Liabilities December 31, 2004 Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 (JTP) (JPS) (JHP) - ----------------------------------------------------------------------------------------------------------------------------------- Assets Investments, at market value (cost $1,310,162,956, $2,483,816,613 and $496,623,809, respectively) $ 1,392,335,266 $ 2,665,000,123 $ 519,345,676 Cash 1,652,353 -- 3,039,189 Interest rate swaps, at value -- 1,101,951 1,025,240 Deposits with brokers for open futures contracts -- 292,600 -- Receivables: Dividends 1,815,882 3,543,212 936,198 Interest 7,041,996 11,547,313 2,508,113 Investments sold 3,171,897 3,670,291 387,470 Reclaims -- 40,864 7,211 Other assets 57,276 109,283 9,168 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets 1,406,074,670 2,685,305,637 527,258,265 - ----------------------------------------------------------------------------------------------------------------------------------- Liabilities Cash overdraft -- 11,042,007 -- Interest rate swaps, at value 3,473,790 -- -- Payable for investments purchased 2,703 -- 2,665,268 Payable for variation margin on futures contracts -- 156,750 -- Accrued expenses: Management fees 650,944 1,182,758 254,181 Other 274,338 498,167 112,648 FundPreferred share dividends payable 89,966 142,623 28,737 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 4,491,741 13,022,305 3,060,834 - ----------------------------------------------------------------------------------------------------------------------------------- FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000 - ----------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares $ 961,582,929 $ 1,872,283,332 $ 358,197,431 =================================================================================================================================== Common shares outstanding 64,462,104 119,541,842 23,642,721 =================================================================================================================================== Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 14.92 $ 15.66 $ 15.15 =================================================================================================================================== Net assets applicable to Common shares consist of: - ----------------------------------------------------------------------------------------------------------------------------------- Common shares, $.01 par value per share $ 644,621 $ 1,195,418 $ 236,427 Paid-in surplus 911,539,984 1,693,035,834 334,356,632 Undistributed net investment income 6,133,164 7,485,948 2,985,426 Accumulated net realized gain (loss) from investments and interest rate swaps (35,433,360) (11,405,829) (3,128,161) Net unrealized appreciation (depreciation) of investments, futures and interest rate swaps 78,698,520 181,971,961 23,747,107 - ----------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares $ 961,582,929 $ 1,872,283,332 $ 358,197,431 =================================================================================================================================== Authorized shares: Common Unlimited Unlimited Unlimited FundPreferred shares Unlimited Unlimited Unlimited =================================================================================================================================== See accompanying notes to financial statements. 36 Statement of Operations Quality Preferred Quality Preferred Income (JTP) Income 2 (JPS) -------------------------- ---------------------------- Five Months Five Months Ended Year Ended Ended Year Ended 12/31/04 7/31/04 12/31/04 7/31/04 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Income Dividends (net of foreign tax withheld of $3,472, $13,889, $0 and $0, respectively) $ 23,355,491 $ 54,016,617 $ 44,217,067 $103,740,227 Interest 19,117,056 44,023,764 35,057,248 83,319,938 - ------------------------------------------------------------------------------------------------------------------------------------ Total investment income 42,472,547 98,040,381 79,274,315 187,060,165 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses Management fees 5,079,171 12,143,659 9,425,815 22,539,893 FundPreferred shares - auction fees 461,022 1,101,547 838,221 2,002,814 FundPreferred shares - dividend disbursing agent fees 13,580 28,448 14,638 39,290 Shareholders' servicing agent fees and expenses 4,404 12,931 7,055 14,780 Custodian's fees and expenses 127,748 294,539 233,301 541,572 Trustees' fees and expenses 8,794 42,326 16,087 88,500 Professional fees 43,201 99,769 75,370 161,068 Shareholders' reports - printing and mailing expenses 86,740 207,135 166,772 322,106 Stock exchange listing fees 10,966 25,476 20,455 63,069 Investor relations expense 80,929 231,418 150,185 420,755 Other expenses 19,338 113,706 26,669 28,299 - ------------------------------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 5,935,893 14,300,954 10,974,568 26,222,146 Custodian fee credit (3,206) (2,743) (6,378) (2,434) Expense reimbursement (1,866,918) (4,430,554) (3,589,208) (8,515,957) - ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 4,065,769 9,867,657 7,378,982 17,703,755 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 38,406,778 88,172,724 71,895,333 169,356,410 - ------------------------------------------------------------------------------------------------------------------------------------ Realized and Unrealized Gain (Loss) Net realized gain (loss) from investments (789,063) 6,457,519 35,993 24,882,646 Net realized gain (loss) from interest rate swaps (2,754,561) (8,829,243) (4,109,979) (12,395,021) Change in net unrealized appreciation (depreciation) of investments 34,446,726 15,444,743 66,169,186 28,917,818 Change in net unrealized appreciation (depreciation) of futures -- -- (313,500) -- Change in net unrealized appreciation (depreciation) of interest rate swaps (130,099) 3,409,919 (1,229,256) 2,018,167 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain 30,773,003 16,482,938 60,552,444 43,423,610 - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to FundPreferred Shareholders From net investment income (3,338,840) (5,266,011) (4,886,184) (9,136,215) From accumulated net realized gains from investments -- -- (1,197,900) (408,401) - ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to FundPreferred shareholders (3,338,840) (5,266,011) (6,084,084) (9,544,616) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from operations $ 65,840,941 $ 99,389,651 $126,363,693 $203,235,404 ==================================================================================================================================== See accompanying notes to financial statements. 37 Statement of Operations (continued) Quality Preferred Income 3 (JHP) -------------------------------- Five Months Ended Year Ended 12/31/04 7/31/04 - ------------------------------------------------------------------------------------------------------------ Investment Income Dividends (net of foreign tax withheld of $1,994 and $1,230, respectively) $ 9,608,428 $ 21,380,872 Interest 6,195,711 15,041,142 - ------------------------------------------------------------------------------------------------------------ Total investment income 15,804,139 36,422,014 - ------------------------------------------------------------------------------------------------------------ Expenses Management fees 1,954,942 4,672,478 FundPreferred shares - auction fees 173,959 416,138 FundPreferred shares - dividend disbursing agent fees 6,140 13,538 Shareholders' servicing agent fees and expenses 964 2,564 Custodian's fees and expenses 57,208 125,031 Trustees' fees and expenses 3,626 13,804 Professional fees 23,492 29,518 Shareholders' reports - printing and mailing expenses 35,669 66,599 Stock exchange listing fees 7,982 17,621 Investor relations expense 29,730 81,895 Other expenses 9,623 27,822 - ------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 2,303,335 5,467,008 Custodian fee credit (1,476) (1,419) Expense reimbursement (700,871) (1,663,082) - ------------------------------------------------------------------------------------------------------------ Net expenses 1,600,988 3,802,507 - ------------------------------------------------------------------------------------------------------------ Net investment income 14,203,151 32,619,507 - ------------------------------------------------------------------------------------------------------------ Realized and Unrealized Gain (Loss) Net realized gain (loss) from investments (292,843) 1,610,865 Net realized gain (loss) from interest rate swaps (785,894) (2,431,397) Change in net unrealized appreciation (depreciation) of investments 12,474,854 10,205,143 Change in net unrealized appreciation (depreciation) of futures -- -- Change in net unrealized appreciation (depreciation) of interest rate swaps (494,654) (63,791) - ------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain 10,901,463 9,320,820 - ------------------------------------------------------------------------------------------------------------ Distributions to FundPreferred Shareholders From net investment income (1,232,711) (1,783,707) From accumulated net realized gains from investments (79,282) (225,856) - ------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to FundPreferred shareholders (1,311,993) (2,009,563) - ------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from operations $ 23,792,621 $ 39,930,764 ============================================================================================================ See accompanying notes to financial statements. 38 Statement of Changes in Net Assets Quality Preferred Income (JTP) ------------------------------------------------ Five Months Ended Year Ended Year Ended 12/31/04 7/31/04 7/31/03 - ------------------------------------------------------------------------------------------------ Operations Net investment income $ 38,406,778 $ 88,172,724 $ 83,719,154 Net realized gain (loss) from investments (789,063) 6,457,519 (30,328,278) Net realized gain (loss) from interest rate swaps (2,754,561) (8,829,243) -- Change in net unrealized appreciation (depreciation) of investments 34,446,726 15,444,743 47,552,557 Change in net unrealized appreciation (depreciation) of futures -- -- -- Change in net unrealized appreciation (depreciation) of interest rate swaps (130,099) 3,409,919 (6,753,609) Distributions to FundPreferred shareholders: From net investment income (3,338,840) (5,266,011) (6,004,164) From accumulated net realized gains from investments -- -- -- - ------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from operations 65,840,941 99,389,651 88,185,660 - ------------------------------------------------------------------------------------------------ Distributions to Common Shareholders From net investment income (32,291,619) (80,656,204) (80,491,725) From accumulated net realized gains from investments -- -- -- - ------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (32,291,619) (80,656,204) (80,491,725) - ------------------------------------------------------------------------------------------------ Capital Share Transactions Common shares: Net proceeds from sale of shares -- (2,071) (119,042) Net proceeds from shares issued to shareholders due to reinvestment of distributions 141,543 1,421,340 29,383,959 FundPreferred shares offering costs 92 (7,166) (9,218,088) - ------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from capital share transactions 141,635 1,412,103 20,046,829 - ------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares 33,690,957 20,145,550 27,740,764 Net assets applicable to Common shares at the beginning of period 927,891,972 907,746,422 880,005,658 - ------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of period $ 961,582,929 $ 927,891,972 $ 907,746,422 ================================================================================================ Undistributed net investment income at the end of period $ 6,133,164 $ 3,356,845 $ 2,145,641 ================================================================================================ Quality Preferred Income 2 (JPS) ------------------------------------------------------ For the Period 9/24/02 Five Months (commencement Ended Year Ended of operations) 12/31/04 7/31/04 through 7/31/03 - ------------------------------------------------------------------------------------------------------ Operations Net investment income $ 71,895,333 $ 169,356,410 $ 120,895,551 Net realized gain (loss) from investments 35,993 24,882,646 9,651,211 Net realized gain (loss) from interest rate swaps (4,109,979) (12,395,021) -- Change in net unrealized appreciation (depreciation) of investments 66,169,186 28,917,818 85,994,925 Change in net unrealized appreciation (depreciation) of futures (313,500) -- -- Change in net unrealized appreciation (depreciation) of interest rate swaps (1,229,256) 2,018,167 313,040 Distributions to FundPreferred shareholders: From net investment income (4,886,184) (9,136,215) (8,370,051) From accumulated net realized gains from investments (1,197,900) (408,401) -- - ------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from operations 126,363,693 203,235,404 208,484,676 - ------------------------------------------------------------------------------------------------------ Distributions to Common Shareholders From net investment income (62,896,099) (157,519,666) (112,911,526) From accumulated net realized gains from investments (22,062,289) (4,944,168) -- - ------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (84,958,388) (162,463,834) (112,911,526) - ------------------------------------------------------------------------------------------------------ Capital Share Transactions Common shares: Net proceeds from sale of shares -- (3,114) 1,708,927,042 Net proceeds from shares issued to shareholders due to reinvestment of distributions -- 302,695 1,703,414 FundPreferred shares offering costs 92 (2,071) (16,495,026) - ------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from capital share transactions 92 297,510 1,694,135,430 - ------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares 41,405,397 41,069,080 1,789,708,580 Net assets applicable to Common shares at the beginning of period 1,830,877,935 1,789,808,855 100,275 - ------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of period $ 1,872,283,332 $ 1,830,877,935 $ 1,789,808,855 ====================================================================================================== Undistributed net investment income at the end of period $ 7,485,948 $ 3,372,898 $ 787,896 ====================================================================================================== See accompanying notes to financial statements. 39 Statement of Changes in Net Assets (continued) Quality Preferred Income 3 (JHP) -------------------------------------------------------------- For the Period 12/18/02 Five Months (commencement Ended Year Ended of operations) 12/31/04 7/31/04 through 7/31/03 - --------------------------------------------------------------------------------------------------------------------------------- Operations Net investment income $ 14,203,151 $ 32,619,507 $ 15,853,471 Net realized gain (loss) from investments (292,843) 1,610,865 3,540,303 Net realized gain (loss) from interest rate swaps (785,894) (2,431,397) -- Change in net unrealized appreciation (depreciation) of investments 12,474,854 10,205,143 41,871 Change in net unrealized appreciation (depreciation) of futures -- -- -- Change in net unrealized appreciation (depreciation) of interest rate swaps (494,654) (63,791) 1,583,685 Distributions to FundPreferred shareholders: From net investment income (1,232,711) (1,783,707) (948,183) From accumulated net realized gains from investments (79,282) (225,856) -- - --------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets applicable to Common shares from operations 23,792,621 39,930,764 20,071,147 - --------------------------------------------------------------------------------------------------------------------------------- Distributions to Common Shareholders From net investment income (12,158,797) (29,147,305) (14,584,390) From accumulated net realized gains from investments (1,336,468) (2,968,711) -- - --------------------------------------------------------------------------------------------------------------------------------- Decrease in net assets applicable to Common shares from distributions to Common shareholders (13,495,265) (32,116,016) (14,584,390) - --------------------------------------------------------------------------------------------------------------------------------- Capital Share Transactions Common shares: Net proceeds from sale of shares -- 101,605 337,150,050 Net proceeds from shares issued to shareholders due to reinvestment of distributions -- 489,296 351,072 FundPreferred shares offering costs -- (4,237) (3,589,491) - --------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets applicable to Common shares from capital share transactions -- 586,664 333,911,631 - --------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets applicable to Common shares 10,297,356 8,401,412 339,398,388 Net assets applicable to Common shares at the beginning of period 347,900,075 339,498,663 100,275 - --------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the end of period $ 358,197,431 $ 347,900,075 $ 339,498,663 ================================================================================================================================= Undistributed net investment income at the end of period $ 2,985,426 $ 2,173,783 $ 586,540 ================================================================================================================================= See accompanying notes to financial statements. 40 Notes to Financial Statements 1. General Information and Significant Accounting Policies The funds (the "Funds") covered in this report and their corresponding Common share New York Stock Exchange symbols are Nuveen Quality Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred Income Fund 3 (JHP). The Funds are registered under the Investment Company Act of 1940, as amended, as non-diversified, closed-end management investment companies. Prior to the commencement of operations of Quality Preferred Income 2 (JPS) and Quality Preferred Income 3 (JHP), each Fund had no operations other than those related to organizational matters, the initial capital contribution of $100,275 per Fund by Nuveen Institutional Advisory Corp. (the "Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc., ("Nuveen"), and the recording of the organization expenses ($15,000 and $11,500, respectively) and their reimbursement by Nuveen Investments, LLC, also a wholly owned subsidiary of Nuveen. Each Fund seeks to provide high current income consistent with capital preservation by investing primarily in a portfolio of preferred securities, debt securities including convertible debt securities and convertible preferred securities. The Board of Trustees of the Funds approved a change in the Funds' fiscal year end from July 31 to December 31 upon completion of the Funds' July 31, 2004 fiscal year. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with U.S. generally accepted accounting principles. Securities Valuation Exchange-listed securities and instruments are generally valued at the last sales price on the exchange on which such securities or instruments are primarily traded. Securities or instruments traded on an exchange for which there are no transactions on a given day or securities or instruments not listed on an exchange are valued at the mean of the closing bid and asked prices. 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. Securities traded on Nasdaq are valued at the Nasdaq Official Closing Price. The prices of fixed-income securities are generally provided by an independent pricing service approved by the Funds' Board of Trustees and based on the mean between the bid and asked prices. When price quotes are not readily available, the pricing service or, in the absence of a pricing service for a particular security or instrument, the Board of Trustees of the Funds, or its designee, may establish fair market value using a wide variety of market data including yields or prices of securities of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor's credit characteristics considered relevant by the pricing service or the Board of Trustee's designee. Short-term securities are valued at amortized cost, which approximates market value. Securities Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from transactions are determined on the specific identification method. Securities purchased on a when-issued or delayed delivery basis may have extended settlement periods. Any securities so purchased are subject to market fluctuation during this period. The Funds have instructed the custodian to segregate assets with a current value at least equal to the amount of the when-issued and delayed delivery purchase commitments. At December 31, 2004, Quality Preferred Income 3 (JHP) had an outstanding delayed delivery purchase commitment of $2,635,646. There were no such outstanding purchase commitments in either of the other Funds. 41 Notes to Financial Statements (continued) Investment Income Dividend income is recorded on the ex-dividend date or, for foreign securities, when information is available. Interest income, which includes the amortization of premiums and accretion of discounts for financial reporting purposes, is recorded on an accrual basis. Income Taxes Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to distribute substantially all net investment income and net capital gains to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required. Dividends and Distributions to Common Shareholders Distributions to Common shareholders are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Dividends to Common shareholders are declared monthly. With respect to the REIT securities held in the Funds' Portfolio of Investments, distributions received by the Funds are generally comprised of investment income, long-term and short-term capital gains, and a return of REIT capital. The actual character of amounts received during the period is not known until after the fiscal year-end. For the twelve months ended December 31, 2004, the character of distributions to the Funds from the REITs was as follows: Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 2004 (JTP) (JPS) (JHP) - -------------------------------------------------------------------------------- Ordinary income* 91.42% 91.38% 84.61% Long-term and short-term capital gains 8.37 7.83 14.31 Return of REIT capital .21 .79 1.08 ================================================================================ For the twelve months ended December 31, 2003, the character of distributions to the Funds from the REITs was as follows: Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 2003 (JTP) (JPS) (JHP) - -------------------------------------------------------------------------------- Ordinary income* 84.48% 88.22% 78.93% Long-term and short-term capital gains .25 .80 1.19 Return of REIT capital 15.27 10.98 19.88 ================================================================================ * Ordinary income consists of net taxable income derived from dividends, interest and net short-term capital gains, if any. For the fiscal period ended December 31, 2004, each Fund applied the actual character of distributions reported by the REITs in which the Fund invests to its receipts from the REITs. If a REIT held in the portfolio of investments did not report the actual character of its distributions during the period, the Fund treated the distributions as ordinary income. For fiscal periods ended prior to December 31, 2004, each Fund applied a percentage estimate for the breakdown of income type, to its receipts from the REITs and treated as income in the Statement of Operations only the amount of ordinary income so calculated. Each Fund adjusted that estimated breakdown of income type (and consequently its net investment income) as necessary in the following calendar year when the REITs informed their shareholders of the actual breakdown of income type. 42 With respect to the portion of each Fund's monthly distribution to its shareholders derived from the Fund's investments in REIT securities each Fund treats that portion of its distribution as being entirely from net investment income. The Funds recharacterize those distributions as being from ordinary income, long-term and short-term capital gains, and return of capital, if necessary, in the subsequent calendar year, based upon the income type breakdown information conveyed at that time by the REITs whose securities are held in each Fund's portfolio. Consequently, the financial statements may reflect an over-distribution of net investment income that was at least partly attributable to the fact that, as of the date of the financial statements, some of the amounts received by the Funds from the portfolio REITs, but none of the dividends paid by the Fund to shareholders from the portfolio REITs were treated as something other than ordinary income. 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 on each Series is determined every seven days, pursuant to a dutch auction process overseen by the auction agent, and is payable weekly at the end of each rate period. The number of shares outstanding, by Series and in total, for each Fund is as follows: Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 (JTP) (JPS) (JHP) - -------------------------------------------------------------------------------- Number of shares: Series M 3,520 4,800 3,320 Series T 3,520 4,800 -- Series T2 -- 4,000 -- Series W 3,520 4,800 -- Series TH 3,520 4,800 3,320 Series TH2 -- 4,000 -- Series F 3,520 4,800 -- - -------------------------------------------------------------------------------- Total 17,600 32,000 6,640 ================================================================================ Interest Rate Swap Transactions The Funds may invest in certain derivative financial investments. The Funds' use of interest rate swap transactions is intended to mitigate the negative impact that an increase in short-term interest rates could have on Common share net earnings as a result of leverage. Interest rate swap transactions involve each Fund's agreement with the counterparty to pay a fixed rate payment in exchange for the counterparty paying the Fund a variable rate payment that is intended to approximate each Fund's variable rate payment obligation on FundPreferred shares or any variable rate borrowing. The payment obligation is based on the notional amount of the interest rate swap contract. Interest rate swaps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the net amount of interest payments that each Fund is to receive. Interest rate swap positions are valued daily. Although there are economic advantages of entering into interest rate swap transactions, there are also additional risks. The Funds help manage the credit risks associated with interest rate swap transactions by entering into agreements only with counterparties the Adviser believes have the financial resources to honor their obligations and by having the Adviser continually monitor the financial stability of the swap counterparties. Due to recent clarification provided by the SEC to regulated investment companies, effective with the July 31, 2004, reporting period, the Funds changed the way they present net interest expense on interest rate swap transactions in the financial statements. Net interest expense amounts paid during the year are included in "Net realized gain (loss) from interest rate swap transactions". Net interest expense amounts accrued, but not yet paid, at the end of the fiscal year, are included in "Change in net unrealized appreciation (depreciation) of interest rate swap transactions". Previously, net interest expense was presented in "Expenses" and reported as "Net interest expense on interest rate swap transactions". This reclassification does not alter the tax treatment of interest rate payments on swap transactions which is to include such payments as an operating expense for tax purposes. For the fiscal year ended July 31, 2004, this reclassification, for financial reporting purposes only, resulted in increases to net investment income, decreases to net realized gain (loss) from interest rate swap transactions and decreases to change in net unrealized appreciation (depreciation) of interest rate swap transactions as follows: Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 (JTP) (JPS) (JHP) - ------------------------------------------------------------------------------------------------------------------ Net investment income $ 8,892,767 $ 13,237,853 $ 2,595,268 Net realized gain (loss) from interest rate swap transactions (8,829,243) (12,395,021) (2,431,397) Change in net unrealized appreciation (depreciation) of interest rate swap transactions (63,524) (842,832) (163,871) ================================================================================================================== 43 Notes to Financial Statements (continued) Futures Contracts Each Fund may use futures contracts to hedge against changes in the values of securities the Fund owns. Each Fund bears the market risk arising from changes in the value of these financial instruments. At the time a Fund enters into a futures contract, the Fund deposits and maintains as collateral an initial margin as required by the exchange on which the transaction is affected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses on futures contracts. Risk may arise from the potential inability of the counterparty to meet the terms of the contract. When a contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time is was closed. 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. Organization and Offering Costs Nuveen Investments, LLC has agreed to reimburse all organization expenses (approximately $15,000, $15,000 and $11,500, respectively) and pay all Common shares offering costs (other than the sales load) that exceed $.03 per Common share for Quality Preferred Income (JTP), Quality Preferred Income 2 (JPS) and Quality Preferred Income 3 (JHP). Quality Preferred Income's (JTP), Quality Preferred Income 2's (JPS) and Quality Preferred Income 3's (JHP) total share of Common shares offering costs ($1,391,687, $1,481,072 and $531,845, respectively) were recorded as reductions of the proceeds from the sale of the Common shares. Costs incurred by Quality Preferred Income (JTP), Quality Preferred Income 2 (JPS) and Quality Preferred Income 3 (JHP) in connection with their offering of FundPreferred shares ($9,225,162, $16,497,005, and $3,593,728, respectively) were recorded as reductions to paid-in surplus. Custodian Fee Credit Each Fund has an arrangement with the custodian bank whereby certain custodian fees and expenses are reduced by credits earned on each Fund's cash on deposit with the bank. Such deposit arrangements are an alternative to overnight investments. Indemnifications Under the Funds' organizational documents, their Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnifications to other parties. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets applicable to Common shares from operations during the reporting period. Actual results may differ from those estimates. 44 2. Fund Shares Transactions in Common and FundPreferred shares were as follows: Quality Preferred Quality Preferred Income (JTP) Income 2 (JPS) --------------------------------------- ---------------------------------------------------- For the Period 9/24/02 Five Months Year Five Months Year (commencement Ended Ended Year Ended Ended Ended of operations) 12/31/04 7/31/04 7/31/03 12/31/04 7/31/04 through 7/31/03 - ------------------------------------------------------------------------------------------------------------------------------ Common shares: Shares sold -- -- -- -- -- 119,400,000 Shares issued to shareholders due to reinvestment of distributions 9,641 95,759 2,049,704 -- 18,570 116,272 - ------------------------------------------------------------------------------------------------------------------------------ 9,641 95,759 2,049,704 -- 18,570 119,516,272 ============================================================================================================================== FundPreferred shares sold -- -- 17,600 -- -- 32,000 ============================================================================================================================== Quality Preferred Income 3 (JHP) ---------------------------------------------------- For the Period 12/18/02 Five Months Year (commencement Ended Ended of operations) 12/31/04 7/31/04 through 7/31/03 - ------------------------------------------------------------------------------------------------------------------------------ Common shares: Shares sold -- -- 23,580,000 Shares issued to shareholders due to reinvestment of distributions -- 32,020 23,701 - ------------------------------------------------------------------------------------------------------------------------------ -- 32,020 23,603,701 ============================================================================================================================== FundPreferred shares sold -- -- 6,640 ============================================================================================================================== 3. Securities Transactions Purchases and sales (including maturities but excluding short-term investments) of investment securities during the five months ended December 31, 2004, were as follows: Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 (JTP) (JPS) (JHP) - ------------------------------------------------------------------------------------------------------------------------------ Purchases $121,214,590 $163,158,128 $36,282,839 Sales and maturities 113,558,231 151,608,460 35,012,691 ============================================================================================================================== 45 Notes to Financial Statements (continued) 4. Income Tax Information The following information is presented on an income tax basis based on the information currently available to the Funds. Differences between amounts for financial statement and federal income tax purposes are primarily due to the recognition of income on certain securities which are treated as debt securities for income tax purposes and equity for financial statement purposes, and timing differences in recognizing certain gains and losses on security transactions. At December 31, 2004, the cost of investments was as follows: Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Cost of investments $ 1,318,317,965 $ 2,489,259,089 $ 497,236,234 =========================================================================================================================== Gross unrealized appreciation and gross unrealized depreciation of investments at December 31, 2004, were as follows: Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 (JTP) (JPS) (JHP) - --------------------------------------------------------------------------------------------------------------------------- Gross unrealized: Appreciation $ 79,275,558 $ 184,691,485 $ 24,401,385 Depreciation (5,258,257) (8,950,451) (2,291,943) - --------------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments $ 74,017,301 $ 175,741,034 $ 22,109,442 =========================================================================================================================== The tax components of undistributed net ordinary income and net realized gains at July 31, 2004, 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 * $ 7,699,609 $ 14,357,609 $ 2,824,035 Undistributed net long-term capital gains -- 20,000,209 1,470,615 =========================================================================================================================== * Net ordinary income consists of net taxable income derived from dividends, interest and net short-term capital gains, if any. 46 The tax character of distributions paid during the Funds' tax years ended July 31, 2004 and July 31, 2003, was designated for purposes of the dividends paid deduction as follows: Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 July 31, 2004 (JTP) (JPS) (JHP) - ---------------------------------------------------------------------------------------------------------------------- Distributions from net ordinary income * $ 86,134,890 $171,962,461 $ 34,119,989 Distributions from net long-term capital gains -- -- -- ====================================================================================================================== Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 July 31, 2003 (JTP) (JPS) (JHP) - ---------------------------------------------------------------------------------------------------------------------- Distributions from net ordinary income * $ 79,694,828 $108,646,966 $ 13,076,411 Distributions from net long-term capital gains -- -- -- ====================================================================================================================== * Net ordinary income consists of net taxable income derived from dividends, interest and net short-term capital gains, if any. At July 31, 2004, the Funds' last tax year end, Quality Preferred Income (JTP) had unused capital loss carryforwards of $25,060,612 available for federal income tax purposes to be applied against future capital gains, if any. If not applied, $693,161 of the carryforwards will expire in the year 2011 and $24,367,451 will expire in 2012. Calculation of certain of the amounts presented above (namely, undistributed net ordinary income for tax purposes) involves the application of complex aspects of the Internal Revenue Code to certain securities held by the Funds. In calculating the amount of taxable income derived from these securities, management made assumptions as to the correct tax treatment of certain of those securities and made estimates about the tax characteristics of income received from those securities, based on information currently available to the Funds. The use of these assumptions and estimates will not affect the qualification of the Funds as regulated investment companies under Subchapter M of the Internal Revenue Code, nor is it expected that these assumptions and estimates will be used in computing taxable income for purposes of preparing the federal and state income and excise tax returns. 5. Management Fee and Other Transactions with Affiliates As approved by the Board of Trustees, effective August 1, 2004, a complex-wide management fee structure was adopted for all funds sponsored by the Adviser and its affiliates. This fee structure separates each fund's management fee into two components - a complex-level component, based on the aggregate amount of all funds assets managed by the Adviser and its affiliates, 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 and its affiliates. Under no circumstances will this pricing structure result in a fund paying management fees at a rate higher than would otherwise have been applicable had the complex-wide management fee structure not been implemented. As a consequence of this new management fee structure, the funds' effective management fees were reduced by approximately .009% as of January 31, 2005. Effective August 1, 2004, the annual fund-level fee, payable monthly, for each of the Funds is based upon the average daily Managed Assets of each Fund as follows: Average Daily Managed Assets Fund-Level Fee Rate - -------------------------------------------------------------------------------- For the first $500 million .7000% For the next $500 million .6750 For the next $500 million .6500 For the next $500 million .6250 For Managed Assets over $2 billion .6000 ================================================================================ 47 Notes to Financial Statements (continued) Effective August 1, 2004, 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 follows: Complex-Level Assets(1) Complex-Level Fee Rate - -------------------------------------------------------------------------------- For the first $55 billion .2000% For the next $1 billion .1800 For the next $1 billion .1600 For the next $3 billion .1425 For the next $3 billion .1325 For the next $3 billion .1250 For the next $5 billion .1200 For the next $5 billion .1175 For the next $15 billion .1150 For Managed Assets over $91 billion (2) .1400 ================================================================================ (1) The complex-level fee component of the management fee for the funds is calculated based upon the aggregate Managed Assets ("Managed Assets" means the average daily net assets of each fund including assets attributable to all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds in the U.S. (2) With respect to the complex-wide Managed Assets over $91 billion, the fee rate or rates that will apply to such assets will be determined at a later date. In the unlikely event that complex-wide Managed Assets reach $91 billion prior to a determination of the complex-level fee rate or rates to be applied to Managed Assets in excess of $91 billion, the complex-level fee rate for such complex-wide Managed Assets shall be .1400% until such time as a different rate or rates is determined. Each Fund paid through July 31, 2004, an annual management fee, payable monthly, at the rates set forth below, which were based upon the average daily Managed Assets of each Fund as follows: Average Daily Managed Assets Management Fee Rate - -------------------------------------------------------------------------------- For the first $500 million .9000% For the next $500 million .8750 For the next $500 million .8500 For the next $500 million .8250 For Managed Assets over $2 billion .8000 ================================================================================ The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Adviser has entered into Sub-Advisory Agreements with Spectrum Asset Management, Inc. ("Spectrum"), under which Spectrum manages the investment portfolios of the Funds. Spectrum is compensated for its services to the Funds from the management fees paid to the Adviser. Spectrum also receives compensation on certain portfolio transactions for providing brokerage services to the Funds. The Funds pay no compensation directly to those of its Trustees who are affiliated with the Adviser or to its officers, all of whom receive remuneration for their services to the Funds from the Adviser or its affiliates. The Board of Trustees has adopted a deferred compensation plan for independent Trustees that enables Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from certain Nuveen advised Funds. Under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of select Nuveen advised Funds. 48 For the first eight years of Quality Preferred Income's (JTP) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily Managed Assets, for fees and expenses in the amounts and for the time periods set forth below: Year Ending Year Ending June 30, June 30, - -------------------------------------------------------------------------------- 2002* .32% 2007 .32% 2003 .32 2008 .24 2004 .32 2009 .16 2005 .32 2010 .08 2006 .32 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Quality Preferred Income (JTP) for any portion of its fees and expenses beyond June 30, 2010. For the first eight years of Quality Preferred Income 2's (JPS) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily Managed Assets, for fees and expenses in the amounts and for the time periods set forth below: Year Ending Year Ending September 30, September 30, - -------------------------------------------------------------------------------- 2002* .32% 2007 .32% 2003 .32 2008 .24 2004 .32 2009 .16 2005 .32 2010 .08 2006 .32 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Quality Preferred Income 2 (JPS) for any portion of its fees and expenses beyond September 30, 2010. For the first eight years of Quality Preferred Income 3's (JHP) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily Managed Assets, for fees and expenses in the amounts and for the time periods set forth below: Year Ending Year Ending December 31, December 31, - -------------------------------------------------------------------------------- 2002* .32% 2007 .32% 2003 .32 2008 .24 2004 .32 2009 .16 2005 .32 2010 .08 2006 .32 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Quality Preferred Income 3 (JHP) for any portion of its fees and expenses beyond December 31, 2010. 49 Notes to Financial Statements (continued) 6. Subsequent Events Distributions to Common Shareholders The Funds declared Common share dividend distributions from their net investment income which were paid on February 1, 2005, to shareholders of record on January 15, 2005, as follows: Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 (JTP) (JPS) (JHP) - -------------------------------------------------------------------------------- Dividend per share $.0970 $.1020 $.1000 ================================================================================ Adviser Merger Effective January 1, 2005, the Adviser and its affiliate, Nuveen Advisory Corp. ("NAC"), were merged into Nuveen Asset Management ("NAM"), also a wholly owned subsidiary of Nuveen. As a result of the merger, NAM is now the adviser to all funds previously advised by either NAC or the Adviser. Announcement Regarding Parent Company of Adviser After the close of trading on the New York Stock Exchange on January 31, 2005, The St. Paul Travelers Companies, Inc. announced that it intended to explore strategic alternatives to divest its equity stake in Nuveen. 50 Financial Highlights 51 Financial Highlights Selected data for a Common share outstanding throughout each period: Investment Operations ------------------------------------------------------------------------ Distributions Distributions from Net from Beginning Investment Capital Common Net Income to Gains to Share Net Realized/ FundPreferred FundPreferred Net Asset Investment Unrealized Share- Share- Value Income(a) Gain (Loss) holders+ holders+ Total ==================================================================================================================== Quality Preferred Income (JTP) - -------------------------------------------------------------------------------------------------------------------- 8/1/04-12/31/04 $14.40 $ .60 $ .47 $ (.05) $ -- $ 1.02 Year Ended 7/31: 2004(b) 14.10 1.37 .26 (.08) -- 1.55 2003 14.12 1.31 .16 (.09) -- 1.38 2002(c) 14.33 .06 (.25) -- -- (.19) Quality Preferred Income 2 (JPS) - -------------------------------------------------------------------------------------------------------------------- 8/1/04-12/31/04 15.32 .60 .50 (.04) (.01) 1.05 Year Ended 7/31: 2004(b) 14.97 1.42 .37 (.08) -- 1.71 2003(d) 14.33 1.02 .79 (.07) -- 1.74 Quality Preferred Income 3 (JHP) - -------------------------------------------------------------------------------------------------------------------- 8/1/04-12/31/04 14.71 .60 .46 (.05) -- 1.01 Year Ended 7/31: 2004(b) 14.38 1.38 .40 (.08) (.01) 1.69 2003(e) 14.33 .67 .22 (.04) -- .85 ==================================================================================================================== Less Distributions --------------------------------- Net Offering Investment Capital Costs and Ending Income to Gains to FundPreferred Common Common Common Share Share Ending Share- Share- Underwriting Net Asset Market holders holders Total Discounts Value Value ============================================================================================================ Quality Preferred Income (JTP) - ------------------------------------------------------------------------------------------------------------ 8/1/04-12/31/04 $ (.50) $ -- $ (.50) $ -- $14.92 $14.00 Year Ended 7/31: 2004(b) (1.25) -- (1.25) -- 14.40 13.96 2003 (1.25) -- (1.25) (.15) 14.10 14.59 2002(c) -- -- -- (.02) 14.12 15.15 Quality Preferred Income 2 (JPS) - ------------------------------------------------------------------------------------------------------------ 8/1/04-12/31/04 (.53) (.18) (.71) -- 15.66 14.40 Year Ended 7/31: 2004(b) (1.32) (.04) (1.36) -- 15.32 14.61 2003(d) (.95) -- (.95) (.15) 14.97 14.65 Quality Preferred Income 3 (JHP) - ------------------------------------------------------------------------------------------------------------ 8/1/04-12/31/04 (.51) (.06) (.57) -- 15.15 14.44 Year Ended 7/31: 2004(b) (1.24) (.12) (1.36) -- 14.71 14.34 2003(e) (.62) -- (.62) (.18) 14.38 14.36 ============================================================================================================ Ratios/Supplemental Data -------------------------------------------- Total Returns Before Credit/Reimbursement ------------------- ---------------------------- Ratio of Net Based Ratio of Investment on Ending Expenses Income to Common Net to Average Average Based Share Assets Net Assets Net Assets on Net Applicable Applicable Applicable Market Asset to Common to Common to Common Value** Value** Shares (000) Shares++ Shares++ ===================================================================================================== Quality Preferred Income (JTP) - ----------------------------------------------------------------------------------------------------- 8/1/04-12/31/04 3.79% 7.10% $ 961,583 1.49%* 9.15%* Year Ended 7/31: 2004(b) 4.20 11.17% 927,892 1.51 8.87 2003 4.95 9.15 907,746 2.38 8.84 2002(c) 1.00 (1.47) 880,006 .96* 4.51* Quality Preferred Income 2 (JPS) - ----------------------------------------------------------------------------------------------------- 8/1/04-12/31/04 3.34 6.94 1,872,283 1.40* 8.69* Year Ended 7/31: 2004(b) 8.98 11.60 1,830,878 1.41 8.64 2003(d) 4.02 11.22 1,789,809 1.99* 7.59* Quality Preferred Income 3 (JHP) - ----------------------------------------------------------------------------------------------------- 8/1/04-12/31/04 4.64 6.81 358,197 1.54* 9.03* Year Ended 7/31: 2004(b) 9.36 11.93 347,900 1.55 8.75 2003(e) (.19) 4.62 339,499 1.97* 7.14* ===================================================================================================== Ratios/Supplemental Data ------------------------------------------ After Credit/Reimbursement*** FundPreferred Shares at End of Period ----------------------------- ---------------------------------------- Ratio of Net Ratio of Investment Expenses Income to to Average Average Net Assets Net Assets Aggregate Liquidation Applicable Applicable Portfolio Amount and Market Asset to Common to Common Turnover Outstanding Value Coverage Shares++ Shares++ Rate (000) Per Share Per Share ========================================================================================================================= Quality Preferred Income (JTP) - ------------------------------------------------------------------------------------------------------------------------- 8/1/04-12/31/04 1.02%* 9.62%* 8% $440,000 $25,000 $79,635 Year Ended 7/31: 2004(b) 1.04 9.33 18 440,000 25,000 77,721 2003 1.91 9.31 45 440,000 25,000 76,577 2002(c) .64* 4.83* 1 -- -- -- Quality Preferred Income 2 (JPS) - ------------------------------------------------------------------------------------------------------------------------- 8/1/04-12/31/04 .94* 9.14* 6 800,000 25,000 83,509 Year Ended 7/31: 2004(b) .95 9.10 19 800,000 25,000 82,215 2003(d) 1.54* 8.04* 35 800,000 25,000 80,932 Quality Preferred Income 3 (JHP) - ------------------------------------------------------------------------------------------------------------------------- 8/1/04-12/31/04 1.07* 9.50* 7 166,000 25,000 78,945 Year Ended 7/31: 2004(b) 1.08 9.22 17 166,000 25,000 77,395 2003(e) 1.53* 7.58* 57 166,000 25,000 76,129 ========================================================================================================================= * Annualized. ** Total Investment Return on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. Total Return on Common Share Net Asset Value is the combination of changes in Common Share net asset value, reinvested dividend income at net asset value and reinvested capital gains distributions at net asset value, if any. Total returns are not annualized. *** After custodian fee credit and expense reimbursement, where applicable. + The amounts shown are based on Common share equivalents. ++ o Ratios do not reflect the effect of dividend payments to FundPreferred shareholders. o Income ratios reflect income earned on assets attributable to FundPreferred shares. o For the periods presented below each ratio includes the effect of the interest expense paid on interest rate swap transactions as follows: Ratio of Net Interest Expense to Average Net Assets Applicable to Common Shares ---------------------------------------- Quality Preferred Income (JTP) Year Ended 7/31: 2003 .80% 2002(c) ---- Quality Preferred Income 2 (JPS) Year Ended 7/31: 2003(d) .58* Quality Preferred Income 3 (JHP) Year Ended 7/31: 2003(e) .51* (a) Per share Net Investment Income is calculated using the average daily shares method. (b) As discussed in the accompanying notes to financial statements the Funds changed their method of presentation for net interest expense on interest rate swap transactions. The effect of this reclassification for the fiscal year ended July 31, 2004, was as follows: Quality Quality Quality Preferred Preferred Preferred Income Income 2 Income 3 (JTP) (JPS) (JHP) ----------------------------------------------- Increase of Net Investment Income per share with a corresponding decrease in Net Realized/Unrealized Investment Gain (Loss) $.14 $.11 $.11 Decrease in each of the Ratios of Expenses to Average Net Assets Applicable to Common Shares with a corresponding increase in each of the Ratios of Net Investment Income to Average Net Assets Applicable to Common Shares .94% .71% .73% (c) For the period June 25, 2002 (commencement of operations) through July 31, 2002. (d) For the period September 24, 2002 (commencement of operations) through July 31, 2003. (e) For the period December 18, 2002 (commencement of operations) through July 31, 2003. See accompanying notes to financial statements. 52-53 spread Board Members and Officers The management of the Funds, including general supervision of the duties performed for the Funds by the Adviser, is the responsibility of the Board Members of the Funds. The number of board members of the Funds is currently set at nine. None of the board members who are not "interested" persons of the Funds has ever been a director or employee of, or consultant to, Nuveen or its affiliates. The names and business addresses of the board members and officers of the Funds, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below. Number of Portfolios Principal Occupation(s) in Fund Complex Name, Birthdate Position(s) Held Year First Elected Including other Directorships Overseen by and Address with the Funds or Appointed (2) During Past 5 Years Board Member - ------------------------------------------------------------------------------------------------------------------------------------ Board member who is an interested person of the Funds: - ------------------------------------------------------------------------------------------------------------------------------------ Timothy R. Schwertfeger (1) Chairman of 1994 Chairman and Director (since 1996) of 153 3/28/49 the Board Nuveen Investments, Inc. and Nuveen 333 W. Wacker Drive and Trustee Investments, LLC; Director (since 1992) Chicago, IL 60606 and Chairman (since 1996) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. (3); Chairman and Director (since 1997) of Nuveen Asset Management; Director (since 1996) of Institutional Capital Corporation; Chairman and Director (since 1999) of Rittenhouse Asset Management, Inc.; Chairman of Nuveen Investments Advisers Inc. (since 2002). Board members who are not interested persons of the Funds: - ------------------------------------------------------------------------------------------------------------------------------------ Robert P. Bremner Board member 1997 Private Investor and Management 153 8/22/40 Consultant. 333 W. Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Lawrence H. Brown Board member 1993 Retired (1989) as Senior Vice President 153 7/29/34 of The Northern Trust Company; Director, 333 W. Wacker Drive Community Advisory Board for Highland Chicago, IL 60606 Park and Highwood, United Way of the North Shore (since 2002). - ------------------------------------------------------------------------------------------------------------------------------------ Jack B. Evans Board member 1999 President, The Hall-Perrine Foundation, a 153 10/22/48 private philanthropic corporation (since 333 W. Wacker Drive 1996); Director and Vice Chairman, United Chicago, IL 60606 Fire Group, a publicly held company; Adjunct Faculty Member, University of Iowa; Director, Gazette Companies; Life Trustee of Coe College; Director, Iowa College Foundation; formerly, Director, Federal Reserve Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., a regional financial services firm. - ------------------------------------------------------------------------------------------------------------------------------------ William C. Hunter Board member 2004 Dean and Distinguished Professor of 153 3/6/48 Finance, School of Business at the 333 W. Wacker Drive University of Connecticut (since 2003); Chicago, IL 60606 previously Senior Vice President and Director of Research at the Federal Reserve Bank of Chicago (1995-2003); Director, Credit Research Center at Georgetown University; Director of Xerox Corporation (since 2004). - ------------------------------------------------------------------------------------------------------------------------------------ David J. Kundert Board member 2005 Retired (2004) as Chairman, JPMorgan 151 10/28/42 Fleming Asset Management, President and 333 W. Wacker Drive CEO, Banc One Investment Advisors Chicago, IL 60606 Corporation, and President, One Group Mutual Funds; prior thereto, Executive Vice President, Banc One Corporation and Chairman and CEO, Banc One Investment Management Group; Board of Regents, Luther College; currently a member of the American and Wisconsin Bar Associations. 54 Number of Portfolios Principal Occupation(s) in Fund Complex Name, Birthdate Position(s) Held Year First Elected Including other Directorships Overseen by and Address with the Funds or Appointed (2) During Past 5 Years Board Member - ------------------------------------------------------------------------------------------------------------------------------------ Board members who are not interested persons of the Funds (continued): - ------------------------------------------------------------------------------------------------------------------------------------ William J. Schneider Board member 1997 Chairman, formerly, Senior Partner and 153 9/24/44 Chief Operating Officer, Miller-Valentine 333 W. Wacker Drive Partners Ltd., a real estate investment Chicago, IL 60606 company; formerly, Vice President, Miller-Valentine Realty, a construction company; Director, Chair of the Finance Committee and Member of the Audit Committee of Premier Health Partners, the not-for-profit parent company of Miami Valley Hospital; President of the Dayton Philharmonic Orchestra Association; Director and Immediate Past Chair, Dayton Development Coalition; formerly, Member, Community Advisory Board, National City Bank, Dayton, Ohio and Business Advisory Council, Cleveland Federal Reserve Bank. - ------------------------------------------------------------------------------------------------------------------------------------ Judith M. Stockdale Board member 1997 Executive Director, Gaylord and Dorothy 153 12/29/47 Donnelley Foundation (since 1994); prior 333 W. Wacker Drive thereto, Executive Director, Great Lakes Chicago, IL 60606 Protection Fund (from 1990 to 1994) - ------------------------------------------------------------------------------------------------------------------------------------ Eugene S. Sunshine Board member 2005 Senior Vice President for Business and 153 1/22/50 Finance (since 1997), Northwestern 333 W. Wacker Drive University; Director (since 2003), Chicago, IL 60606 Chicago Board of Options Exchange; Director (since 2003), National Mentor Holdings, a privately-held, national provider of home and community-based services; Chairman (since 1997), Board of Directors, Rubicon, an insurance company owned by Northwestern University; Director (since 1997), Evanston Chamber of Commerce and Evanston Inventure, a business development organization. Number of Portfolios Name, Birthdate Position(s) Held Year First Elected Principal Occupation(s) in Fund Complex and Address with the Funds or Appointed (4) During Past 5 Years Overseen by Officer - ------------------------------------------------------------------------------------------------------------------------------------ Officers of the Funds: - ------------------------------------------------------------------------------------------------------------------------------------ Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant 153 9/9/56 Administrative Secretary and Associate General Counsel, 333 W. Wacker Drive Officer formerly, Vice President and Assistant Chicago, IL 60606 General Counsel of Nuveen Investments, LLC; Managing Director (since 2002), General Counsel and Assistant Secretary, formerly, Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. (3); Managing Director (since 2002), Assistant Secretary and Associate General Counsel, formerly, Vice President (since 2000), of Nuveen Asset Management; Managing Director (since 2004) and Assistant Secretary (since 1994) of Nuveen Investments, Inc.; Assistant Secretary of NWQ Investment Management Company, LLC (since 2002); Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Managing Director, Associate General Counsel and Assistant Secretary of Rittenhouse Asset Management, Inc. (since 2003); Chartered Financial Analyst. 55 Board Members and Officers (continued) Number of Portfolios Name, Birthdate Position(s) Held Year First Elected Principal Occupation(s) in Fund Complex and Address with the Funds or Appointed (3) During Past 5 Years Overseen by Officer - ------------------------------------------------------------------------------------------------------------------------------------ Officers of the Funds (continued): - ------------------------------------------------------------------------------------------------------------------------------------ Julia L. Antonatos Vice President 2004 Managing Director (since 2005), 153 9/22/63 previously, Vice President (since 2002), 333 W. Wacker Drive formerly, Assistant Vice President Chicago, IL 60606 (since 1999) of Nuveen Investments, LLC; Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, 153 2/3/66 and Assistant Assistant Vice President (since 2000), 333 W. Wacker Drive Secretary previously, Associate of Nuveen Chicago, IL 60606 Investments, LLC. - ------------------------------------------------------------------------------------------------------------------------------------ Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC 153 11/28/67 and Treasurer (since 1999), prior thereto, Assistant 333 W. Wacker Drive Vice President (since 1997); Vice Chicago, IL 60606 President and Treasurer of Nuveen Investments, Inc. (since 1999); Vice President and Treasurer of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp (since 1999) (3); Vice President and Treasurer of Nuveen Asset Management (since 2002) and of Nuveen Investments Advisers Inc. (since 2002); Assistant Treasurer of NWQ Investment Management Company, LLC (since 2002); Vice President and Treasurer of Nuveen Rittenhouse Asset Management, Inc. (since 2003); Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Jessica R. Droeger Vice President 2000 Vice President (since 2002) and Assistant 153 9/24/64 and Secretary General Counsel (since 1998), formerly, 333 W. Wacker Drive Assistant Vice President (since 1998) of Chicago, IL 60606 Nuveen Investments, LLC; Vice President (since 2002) and Assistant Secretary (since 1998), formerly, Assistant Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. (3); Vice President and Assistant Secretary (since 2002) of Nuveen Asset Management. - ------------------------------------------------------------------------------------------------------------------------------------ Lorna C. Ferguson Vice President 1998 Managing Director (since 2004) formerly, 153 10/24/45 Vice President of Nuveen Investments, 333 W. Wacker Drive LLC; Managing Director (since 2004) Chicago, IL 60606 formerly, Vice President (since 1998) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. (3); Managing Director (since 2005) of Nuveen Asset Management. - ------------------------------------------------------------------------------------------------------------------------------------ William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen 153 3/2/64 Investments, LLC; Managing Director 333 W. Wacker Drive (since 2001), formerly Vice President of Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. (since 1995) (3); Managing Director of Nuveen Asset Management (3) (since 2001); Vice President of Nuveen Investment Advisers Inc. (since 2002); Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds 153 5/31/54 and Controller Controller (since 1998) of Nuveen 333 W. Wacker Drive Investments, LLC and, formerly, Vice Chicago, IL 60606 President and Funds Controller (since 1998) of Nuveen Investments, Inc.; Certified Public Accountant. 56 Number of Portfolios Name, Birthdate Position(s) Held Year First Elected Principal Occupation(s) in Fund Complex and Address with the Funds or Appointed (3) During Past 5 Years Overseen by Officer - ------------------------------------------------------------------------------------------------------------------------------------ Officers of the Funds (continued): - ------------------------------------------------------------------------------------------------------------------------------------ David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen 153 3/22/63 Investments, LLC, previously Assistant 333 W. Wacker Drive Vice President (since 1999); prior Chicago, IL 60606 thereto, Associate of Nuveen Investments, LLC; Certified Public Accountant. - ------------------------------------------------------------------------------------------------------------------------------------ Tina M. Lazar Vice President 2002 Vice President (since 1999), previously, 153 8/27/61 Assistant Vice President (since 1993) of 333 W. Wacker Drive Nuveen Investments, LLC. Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and 153 7/27/51 and Assistant Assistant General Counsel of Nuveen 333 W. Wacker Drive Secretary Investments, LLC; Vice President and Chicago, IL 60606 Assistant Secretary of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. (3); Assistant Secretary of Nuveen Investments, Inc. and (since 1997) Nuveen Asset Management, Vice President (since 2000), Assistant Secretary and Assistant General Counsel (since 1998) of Rittenhouse Asset Management, Inc.; Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Assistant Secretary of NWQ Investment Management Company, LLC (since 2002). (1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the Investment Company Act of 1940, because he is an officer and board member of the Adviser. (2) Board members serve an indefinite term until his/her successor is elected. The year first elected or appointed represents the year in which the board member was first elected or appointed to any fund in the Nuveen Complex. (3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were reorganized into Nuveen Asset Management, effective January 1, 2005. (4) Officers serve one year terms through July of each year. The year first elected or appointed represents the year in which the Officer was first elected or appointed to any fund in the Nuveen Complex. 57 Reinvest Automatically Easily and Conveniently Sidebar text: Nuveen makes reinvesting easy. A phone call is all it takes to set up your reinvestment account. Nuveen Closed-End Exchange-Traded Funds Dividend Reinvestment Plan Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest dividends and/or capital gains distributions in additional fund shares. By choosing to reinvest, you'll be able to invest money regularly and automatically, and watch your investment grow through the power of tax-free compounding. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market. Easy and convenient To make recordkeeping easy and convenient, each month you'll receive a statement showing your total dividends and distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own. How shares are purchased The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the greater of the net asset value or 95% of the then-current market price. If the shares are trading at less than net asset value, shares for your account will be purchased on the open market. Dividends and distributions received to purchase shares in the open market will normally be invested shortly after the dividend payment date. No interest will be paid on dividends and distributions awaiting reinvestment. Because the market price of the shares may increase before purchases are completed, the average purchase price per share may exceed the market price at the time of valuation, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid by Plan participants. These commissions usually will be lower than those charged on individual transactions. Flexible You may change your distribution option or withdraw from the Plan at any time, should your needs or situation change. Should you withdraw, you can receive a certificate for all whole shares credited to your reinvestment account and cash payment for fractional shares, or cash payment for all reinvestment account shares, less brokerage commissions and a $2.50 service fee. You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan. The Fund reserves the right to amend or terminate the Plan at any time. Although the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time. Call today to start reinvesting dividends and/or distributions For more information on the Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial advisor or call us at (800) 257-8787. 58 Other Useful Information Effective Jan. 1, 2005, the asset management services and operations of Nuveen Advisory Corp. (NAC) and Nuveen Institutional Advisory Corp (NIAC) became part of Nuveen Asset Management (NAM). This internal consolidation is intended to simplify the delivery of services to the investment management clients of Nuveen Investments. It does not affect the investment objectives or portfolio management of any Fund. Quarterly Portfolio of Investments and Proxy voting 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 12-month period ended June 30, 2004, 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. Dividend Information The Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 designate 6.58%, 9.69% and 10.29% respectively, of dividends declared from net investment income as dividends qualifying for the 70% dividends received deduction for corporations and 10.12%, 15.82% and 12.74% respectively, as qualified dividend income for individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003. 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): An investment's current annualized dividend divided by its current market price. Net Asset Value (NAV): A Fund's common share NAV per share is calculated by subtracting the liabilities of the Fund (including any MuniPreferred shares issued in order to leverage the Fund) from its total assets and then dividing the remainder by the number of shares outstanding. Fund NAVs are calculated at the end of each business day. Board of Trustees Robert P. Bremner Lawrence H. Brown Jack B. Evans William C. Hunter David J. Kundert William J. Schneider Timothy R. Schwertfeger Judith M. Stockdale Eugene S. Sunshine Fund Manager Nuveen Asset Management 333 West Wacker Drive Chicago, IL 60606 Custodian State Street Bank & Trust Boston, MA Transfer Agent and Shareholder Services State Street Bank & Trust Nuveen Funds P.O. Box 43071 Providence, RI 02940-3071 (800) 257-8787 Legal Counsel Chapman and Cutler LLP Chicago, IL Independent Registered Public Accounting Firm Ernst & Young LLP Chicago, IL Each Fund intends to repurchase shares of its own common or preferred stock in the future at such times and in such amounts as is deemed advisable. No shares were repurchased during the period covered by this report. Any future repurchases will be reported to shareholders in the next annual or semiannual report. 59 Nuveen Investments: SERVING Investors For GENERATIONS Photo of: 2 women looking at a photo album. Nuveen Investments: SERVING Investors For GENERATIONS Since 1898, financial advisors and their clients have relied on Nuveen Investments to provide dependable investment solutions. For the past century, Nuveen Investments has adhered to the belief that the best approach to investing is to apply conservative risk-management principles to help minimize volatility. Building on this tradition, we today offer a range of high quality equity and fixed-income solutions that are integral to a well-diversified core portfolio. Our clients have come to appreciate this diversity, as well as our continued adherence to proven, long-term investing principles. We offer many different investing solutions for our clients' different needs. Managing more than $115 billion in assets, Nuveen Investments offers access to a number of different asset classes and investing solutions through a variety of products. Nuveen Investments markets its capabilities under four distinct brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in value-style equities; Rittenhouse, a leader in growth-style equities; and Symphony, a leading institutional manager of market-neutral alternative investment portfolios. Find out how we can help you reach your financial goals. To learn more about the products and services Nuveen Investments offers, talk to your financial advisor, or call us at (800) 257-8787. Please read the information provided carefully before you invest. Be sure to obtain a prospectus, where applicable. Investors should consider the investment objective and policies, risk considerations, charges and expenses of the Fund carefully before investing. The prospectus contains this and other information relevant to an investment in the Fund. For a prospectus, please contact your securities representative or Nuveen Investments, 333 W. Wacker Dr., Chicago, IL 60606. Please read the prospectus carefully before you invest or send money. o Share prices Learn more o Fund details about Nuveen Funds at o Daily financial news www.nuveen.com/etf o Investor education o Interactive planning tools Logo: NUVEEN Investments EAN-E-1204D ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. There were no amendments to or waivers from the Code during the period covered by this report. The registrant has posted the code of ethics on its website at www.nuveen.com/etf. (To view the code, click on the Investor Resources drop down menu box, click on Fund Governance and then click on Code of Conduct.) ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Directors or Trustees determined that the registrant has at least one "audit committee financial expert" (as defined in Item 3 of Form N-CSR) serving on its Audit Committee. The registrant's audit committee financial expert is Jack B. Evans, Chairman of the Audit Committee, who is "independent" for purposes of Item 3 of Form N-CSR. Mr. Evans has served as the registrant's audit committee financial expert from July 26, 2004 to the end of the reporting period on December 31, 2004. Prior to July 26, 2004, William E. Bennett, who was "independent" for purposes of Item 3 of Form N-CSR, served as the audit committee financial expert. Mr. Bennett unexpectedly resigned from the Board effective April 30, 2004. Accordingly for this reporting period, the registrant did not have a designated "audit committee financial expert" from July 1, 2004 to July 26, 2004. 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. Mr. Bennett was formerly Executive Vice President and Chief Credit Officer of First Chicago Corporation and its principal subsidiary, The First National Bank of Chicago. As part of his role as Chief Credit Officer, Mr. Bennett set policy as to accrual of assets/loans; designated performing/non-performing assets; set the level of reserves against the credit portfolio; and determined the carrying value of credit related assets and exposure. Among other things, Mr. Bennett was also responsible for the oversight of the internal analysis function including setting ground rules for the review and preparation of financial analysis and financial statements for use in making credit and risk decisions for clients. Mr. Bennett has significant experience reviewing, analyzing and evaluating financial statements of domestic and international companies in a variety of industries with complex accounting issues. 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 entered into on or after May 6, 2003, the Audit Committee approved in advance all audit services and non-audit services that Ernst & Young LLP provided to the Fund, except for those non-audit services that were subject to the pre-approval exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The pre-approval exception for services provided directly to the Fund waives the pre-approval requirement for services other than audit, review or attest services if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid by the Fund to its accountant during the fiscal year in which the services are provided; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee's attention, and the Committee (or its delegate) approves the services before the audit is completed. The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee). SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES FISCAL YEAR ENDED TO FUND BILLED TO FUND BILLED TO FUND BILLED TO FUND - ------------------------------------------------------------------------------------------------------------------------------------ December 31, 2004 * $ 26,088 $ 0 $ 3,676 $ 1,800 - ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved N/A 0% 0% 0% pursuant to pre-approval exception - ------------------------------------------------------------------------------------------------------------------------------------ AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES FISCAL YEAR ENDED TO FUND BILLED TO FUND BILLED TO FUND BILLED TO FUND - ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2004 $ 26,088 $ 0 $ 9,098 $ 3,450 - ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved N/A 0% 0% 0% pursuant to pre-approval exception - ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2003 $ 30,050 $ 0 $ 4,475 $ 2,013 - ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved N/A 0% 0% 0% pursuant to pre-approval exception - ------------------------------------------------------------------------------------------------------------------------------------ *Nuveen Quality Preferred Income Fund 2 changed its fiscal year end from July 31 to December 31, therefore, these numbers represent the period 08/01/04 - 12/31/04. The above "All Other Fees" are fees paid to audit firms to perform agreed upon procedures required by the rating agencies to rate fund preferred shares. The above "Tax Fees" were billed for professional services for tax advice, tax compliance and tax planning. SERVICES THAT THE FUND'S AUDITOR BILLED TO THE ADVISER AND AFFILIATED FUND SERVICE PROVIDERS The following tables show the amount of fees billed by Ernst & Young LLP to Nuveen Institutional Advisory Corp. ("NIAC" or the "Adviser"), and any entity controlling, controlled by or under common control with NIAC ("Control Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for engagements directly related to the Fund's operations and financial reporting, during the Fund's last two full fiscal years. The table also shows the percentage of fees subject to the pre-approval exception. The pre-approval exception for services provided to the Adviser and any Affiliated Fund Service Provider (other than audit, review or attest services) waives the pre-approval requirement if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund Service Providers during the fiscal year in which the services are provided that would have to be pre-approved by the Audit Committee; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee's attention, and the Committee (or its delegate) approves the services before the Fund's audit is completed. FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS - ------------------------------------------------------------------------------------------------------------------------------------ December 31, 2004 * $ 0 $ 0 $ 0 - ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved 0% 0% 0% pursuant to pre-approval exception - ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2004 $ 0 $ 0 $ 0 - ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved 0% 0% 0% pursuant to pre-approval exception - ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2003 $ 0 $ 0 $ 0 - ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved N/A N/A N/A pursuant to pre-approval exception - ------------------------------------------------------------------------------------------------------------------------------------ *Nuveen Quality Preferred Income Fund 2 changed its fiscal year end from July 31 to December 31, therefore, these numbers represent the period 08/01/04 - 12/31/04. NON-AUDIT SERVICES The following table shows the amount of fees that Ernst & Young LLP billed during the Fund's last two full fiscal years for non-audit services. For engagements entered into on or after May 6, 2003, the Audit Committee is required to pre-approve non-audit services that Ernst & Young LLP provides to the Adviser and any Affiliated Fund Services Provider, if the engagement related directly to the Fund's operations and financial reporting (except for those subject to the de minimis exception described above). The Audit Committee requested and received information from Ernst & Young LLP about any non-audit services that Ernst & Young LLP rendered during the Fund's last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating Ernst & Young LLP's independence. FISCAL YEAR ENDED TOTAL NON-AUDIT FEES BILLED TO ADVISER AND AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ December 31, 2004 * $ 5,476 $ 0 $ 0 $ 5,476 July 31, 2004 $ 12,548 $ 0 $ 0 $ 12,548 July 31, 2003 $ 6,488 $ 0 $ 0 $ 6,488 *Nuveen Quality Preferred Income Fund 2 changed its fiscal year end from July 31 to December 31, therefore, these numbers represent the period 08/01/04 - 12/31/04. Audit Committee Pre-Approval Policies and Procedures. Generally, the audit committee must approve (i) all non-audit services to be performed for the Fund by the Fund's independent accountants and (ii) all audit and non-audit services to be performed by the Fund's independent accountants for the Affiliated Fund Service Providers with respect to operations and financial reporting of the Fund. Regarding tax and research projects conducted by the independent accountants for the Fund and Affiliated Fund Service Providers (with respect to operations and financial reports of the Fund) such engagements will be (i) pre-approved by the audit committee if they are expected to be for amounts greater than $10,000; (ii) reported to the audit committee chairman for his verbal approval prior to engagement if they are expected to be for amounts under $10,000 but greater than $5,000; and (iii) reported to the audit committee at the next audit committee meeting if they are expected to be for an amount under $5,000. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. The registrant's Board of Directors or Trustees has a separately designated audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (15 U.S.C. 78c(a)(58)(A)). The members of the audit committee are Robert P. Bremner, Lawrence H. Brown, Jack B. Evans and William J. Schneider. ITEM 6. SCHEDULE OF INVESTMENTS. See Schedule I in Item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. In the rare event that a municipal issuer held by the Fund were to issue a proxy or that the Fund were to receive a proxy issued by a cash management security, the Adviser would either engage an independent third party to determine how the proxy should be voted or vote the proxy with the consent, or based on the instructions, of the Fund's Board of Directors or Trustees or its representative. In the case of a conflict of interest, the proxy would be submitted to the applicable Fund's Board to determine how the proxy should be voted. A member of the Adviser's legal department would oversee the administration of the voting, and ensure that records were maintained in accordance with Rule 204-2(c)(2) under the Investment Advisers Act of 1940 (17 CFR 275.204-2(c)(2)), reports were filed with the SEC on Form N-PX, and the results were provided to the Board of Directors or Trustees and made available to shareholders as required by applicable rules. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable at this time. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. In the event of a vacancy on the Board, the nominating and governance committee receives suggestions from various sources, including shareholders, as to suitable candidates. Suggestions should be sent in writing to Lorna Ferguson, Vice President for Board Relations, Nuveen Investments, 333 West Wacker Drive, Chicago, IL 60606. The nominating and governance committee sets appropriate standards and requirements for nominations for new directors or trustees and reserves the right to interview all candidates and to make the final selection of any new directors or trustees. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable because the code is posted on registrant's website at www.nuveen.com/etf. and there were no amendments during the period covered by this report (To view the code, click on the Investor Resources drop down menu box, click on Fund Governance and then Code of Conduct.). (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT Attached hereto. (a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. (b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR 270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Ex-99.906 CERT attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Nuveen Quality Preferred Income Fund 2 ----------------------------------------------------------- By (Signature and Title)* /s/ Jessica R. Droeger ---------------------------------------------- Jessica R. Droeger Vice President and Secretary Date: March 9, 2005 ------------------------------------------------------------------- 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 9, 2005 ------------------------------------------------------------------- By (Signature and Title)* /s/ Stephen D. Foy ---------------------------------------------- Stephen D. Foy Vice President and Controller (principal financial officer) Date: March 9, 2005 ------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.