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 811-21293
---------------------
Nuveen Preferred and Convertible Income Fund
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
- ------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
-------------------
Date of fiscal year end: December 31
------------------
Date of reporting period: December 31, 2005
------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT December 31, 2005
Nuveen Investments
Exchange-Traded
Closed-End
Funds
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND
JPC
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND 2
JQC
Photo of: Man, woman and child at the beach.
Photo of: A child.
HIGH CURRENT INCOME FROM A PORTFOLIO OF PREFERRED AND CONVERTIBLE SECURITIES
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Photo of: Woman
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Photo: Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
Chairman's
LETTER TO SHAREHOLDERS
I am very pleased to report that for the year ended December 31, 2005, your Fund
continued to provide you with attractive monthly income from a diversified
portfolio of quality preferred securities, convertible securities and high yield
debt. For more information on your Fund's performance, please read the Portfolio
Managers' Comments, the Distribution and Share Price Information, and the
Performance Overview sections of this report.
Portfolio diversification is a recognized way to try to reduce some of the risk
that comes with investing. Since one part of your portfolio may be going up when
another is going down, portfolio diversification may help smooth your investment
returns over time. In addition to providing regular monthly income, an
investment like your Fund that combines several asset classes may help you
achieve and benefit from greater portfolio diversification. Your financial
advisor can explain these potential advantages in more detail. I urge you to
contact him or her soon for more information on this important investment
strategy.
"IN ADDITION TO PROVIDING REGULAR MONTHLY INCOME, AN INVESTMENT LIKE YOUR FUND
THAT COMBINES SEVERAL ASSET CLASSES MAY HELP YOU ACHIEVE AND BENEFIT FROM
GREATER PORTFOLIO DIVERSIFICATION."
As you look through this report, be sure to review the inside front cover. This
contains information on how you can receive future Fund reports and other Fund
information faster by using e-mails and the Internet. Sign up is quick and easy
- - just follow the step-by-step instructions.
As we noted in our last shareholder report, The St. Paul Travelers Companies,
Inc., which had owned 79% of Nuveen Investments, Inc. (the parent of your Fund's
investment adviser), had sold a substantial portion of its stake in Nuveen.
Since then, St. Paul has sold the balance of its shares to Nuveen Investments or
to others. Please be assured that these transactions only affected Nuveen's
corporate structure, and they do not have any impact on the investment
objectives or management of your Fund.
At Nuveen Investments, our mission continues to be to assist you and your
financial advisor by offering investment services and products that can help you
to secure your financial objectives. We are grateful that you have chosen us as
a partner as you pursue your financial goals, and we look forward to continuing
to earn your trust in the months and years ahead. Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
February 15, 2006
Nuveen Preferred and Convertible Income Funds (JPC, JQC)
Portfolio Managers'
COMMENTS
These Funds are subadvised by a team of specialists from Spectrum Asset
Management, Inc., Froley, Revy Investment Co., Inc., and Symphony Asset
Management LLC, an affiliate of Nuveen Investments.
Spectrum, an affiliate of Principal CapitalSM, manages the preferred securities
portion of each Fund's portfolio. Mark Lieb, Bernie Sussman and Phil Jacoby, who
have more than 50 years of combined experience in the preferred securities
markets, lead the team.
Froley, Revy, one of the oldest firms specializing in convertible securities,
manages that portion of each Fund's portfolio. Their investment team is led by
Andrea Revy O'Connell and Michael Revy, who each have more than 10 years
experience in convertible securities investing.
The Symphony team managing the high yield securities and other debt instruments
in both Funds is led by Gunther Stein and Lenny Mason. Gunther and Lenny have
more than 25 years of combined investment management experience, much of it in
evaluating and purchasing senior corporate loans and other high-yield debt.
Here representatives from Spectrum, Froley, Revy and Symphony talk about their
management strategies and the performance of both Funds for the 12-month period
ended December 31, 2005.
WHAT WERE THE GENERAL ECONOMIC CONDITIONS AND MARKET TRENDS OVER THE COURSE OF
2005?
The U.S. economy posted another year of growth in 2005. The Gross Domestic
Product grew 3.5% during the year, in line with the rise of the Consumer Price
Index. The U.S. equity market, as measured by the Standard & Poor's 500 Index,
produced a return of 4.91%. The Federal Reserve continued to be on guard against
an increase in the rate of inflation, raising the closely-watched short-term fed
funds rate to 4.25% by year end. (On January 31, 2006, after the close of this
reporting period, the Fed raised the fed funds rate to 4.50%.)
As with most fixed income investors, participants in the preferred market spent
much of the year concerned with rising Fed funds rates, potential inflation,
rising energy prices, and the economic impact of natural disasters. Credit
spreads began 2005 at historically narrow levels relative to U.S. Treasury and
corporate bonds, and individual investors began to shy away from $25 par
preferreds early in the year fearing poor performance as the Fed continued to
raise the fed funds rate. The $25 par market also suffered from what was at
times more new issue supply than could readily be absorbed by the market.
Consequently, the Merrill Lynch Preferred Stock Hybrid Index returned only 0.46%
in 2005, which was the worst annual performance for this index since 1999. The
year also saw significant new issuance of DRD (dividends received deduction)
preferred securities. This new DRD supply caused some price weakness during the
summer, but DRDs rallied during the fourth quarter and outperformed other
preferreds as well as the general bond market.
4
The $1000 par Capital Security sector, targeted to institutional investors, also
experienced healthy new issuance. Fortunately, institutional investors were
ravenous for the incremental yield afforded by this sector, and the strong
demand prevented the dislocations we saw in the $25 par preferred stock market.
The Lehman Tier 1 Capital Securities Index rise of 3.68% for the year far
outpaced returns in the $25 par sector. Many of the new securities in the
institutional sector utilized a new structure which provided more equity credit
for the issuers and provided higher yields for investors. The advent of these
new types of "enhanced equity" preferreds is expected to foster a broad
expansion of the hybrid preferred securities market, which reached a size of
about $276 billion by year end following record new issuance of $46 billion in
2005. (Hybrid preferred carry stated maturities and fixed coupons, but they can
be treated by companies as equity for financial statement purposes.)
Convertible securities had a difficult year in 2005, in part because of rising
short term rates. This caused a rocky start to the year for equity markets in
the U.S. However, stocks generally moved higher in the latter half of the year
due to overall good economic news coupled with little sign of inflation.
Convertibles, having features of both equities and bonds, struggled more than
would have been expected due to massive selling by convertible arbitrage hedge
funds, which created a supply/demand imbalance. This was mitigated to some
extent by a slow new issue calendar and high redemptions by issuers, causing a
reduction in supply that tended to support prices. However, values in the
convertible market did cheapen significantly last year. (A convertible issue is
considered cheap when the value of its bond component is added to the value of
the equity option and the result is higher than where the actual security is
trading.)
In the high yield debt market, 2005 was highlighted by record leveraged merger
financing, near historic low default rates and relatively narrow credit spreads
(the difference in yields between higher- and lower-rated securities). We were
able to avoid companies with aggressive leverage, such as auto suppliers like
Delphi. We also continued to avoid smaller high yield issues because we believed
that market liquidity could be challenged if the credit experienced any negative
events. The CSFB High Yield Index returned 2.26% for the year.
5
WHAT STRATEGIES AND TACTICS DID YOU USE TO MANAGE THE FUNDS' ASSETS?
In the preferred securities markets, we did some rebalancing between the $25 par
and $1000 par Capital Security sectors because of relative value considerations.
We sold $1000 par Capital Securities, which had been aggressively bid up in
price, and bought the relatively cheaper $25 par securities. Many of the Capital
Security sales were high coupon callable securities priced at levels that
assumed they would be called at the first opportunity. Therefore, they had
little or no upside price appreciation potential. As a result, we also were
being proactive in managing upcoming call exposure within the Funds' portfolios.
The overall management strategy for the convertible sleeves of JPC and JQC
continued to focus on the "balanced" portion of the convertible universe, which
includes securities that capture the features of both bonds and stocks by being
priced much like bonds while maintaining the upside potential of equities. We
found these balanced convertible securities generally had an attractive
risk/reward trade off between equity sensitivity and downside risk. We
maintained a minimum of 50% investment-grade securities, while the Merrill Lynch
All Convertibles Index investment-grade weight has dropped to 40% due to
redemptions by higher-quality issuers and more sub-investment grade issuance
over the last year.
For the high yield debt portion of both Funds, we continued to employ a
value-oriented strategy, focusing on relatively higher-quality credits with
strong fundamental business models, diversified revenue streams, and relatively
low earnings volatility. We maintained our investments across a variety of
industry sectors and rating tiers. We continued to eliminate positions that we
believed had escalating credit issues, limited upside potential or significant
downside risk.
HOW DID THE FUNDS PERFORM OVER THIS PERIOD?
The performance of each Fund, as well as the performance of a comparative
benchmark, is shown in the accompanying table.
TOTAL RETURN ON NET ASSET VALUE For the 12-month period ended December 31, 2005
JPC 1.32%
- --------------------------------------------------------------------------------
JQC 1.41%
- --------------------------------------------------------------------------------
Comparative benchmark1 1.73%
- --------------------------------------------------------------------------------
Past performance does not guarantee future results. Current performance may be
higher or lower than the data shown. Returns do not reflect the deduction of
taxes that a shareholder may have to pay on Fund distributions or upon the sale
of Fund shares. For more information, please see the individual Performance
Overview pages in this report.
1 Comparative benchmark performance is a blended return consisting of: 1) 33%
of the Merrill Lynch Preferred Stock Hybrid Securities Index, an unmanaged
index of investment-grade, exchange-traded preferred issues with
outstanding market values of at least $30 million and at least one year to
maturity; 2) 27% of the Lehman Tier 1 Capital Securities Index, an
unmanaged index that includes securities that can generally be viewed as
hybrid fixed-income securities that either receive regulatory capital
treatment or a degree of "equity credit" from a rating agency; 3) 30% of
the Merrill Lynch All U.S. Convertibles Index, consisting of approximately
575 securities with par value greater than $50 million that were issued by
U.S. companies or non-U.S. based issuers that have a significant business
presence in the U.S.; and 4) 10% of the CSFB High Yield Index, which
includes approximately $375 billion of $US-denominated high yield debt with
a minimum of $75 million in par value and at least one rating below
investment-grade. Index returns do not include the effects of any
management fees or fund expenses. It is not possible to invest directly in
an index.
6
Over the course of what turned out to be a difficult 12-month period, both Funds
underperformed their comparative benchmark.
Taking advantage of the large amount of new issuance in the DRD sector and the
attractiveness of their yields compared to other preferreds, we increased our
concentration in these securities and reaped the benefits when credit spreads in
that market tightened toward the end of the year.
In addition, in keeping with our strategy of selling Capital Securities and
purchasing $25 par securities due to their relative values, we sold some high
coupon securities which become callable in late 2006 or early 2007. These
securities were priced to their first call dates because the market fully
expected them to get called. Selling these short duration securities, which had
little to no price appreciation upside, throughout 2005 positioned the Funds
ahead of the call cycle, especially as the short end of the yield curve sold
off. We also bought several of the new "enhanced equity" issues which provided
relatively higher income levels and attractive total return opportunities.
JPC and JQC began 2005 with a relatively light concentration in the automotive
industry, when compared with the sector's standing in the preferred market.
Nevertheless, in hindsight, the positions were not small enough. Many of these
holdings were senior debt which we had bought when it looked cheap compared to
their $25 par preferred counterparts. We began selling Ford and General Motors
in January 2005 (for a profit) and had been selling Delphi since 2004. We took
some losses when we sold much of our position in Delphi early in the year while
it was still making payments and thereby avoided the huge price declines that
accompanied Delphi's subsequent bankruptcy filing. These three automotive names
were the worst performers in 2005. As of year end, we had no automotive exposure
to Delphi, Ford, and GM, but did have a relatively small position in Daimler
Chrysler in JQC.
The best performing convertible securities sector for the year was energy. In
particular, the price of a Chesapeake Energy holding rose more than 130% from
the date of purchase in March 2004 through the date of the last sale of this
position in October 2005. While we remained positive on the stock and the
sector, the high equity sensitivity of this particular security made us look for
an attractive exit point. Subsequently, the Funds have purchased new Chesapeake
Energy securities. Other energy sector holdings Diamond Offshore, Kerr McGee
(which was sold during the period) and Amerada Hess also were positive
contributors during the year.
7
The financial sector represented on average just over 17% of the convertible
universe in 2005. The sector return in convertibles was a positive 5.8%. Both
Funds benefited from their financial sector holdings of Fortis Insurance,
Genworth and MetLife.
Although the utilities sector represents less than 5% of the convertible
universe, the Funds had a positive return from their positions in this area, in
contrast to a decline in the sector as a whole. FPL Group was the most notable
performer in JQC, while Calpine Corp. (currently in Chapter 11) was the most
notable company we avoided in both Funds.
Offsetting these solid performers, the convertible securities consumer
discretionary sector had a miserable year. We sold our positions in Ford and
General Motors when their debt was downgraded to junk status. Similar to the
auto industry, airlines also had a negative impact on the Transportation sector.
At the beginning of the year, both Funds owned convertibles issued by Pinnacle
Airlines, a partner with Northwest Airlines. We sold these positions well before
both airlines declared bankruptcy, but not soon enough to avoid a loss. On the
other hand, Continental Airlines (purchased in September) and JetBlue (bought in
October) both performed well during the periods they were in the portfolios.
Convertibles issued by firms in the technology sector were down about 2.2% last
year. A disappointing return from Digital River convertibles had a negative
impact on performance of both Funds. However, we remained interested in the
technology sector, and the Funds maintained much of their convertible exposure
in this area at year end.
Overall, we were pleased with the performance of the high yield debt portions of
both Funds' portfolios. In JPC, Allied Waste North America and Baytex Energy
Ltd. performed well, while solid performers in JQC included Global Cash Access
LLC and Quintiles Transnational Corporation.
8
Distribution and Share Price
INFORMATION
Each Fund uses financial leverage in an effort to enhance its common share
dividend-paying capabilities. While this strategy adds volatility to the Fund's
common share 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 the Funds pay their
FundPreferredTM shareholders. As short-term rates rose through this reporting
period, the Funds paid higher dividends to their FundPreferred shareholders. As
a result, the leveraging strategy did not provide as much income enhancement to
common shareholders as it did before short-term interest rates began to rise.
Over this 12-month reporting period, both JPC and JQC announced three reductions
in their monthly distribution to common shareholders.
Both Funds seek to pay stable common share distributions at rates that reflect
each Fund's past results and projected future performance. During certain
periods, each Fund may pay distributions at a rate that may be more or less than
the amount of net investment income actually earned by the Fund during the
period. If a Fund has cumulatively earned more than it has paid in
distributions, it holds the excess in reserve as undistributed net investment
income (UNII) as part of the Fund's NAV. Conversely, if a Fund has cumulatively
paid distributions in excess of its earnings, the excess constitutes negative
UNII that is likewise reflected in the Fund's NAV. Each Fund will, over time,
pay all of its net investment income in distributions to shareholders. As of
December 31, 2005, both Funds had negative UNII balances for financial statement
purposes and positive UNII balances for tax purposes.
In addition, due to normal portfolio management activity, common shareholders of
the Funds received two capital gains distribution in 2005 as follows:
JULY LONG-TERM CAPITAL GAINS DECEMBER LONG-TERM CAPITAL GAINS
(PER SHARE) (PER SHARE)
- --------------------------------------------------------------------------------
JPC $0.0176 $0.1934
- --------------------------------------------------------------------------------
JQC $0.0430 $0.0530
- --------------------------------------------------------------------------------
These distributions represented important parts of the Funds' total return for
this period. Generally, these types of distributions were generated by bond
calls or by sales of appreciated securities that occurred in the course of
normal portfolio management activities. On balance, this had a slight negative
impact on the Funds' per share earning power and was a minor factor in the per
share distribution reductions noted above.
As of December 31, 2005, the Funds' common shares were trading at discounts to
their NAVs as shown in the accompanying chart:
12/31/05 12-MONTH AVERAGE
DISCOUNT DISCOUNT
- --------------------------------------------------------------------------------
JPC -15.59% -10.25%
- --------------------------------------------------------------------------------
JQC -14.72% -11.06%
- --------------------------------------------------------------------------------
On February 3, 2006, the Funds' Board of Trustees approved an open market share
repurchase program, as part of a broad, ongoing program of activity designed to
support the market prices of the Funds' common shares.
9
Nuveen Preferred and Convertible Income Fund
JPC
Performance
OVERVIEW As of December 31, 2005
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
$25 Par (or similar) Securities 36.6%
Convertible Bonds 24.3%
Capital Preferred Securities 20.0%
Corporate Bonds 10.4%
Convertible Preferred Securities 7.6%
Short-Term Investments 1.1%
Bar Chart:
2005 MONTHLY DISTRIBUTIONS PER SHARE
Jan 0.1005
Feb 0.1005
Mar 0.096
Apr 0.096
May 0.096
Jun 0.09
Jul 0.09
Aug 0.09
Sep 0.085
Oct 0.085
Nov 0.085
Dec 0.085
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
1/01/05 14.26
14.34
14.32
14.47
14.47
14.45
14.5
14.35
14.36
14.28
14.26
14.23
14.27
14.23
14.21
14.15
14.09
14.24
14.35
14.43
14.5
14.56
14.53
14.59
14.69
14.66
14.68
14.75
14.6
14.65
14.57
14.51
14.45
14.29
14.08
14.34
14.47
14.54
14.63
14.62
14.55
14.41
14.34
14.35
14.38
14.1
14
13.69
13.39
13.29
13.06
13.22
13.05
12.82
12.69
12.42
12.51
12.32
12.55
12.87
13.08
12.97
13.04
12.9
12.98
13
13
12.9
12.94
12.83
12.8
12.6
12.58
12.62
12.59
12.55
12.62
12.63
12.67
12.8
12.93
12.93
12.93
12.89
12.99
13.14
13.13
13.09
13.13
13.2
13.11
13.11
13.1
13.05
13.02
13.05
13.01
13.12
13.17
13.19
13.23
13.25
13.25
13.36
13.43
13.44
13.36
13.36
13.41
13.35
13.4
13.41
13.13
13.19
13.2
13.24
13.28
13.25
13.28
13.42
13.46
13.44
13.39
13.37
13.37
13.35
13.34
13.32
13.39
13.38
13.46
13.5
13.57
13.55
13.57
13.52
13.56
13.51
13.45
13.4
13.38
13.34
13.4
13.5
13.61
13.72
13.72
13.64
13.61
13.64
13.55
13.46
13.31
13.35
13.44
13.24
13.18
13.14
13.16
13.15
13.13
13.13
13.14
13.11
13.15
13.17
13.2
13.26
13.3
13.32
13.31
13.31
13.28
13.2
13.23
13.21
13.21
13.09
12.99
12.9
12.81
12.73
12.62
12.72
12.65
12.49
12.46
12.35
12.54
12.57
12.63
12.55
12.63
12.57
12.47
12.37
12.39
12.33
12.11
11.84
11.99
11.95
12.08
12.02
11.92
12.05
12.07
12.02
11.95
11.92
11.99
12.08
12
12.05
12.12
12.09
12.06
12.15
12.23
12.16
12.03
12.07
12.05
12.05
12.05
12.12
12.01
11.93
12.06
12.12
12.14
12.13
12.12
12.11
12.16
12.11
12.03
12.04
12.04
11.98
11.99
11.9
11.88
11.86
11.88
11.79
11.7
11.78
11.69
11.77
11.88
11.94
11.93
11.97
12/31/05 11.97
(Sidebar)
PORTFOLIO STATISTICS
- ------------------------------------
Common Share Price $11.97
- ------------------------------------
Common Share
Net Asset Value $14.18
- ------------------------------------
Premium/(Discount) to NAV -15.59%
- ------------------------------------
Latest Dividend $.0850
- ------------------------------------
Market Yield 8.52%
- ------------------------------------
Net Assets Applicable to
Common Shares ($000) $1,419,946
- ------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 3/26/03)
- ------------------------------------
ON SHARE PRICE ON NAV
- ------------------------------------
1-Year -7.63% 1.32%
- ------------------------------------
Since
Inception 1.16% 8.73%
- ------------------------------------
INDUSTRIES
(as a % of total investments)
- ------------------------------------
Commercial Banks 21.5%
- ------------------------------------
Insurance 12.0%
- ------------------------------------
Real Estate 8.7%
- ------------------------------------
Capital Markets 6.7%
- ------------------------------------
Diversified Financial Services 5.5%
- ------------------------------------
Media 4.7%
- ------------------------------------
Hotels, Restaurants & Leisure 3.4%
- ------------------------------------
Oil, Gas & Consumable Fuels 3.2%
- ------------------------------------
Thrifts & Mortgage Finance 2.5%
- ------------------------------------
Pharmaceuticals 2.2%
- ------------------------------------
Semiconductors & Equipment 1.9%
- ------------------------------------
Specialty Retail 1.7%
- ------------------------------------
Energy Equipment & Services 1.7%
- ------------------------------------
Biotechnology 1.6%
- ------------------------------------
Electric Utilities 1.6%
- ------------------------------------
Short-Term Investments 1.1%
- ------------------------------------
Other 20.0%
- ------------------------------------
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
- ------------------------------------
Wachovia Corporation 2.0%
- ------------------------------------
HBSC Holdings Public Limited
Company 1.8%
- ------------------------------------
JPMorgan Chase & Company 1.7%
- ------------------------------------
ING Group NV 1.7%
- ------------------------------------
Union Planters Corporation 1.6%
- ------------------------------------
10
Nuveen Preferred and Convertible Income Fund 2
JQC
Performance
OVERVIEW As of December 31, 2005
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
$25 Par (or similar) Securities 34.8%
Convertible Bonds 23.0%
Capital Preferred Securities 21.9%
Corporate Bonds 10.3%
Convertible Preferred Securities 8.5%
Short-Term Investments 1.5%
Bar Chart:
2005 MONTHLY DISTRIBUTIONS PER SHARE
Jan 0.0975
Feb 0.0975
Mar 0.093
Apr 0.093
May 0.093
Jun 0.0885
Jul 0.0885
Aug 0.0885
Sep 0.084
Oct 0.084
Nov 0.084
Dec 0.084
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
1/01/05 13.87
13.88
13.83
13.91
13.94
13.99
14.02
13.93
13.93
13.89
13.88
13.83
13.85
13.85
13.85
13.8
13.76
13.86
13.95
13.98
14.05
14.04
14
14.12
14.22
14.25
14.35
14.37
14.28
14.15
14.17
14.14
14.02
13.85
13.67
13.98
14.04
14.06
14.09
14.07
14.04
13.91
13.84
13.83
13.88
13.54
13.48
13.21
13.02
12.94
12.75
12.9
12.82
12.59
12.56
12.33
12.4
12.3
12.55
12.72
12.76
12.64
12.73
12.63
12.69
12.69
12.74
12.69
12.74
12.61
12.54
12.4
12.45
12.57
12.54
12.47
12.44
12.42
12.4
12.39
12.52
12.6
12.6
12.7
12.76
12.92
12.88
12.78
12.82
12.85
12.78
12.74
12.74
12.77
12.78
12.82
12.83
12.85
12.94
12.91
12.86
12.83
12.9
12.97
13.08
13.09
13.07
13.07
13.16
13.14
13.12
13.08
12.9
12.98
12.94
12.96
13.07
13.05
13.05
13.1
13.09
13.1
13.05
13.05
13.06
13.06
13.1
13.09
13.13
13.23
13.32
13.38
13.4
13.39
13.34
13.35
13.42
13.47
13.41
13.28
13.28
13.26
13.3
13.35
13.39
13.48
13.48
13.44
13.47
13.4
13.35
13.24
13.04
13.06
13.18
13.04
13.02
13.06
13.03
13.16
13
12.98
12.99
12.92
12.94
12.98
13.05
13.09
13.06
13.08
13.11
13.17
13.16
13.13
13.02
13.04
13.06
12.94
12.9
12.86
12.76
12.6
12.58
12.57
12.47
12.37
12.37
12.24
12.46
12.42
12.54
12.49
12.45
12.4
12.26
12.29
12.25
12.27
11.97
11.81
11.86
11.89
11.88
11.87
11.75
11.89
11.83
11.83
11.74
11.74
11.84
11.95
11.91
11.88
11.98
11.91
11.89
11.95
12
11.93
11.87
11.88
11.85
11.87
11.91
11.98
11.9
11.81
11.94
12.02
12.02
12.01
12
11.99
12.04
12.02
11.92
11.89
11.89
11.85
11.82
11.72
11.71
11.7
11.7
11.66
11.63
11.68
11.67
11.79
12.03
12.01
12.01
12.11
12/31/05 12.11
(Sidebar)
PORTFOLIO STATISTICS
- ------------------------------------
Common Share Price $12.11
- ------------------------------------
Common Share
Net Asset Value $14.20
- ------------------------------------
Premium/(Discount) to NAV -14.72%
- ------------------------------------
Latest Dividend $.0840
- ------------------------------------
Market Yield 8.32%
- ------------------------------------
Net Assets Applicable to
Common Shares ($000) $2,002,079
- ------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 6/25/03)
- ------------------------------------
ON SHARE PRICE ON NAV
- ------------------------------------
1-Year -4.40% 1.41%
- ------------------------------------
Since
Inception -0.19% 7.64%
- ------------------------------------
INDUSTRIES
(as a % of total investments)
- ------------------------------------
Commercial Banks 21.6%
- ------------------------------------
Insurance 12.8%
- ------------------------------------
Real Estate 7.7%
- ------------------------------------
Capital Markets 7.0%
- ------------------------------------
Diversified Financial Services 6.0%
- ------------------------------------
Media 5.0%
- ------------------------------------
Oil, Gas & Consumable Fuels 3.5%
- ------------------------------------
Hotels, Restaurants & Leisure 3.4%
- ------------------------------------
Pharmaceuticals 2.0%
- ------------------------------------
Specialty Retail 2.0%
- ------------------------------------
Biotechnology 1.8%
- ------------------------------------
Semiconductors & Equipment 1.8%
- ------------------------------------
Energy Equipment & Services 1.5%
- ------------------------------------
Diversified Telecommunication
Services 1.5%
- ------------------------------------
Electric Utilities 1.4%
- ------------------------------------
Short-Term Investments 1.5%
- ------------------------------------
Other 19.5%
- ------------------------------------
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
- ------------------------------------
Wachovia Corporation 2.2%
- ------------------------------------
JPMorgan Chase & Company 2.1%
- ------------------------------------
Banco Santander Central
Hispano S.A. 1.6%
- ------------------------------------
HBOS Public Limited Company 1.6%
- ------------------------------------
ING Group NV 1.6%
- ------------------------------------
11
Shareholder
MEETING REPORT
Approval of the new investment management agreement and sub-advisory agreements
were the proposals voted upon at the July 26, 2005, shareholder meeting held at
The Northern Trust Bank.
Approval of the Board Members was the proposal voted upon at the November 15,
2005, shareholder meeting held at the offices of Nuveen Investments.
JPC JQC
- ------------------------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE NEW INVESTMENT MANAGEMENT AGREEMENT WAS
REACHED AS FOLLOWS:
Common and Common and
Preferred shares Preferred shares
voting together voting together
as a class as a class
====================================================================================================================================
For 95,403,347 135,203,471
Against 882,802 1,257,697
Abstain 1,036,001 1,267,742
- ------------------------------------------------------------------------------------------------------------------------------------
Total 97,322,150 137,728,910
====================================================================================================================================
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT BETWEEN NUVEEN ASSET
MANAGEMENT AND FROLEY, REVY INVESTMENT CO., INC. WAS REACHED
AS FOLLOWS:
Common and Common and
Preferred shares Preferred shares
voting together voting together
as a class as a class
====================================================================================================================================
For 95,416,201 135,207,254
Against 895,571 1,248,672
Abstain 1,010,378 1,272,984
- ------------------------------------------------------------------------------------------------------------------------------------
Total 97,322,150 137,728,910
====================================================================================================================================
12
JPC JQC
- ------------------------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT BETWEEN NUVEEN ASSET
MANAGEMENT AND SPECTRUM ASSET MANAGEMENT, INC. WAS REACHED
AS FOLLOWS:
Common and Common and
Preferred shares Preferred shares
voting together voting together
as a class as a class
====================================================================================================================================
For 95,371,985 135,058,484
Against 916,848 1,325,717
Abstain 1,033,317 1,344,709
- ------------------------------------------------------------------------------------------------------------------------------------
Total 97,322,150 137,728,910
====================================================================================================================================
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT BETWEEN NUVEEN ASSET
MANAGEMENT AND SYMPHONY ASSET MANAGEMENT LLC WAS REACHED
AS FOLLOWS:
Common and Common and
Preferred shares Preferred shares
voting together voting together
as a class as a class
====================================================================================================================================
For 95,350,110 135,122,183
Against 912,802 1,303,989
Abstain 1,059,238 1,302,738
- ------------------------------------------------------------------------------------------------------------------------------------
Total 97,322,150 137,728,910
====================================================================================================================================
13
Report of
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND 2
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Nuveen Preferred and Convertible Income Fund
and Nuveen Preferred and Convertible Income Fund 2 as of December 31, 2005, and
the related statements of operations for the year then ended, and the statements
of changes in net assets and the financial highlights for the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2005, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Nuveen
Preferred and Convertible Income Fund and Nuveen Preferred and Convertible
Income Fund 2 at December 31, 2005, and the results of their operations for the
year then ended, and changes in their net assets and their financial highlights
for the periods indicated therein in conformity with U.S. generally accepted
accounting principles.
Ermst & Young LLP
Chicago, Illinois
February 14, 2006
14
Nuveen Preferred and Convertible Income Fund (JPC)
Portfolio of
INVESTMENTS December 31, 2005
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 11.2% (7.6% OF TOTAL INVESTMENTS)
CHEMICALS - 0.6%
133,290 Celanese Corporation 4.250% N/R $ 3,752,114
112,625 Huntsman Corporation 5.000% N/R 4,559,060
- ------------------------------------------------------------------------------------------------------------------------------------
Total Chemicals 8,311,174
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 2.1%
10,730,000 Fortis Insurance NV, 144A 7.750% A+ 12,996,713
97,950 HSBC Finance Corporation 8.875% A1 3,884,207
257,400 Marshall and Ilsley Corporation 6.500% A2 6,815,952
105,800 Washington Mutual, Inc., Unit 1 Trust 5.375% Baa1 5,774,776
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 29,471,648
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.7%
9,800,000 SLM Corporation 4.150% A 10,080,084
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.8%
66,200 Entergy Corporation 7.625% BBB 3,293,450
1,835,000 PG&E Corporation 9.500% N/R 5,119,650
56,800 PNM Resources Inc. 6.750% Baa3 2,674,712
- ------------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 11,087,812
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.1%
25,000 Hanover Compressor Capital Trust 7.250% B- 1,234,370
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.4%
80,300 Omnicare Capital Trust II, Series B 4.000% BB 5,963,881
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.3%
106,675 Newell Financial Trust I 5.250% BBB- 4,453,681
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.1%
74,400 Aspen Insurance Holdings Limited 5.625% BBB- 3,645,600
368,765 Genworth Financial Inc. 6.000% A 14,035,196
61,200 Hartford Financial Services Group, Inc. 7.000% A- 4,720,356
114,000 IPC Holdings Limited 7.250% BBB- 3,120,750
418,700 MetLife Inc., Convertible, Series B 6.375% BBB+ 11,535,185
45,000 Platinum Underwriters Holdings Limited, Series A 6.000% BB+ 1,421,550
202,250 The Chubb Corporation 7.000% A 7,115,155
- ------------------------------------------------------------------------------------------------------------------------------------
Total Insurance 45,593,792
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.6%
185,000 Emmis Communications Corporation, Series A 6.250% CCC+ 8,247,300
- ------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.3%
3,120 Freeport McMoran Copper & Gold, Inc. 5.500% B- 3,744,000
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.8%
25,925 Amerada Hess Corporation 7.000% BB 2,801,974
67,725 Chesapeake Energy Corporation 4.500% B+ 6,536,140
23,425 Chesapeake Energy Corporation, 144A 5.000% B 2,477,194
- ------------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 11,815,308
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.5%
126,150 Schering-Plough Corporation 6.000% BBB 6,785,609
- ------------------------------------------------------------------------------------------------------------------------------------
15
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS December 31, 2005
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.4%
63,350 New York Community Bancorp Inc Capital Trust V 6.000% Baa2 $ 2,958,445
87,475 PMI Group Inc. 5.875% A1 2,156,259
- ------------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 5,114,704
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 0.5%
81 Fannie Mae 5.375% AA- 7,463,401
- ------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $150,740,427) 159,366,764
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) SECURITIES - 54.3% (36.6% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 5.5%
2,500 ABN AMRO North America, Series L, 144A, (3) 6.460% A3 2,550,000
18,000 Bear Stearns Capital Trust III 7.800% A2 458,100
500 BNY Capital Trust IV, Series E 6.875% A1 12,575
309,700 BNY Capital Trust V, Series F 5.950% A1 7,504,031
148,000 Compass Capital Trust III 7.350% A3 3,747,360
10,500 CSFB USA, Series 2002-10 (SATURNS) 7.000% Aa3 264,075
29,700 First Union Capital II, Series II (CORTS) 7.500% A1 771,606
41,500 First Union Institutional Capital II (CORTS) 8.200% A1 1,120,915
4,000 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 92,680
46,400 Goldman Sachs Group Inc., (3) 6.200% A2 1,183,200
2,000 Goldman Sachs Group Inc., PPLUS, Series GSC-3 6.000% A1 46,800
13,100 Goldman Sachs Group Inc., Series 2003-06 (SATURNS) 6.000% Aa3 309,946
3,800 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 88,540
39,600 Goldman Sachs Group Inc., Series 2004-4 (CORTS) 6.000% A1 920,700
3,000 Goldman Sachs Group Incorporated (SATURNS) 5.750% Aa3 67,260
528,988 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 13,272,309
2,400 Lehman Brothers Holdings Capital Trust IV, Series L 6.375% A2 60,264
6,000 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 143,520
1,000,000 Mellon Capital II, Series B 7.995% A2 1,064,631
29,900 Merrill Lynch Capital Trust II 8.000% A1 773,812
29,000 Merrill Lynch Preferred Capital Trust 7.750% A1 742,400
149,500 Merrill Lynch Preferred Capital Trust III 7.000% A1 3,830,190
124,400 Merrill Lynch Preferred Capital Trust IV 7.120% A1 3,200,812
242,500 Merrill Lynch Preferred Capital Trust V 7.280% A1 6,334,100
23,300 Morgan Stanley (PPLUS) 7.050% Aa3 595,315
71,100 Morgan Stanley Capital Trust II 7.250% A1 1,810,917
365,739 Morgan Stanley Capital Trust III 6.250% A1 8,920,374
717,800 Morgan Stanley Capital Trust IV 6.250% A1 17,399,472
18,200 Morgan Stanley Capital Trust V 5.750% A+ 413,868
23,200 Washington Mutual Capital Trust I, Series 2001-22, 7.650% Baa1 585,800
Class A-1 (CORTS)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 78,285,572
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 10.5%
92,400 Abbey National plc, Series B 7.250% A1 2,346,960
20,700 Abbey National plc, Series B 7.375% A 546,273
173,100 Abbey National PLC, Series C 7.375% A2 4,431,360
40,800 ABN AMRO Capital Fund Trust V 5.900% A 966,552
10,000 ABN AMRO Capital Trust Fund VII 6.080% A 244,000
73,500 ASBC Capital I 7.625% Baa1 1,883,070
68,785 BAC Capital Trust I 7.000% Aa3 1,744,388
136,755 BAC Capital Trust II 7.000% Aa3 3,481,782
284,700 BAC Capital Trust III 7.000% Aa3 7,262,697
59,750 Banco Santander 6.410% A2 1,499,725
63,400 Banco Totta & Acores Finance, Series A 8.875% A3 1,624,625
8,200 BancorpSouth Capital Trust I 8.150% Baa2 208,608
207,400 Banesto Holdings, Series A, 144A 10.500% A2 6,222,000
81,700 Bank One Capital Trust VI 7.200% A1 2,086,618
35,700 BankNorth Capital Trust II 8.000% A3 920,346
15 BBVA Privanza International Gibraltar, 144A 7.764% A1 15,525,000
16
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
62,300 Chittenden Capital Trust I 8.000% Baa1 $ 1,599,241
107,000 Cobank ABC, 144A, (3) 7.000% N/R 5,534,147
84,900 Comerica Capital Trust I 7.600% A3 2,143,725
306,079 Fleet Capital Trust VII 1.800% Aa3 7,719,312
338,700 Fleet Capital Trust VIII 7.200% Aa3 8,609,754
775,300 HSBC Finance Corporation 6.875% A1 20,142,294
48,500 HSBC Finance Corporation 6.000% A1 1,181,460
2,300 HSBC Holdings plc, Series A 6.200% A1 56,925
15,700 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 408,985
27,100 KeyCorp, Series B (CORTS) 8.250% A3 680,481
164,700 National Commerce Capital Trust II 7.700% A1 4,199,850
32,900 National Westminster Bank plc, Series A 7.875% Aa2 835,989
87,100 PNC Capital Trust 6.125% A3 2,101,723
24,000 Regions Finance Trust I 8.000% A2 603,600
175,000 Royal Bank of Scotland Group plc, Series L 5.750% A1 4,033,750
91,395 Royal Bank of Scotland Group plc, Series N 6.350% A1 2,296,756
87,500 SunTrust Capital Trust IV 7.125% A1 2,211,125
74,300 SunTrust Capital Trust V 7.050% A1 1,880,533
71,100 USB Capital Trust III 7.750% Aa3 1,811,628
199,300 USB Capital Trust IV 7.350% Aa3 5,088,129
81,200 USB Capital Trust V 7.250% Aa3 2,058,420
400,700 USB Capital Trust VI 5.750% Aa3 9,168,016
36,050 USB Capital Trust VII 5.875% Aa3 840,686
33,400 VNB Capital Trust I 7.750% Baa1 851,032
47,100 Well Fargo Capital Trust IX 5.625% Aa2 1,077,648
10,400 Wells Fargo Capital Trust IV 7.000% Aa2 265,824
80,735 Wells Fargo Capital Trust V 7.000% Aa2 2,040,981
15,100 Wells Fargo Capital Trust VI 6.950% Aa2 381,426
230,700 Wells Fargo Capital Trust VII 5.850% Aa2 5,543,721
2,100 Wells Fargo Capital Trust VIII 5.625% Aa2 48,741
80,700 Zions Capital Trust B 8.000% Baa1 2,103,042
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 148,512,948
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.1%
41,500 IBM Inc. (CORTS) 7.125% A+ 1,045,385
21,000 IBM Inc., Series 2001-1 (SATURNS) 7.125% A+ 528,990
4,100 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 103,935
2,400 IBM Trust II (CORTS) 7.125% A+ 60,336
9,400 IBM Trust III (CORTS) 7.200% A+ 240,734
1,700 IBM Trust IV (CORTS) 7.000% A+ 43,010
- ------------------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 2,022,390
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.3%
28,200 Household Capital Trust VI 8.250% A2 716,280
39,600 Household Capital Trust VII 7.500% A2 1,011,384
79,400 SLM Corporation 6.000% A 1,881,780
- ------------------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 3,609,444
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 6.0%
15,100 BBVA Preferred Capital Ltd., Series B 7.750% A1 380,898
190,000 CIT Group Inc., Series A, (3) 6.350% BBB+ 4,911,500
15,400 CIT Group Incorporated (CORTS) 7.750% A3 415,492
220,900 Citigroup Capital Trust IX 6.000% Aa2 5,350,198
86,200 Citigroup Capital Trust VII 7.125% Aa2 2,186,894
368,100 Citigroup Capital Trust VIII 6.950% Aa2 9,283,482
4,800 Citigroup Capital Trust XI 6.000% Aa2 117,168
33,200 Citigroup Inc., Series F, (3) 6.365% Aa3 1,709,800
94,000 Citigroup Inc., Series G, (3) 6.213% Aa3 4,878,600
59,300 Citigroup Inc., Series H, (3) 6.231% Aa3 3,107,320
64,600 Citigroup Inc., Series M, (3) 5.864% Aa3 3,304,290
5,400 General Electric Capital Corporation 5.875% AAA 131,652
17
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS December 31, 2005
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
33,100 General Electric Capital Corporation 6.625% AAA $ 836,106
3,800 General Electric Capital Corporation (CORTS) 6.000% AAA 94,050
782,875 ING Group N.V. 7.050% A 20,033,771
565,718 ING Group N.V. 7.200% A 14,521,981
16,800 ING Group N.V. 6.200% A 416,640
32,200 JPM Capital Trust (CORTS) 7.200% A2 833,658
2,200 JPM Capital Trust I, Series 2001-1, Class A-1 (CORTS) 7.850% A1 57,178
52,200 JPMorgan Chase & Company (PCARS) 7.125% A2 1,306,044
395,367 JPMorgan Chase Capital Trust X 7.000% A1 10,054,183
22,800 JPMorgan Chase Capital Trust XVI 6.350% A1 570,456
47,200 JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS) 7.125% A1 1,217,760
- ------------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 85,719,121
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.5%
19,600 AT&T Inc. 7.000% A 491,568
19,300 BellSouth Capital Funding (CORTS) 7.100% A1 497,361
11,900 BellSouth Corporation 7.125% A 299,285
17,400 BellSouth Corporation (CORTS) 7.000% Aa3 436,566
33,100 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 828,493
10,000 BellSouth Inc. (CORTS) 7.000% A 258,400
17,700 BellSouth Telecommunications (PPLUS) 7.300% Aa3 445,155
45,050 Deutsche Telekom International Finance B.V., Series 2001-24, 7.875% A- 1,130,755
Class A-1 (CORTS)
17,500 Verizon Communications (CORTS) 7.625% A+ 447,300
22,200 Verizon Communications (CORTS) 7.375% A+ 566,544
4,700 Verizon Communications, Series 2004-1 (SATURNS) 6.125% A+ 110,591
1,300 Verizon Global Funding Corporation Trust III, Series III (CORTS) 6.250% A+ 31,967
13,900 Verizon New England Inc., Series B 7.000% A3 354,450
44,755 Verizon South Inc., Series F 7.000% A+ 1,134,092
- ------------------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 7,032,527
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.1%
10,000 Consolidated Edison Company 7.250% A2 256,300
7,000 Consolidated Edison Company of New York Inc. 7.500% A1 176,750
22,200 DTE Energy Trust I 7.800% Baa3 565,212
40,670 Entergy Louisiana Inc. 7.600% A- 1,032,611
44,570 Georgia Power Capital Trust V 7.125% A3 1,124,501
6,600 Georgia Power Company 5.700% AAA 160,974
3,000 Georgia Power Company 5.750% A 69,090
228,700 Georgia Power Company 5.900% A 5,523,105
11,300 National Rural Utilities Cooperative Finance Corporation 7.600% A3 284,986
1,100 National Rural Utilities Cooperative Finance Corporation 7.400% A3 28,160
6,500 National Rural Utilities Cooperative Finance Corporation 6.100% A3 155,090
4,600 National Rural Utilities Cooperative Finance Corporation 5.950% A3 108,560
1,300 Southern Company Capital Trust I (CORTS) 8.000% BBB+ 33,670
2,100 Southern Company Capital Trust I (CORTS) 7.375% BBB+ 54,285
113,432 Tennessee Valley Authority, Series D 6.750% AAA 2,722,368
134,400 Virginia Power Capital Trust 7.375% Baa1 3,443,328
- ------------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 15,738,990
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
58,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 5,825,375
- ------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.0%
23,000 AGL Capital Trust II 8.000% BBB 585,350
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.5%
274,000 Aetna Inc. 8.500% BBB+ 6,981,520
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 11.4%
538,010 Ace Ltd., Series C 7.800% Baa2 14,042,061
982,000 Aegon N.V. 6.375% A- 24,805,320
62,600 Aegon N.V. 6.500% A- 1,557,488
18
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
17,800 Allstate Insurance Company (CORTS) 8.000% A2 $ 470,632
4,400 AMBAC Financial Group Inc. 7.000% AA 110,968
53,200 AMBAC Financial Group Inc. 5.950% AA 1,276,800
6,200 AMBAC Financial Group Inc. 5.875% AA 148,242
1,220,900 Delphi Financial Group, Inc. 8.000% BBB 31,853,281
170,005 EverestRe Capital Trust II 6.200% Baa1 3,765,611
109,800 EverestRe Group Limited 7.850% Baa1 2,797,704
13,000 Financial Security Assurance Holdings 6.875% AA 330,980
82,200 Financial Security Assurance Holdings 6.250% AA 2,081,304
225,500 Hartford Capital Trust III, Series C 7.450% Baa1 5,698,385
37,900 Hartford Life Capital Trust II, Series B 7.625% Baa1 965,692
38,400 Lincoln National Capital Trust V, Series E 7.650% Baa1 975,744
7,100 Lincoln National Capital Trust VI 6.750% Baa1 179,630
557,500 MetLife Inc., Series B, (3) 6.500% Baa1 14,450,400
4,300 PartnerRe Limited 7.900% A3 109,650
964,100 PartnerRe Limited, Series C 6.750% BBB+ 23,302,297
2,600 PartnerRe Limited, Series D 6.500% BBB+ 60,918
81,700 PLC Capital Trust III 7.500% BBB+ 2,080,082
39,100 PLC Capital Trust IV 7.250% BBB+ 996,268
8,000 PLC Capital Trust V 6.125% BBB+ 190,320
37,400 Prudential plc 6.750% A 963,798
325,410 RenaissanceRe Holdings Limited, Series B 7.300% BBB 8,219,857
12,000 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 242,400
96,100 RenaissanceRe Holdings Ltd., Series A 8.100% BBB+ 2,429,408
26,900 Safeco Capital Trust I (CORTS) 8.700% Baa2 753,738
25,100 Safeco Capital Trust I (CORTS) 8.750% Baa2 742,960
11,500 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 300,208
39,100 Safeco Capital Trust III (CORTS) 8.072% Baa2 1,032,240
14,400 Safeco Capital Trust IV (CORTS) 8.375% Baa2 386,136
47,400 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 1,223,157
43,900 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 1,145,351
19,400 Saint Paul Capital Trust I 7.600% Baa1 497,610
34,100 Torchmark Capital Trust I 7.750% A- 880,121
74,000 W.R. Berkley Capital Trust, Series 2002-1 (CBTCS) 8.125% BBB- 751,840
14,200 W.R. Berkley Corporation 6.750% BBB- 355,000
86,700 XL Capital Ltd, Series A 8.000% Baa1 2,205,648
292,100 XL Capital Ltd, Series B 7.625% Baa1 7,448,550
- ------------------------------------------------------------------------------------------------------------------------------------
Total Insurance 161,827,799
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.1%
43,700 CBS Corporation 7.300% BBB+ 1,099,055
3,700 The Walt Disney Company 7.000% A- 94,350
- ------------------------------------------------------------------------------------------------------------------------------------
Total Media 1,193,405
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.2%
55,600 Dominion CNG Capital Trust I 7.800% Baa1 1,418,912
57,400 Energy East Capital Trust I 8.250% BBB- 1,472,884
- ------------------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 2,891,796
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
477,200 Nexen, Inc. 7.350% Baa3 12,321,304
1,000 TransCanada Pipeline 8.250% A3 25,810
- ------------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 12,347,114
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 12.7%
22,575 AMB Property Corporation, Series O 7.000% Baa2 572,728
10,700 AvalonBay Communities, Inc., Series H 8.700% BBB 292,110
3,000 BRE Properties, Series B 8.080% BBB- 75,840
22,500 BRE Properties, Series C 6.750% BBB- 556,200
345,825 CarrAmerica Realty Corporation, Series E 7.500% BBB- 8,732,081
20,600 Developers Diversified Realty Corporation, Series F 8.600% BBB- 529,008
658,185 Developers Diversified Realty Corporation, Series G 8.000% BBB- 16,882,445
74,000 Developers Diversified Realty Corporation, Series H 7.375% BBB- 1,842,600
19
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS December 31, 2005
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
81,100 Duke Realty Corporation, Series L 6.600% BBB $ 1,964,242
208,656 Equity Office Properties Trust, Series G 7.750% BBB- 5,312,382
19,200 Equity Residential Properties Trust, Series C 9.125% BBB 487,296
11,800 Equity Residential Properties Trust, Series D 8.600% BBB 301,372
424,173 Equity Residential Properties Trust, Series N 6.480% BBB 10,125,010
7,000 HRPT Properties Trust, Series A 9.875% BBB- 178,010
309,900 HRPT Properties Trust, Series B 8.750% BBB- 8,026,410
741,483 Kimco Realty Corporation, Series F 6.650% BBB+ 19,056,113
13,693 New Plan Excel Realty Trust, Series D 7.800% BBB- 703,478
974,075 New Plan Excel Realty Trust, Series E 7.625% BBB- 24,497,986
32,982 Prologis Trust, Series C 8.540% BBB 1,931,508
13,600 Prologis Trust, Series G 6.750% BBB 335,920
13,000 PS Business Parks, Inc., Series F 8.750% BBB- 330,590
2,000 PS Business Parks, Inc., Series K 7.950% BBB- 51,600
51,900 Public Storage, Inc., Series E 6.750% BBB+ 1,284,525
15,000 Public Storage, Inc., Series F 6.450% BBB+ 346,500
159,800 Public Storage, Inc., Series R 8.000% BBB+ 4,044,538
34,900 Public Storage, Inc., Series S 7.875% BBB+ 885,413
28,200 Public Storage, Inc., Series T 7.625% BBB+ 715,152
30,200 Public Storage, Inc., Series U 7.625% BBB+ 764,362
32,300 Public Storage, Inc., Series V 7.500% BBB+ 833,663
3,000 Public Storage, Inc., Series X 6.450% BBB+ 69,540
186,500 Regency Centers Corporation 7.450% BBB- 4,709,125
32,000 Regency Centers Corporation 6.700% BBB- 784,000
7,000 Simon Property Group, Inc., Series G 7.890% BBB 360,500
500,000 Ventas Realty LP, Series WI 7.125% BB+ 527,500
2,200 Vornado Realty Trust, Series F 6.750% BBB- 52,250
16,800 Vornado Realty Trust, Series G 6.625% BBB- 391,776
3,400 Vornado Realty Trust, Series H 6.750% BBB- 80,580
51,200 Vornado Realty Trust, Series I 6.625% BBB- 1,188,864
1,462,445 Wachovia Preferred Funding Corporation 7.250% A2 40,860,713
707,700 Weingarten Realty Trust, Preferred Securities 6.750% A- 18,492,201
- ------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate 179,176,131
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.0%
13,800 Sherwin Williams Company, Series III (CORTS) 7.250% A+ 359,076
- ------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.3%
4,300 Countrywide Capital Trust II, Series II (CORTS) 8.000% BBB+ 109,650
98,600 Countrywide Capital Trust III (PPLUS) 8.050% BBB+ 2,570,502
1,201,200 Countrywide Capital Trust IV 6.750% BBB+ 30,306,276
- ------------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 32,986,428
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 1.0%
86,000 Fannie Mae, (3) 5.125% AA- 3,799,480
17,000 Federal Home Loan Mortgage Corporation 5.300% AA- 757,032
23,200 Federal Home Loan Mortgage Corporation 5.810% Aa3 1,102,000
90,200 Federal Home Loan Mortgage Corporation, (3) 6.000% AA- 4,374,700
20,600 Federal Home Loan Mortgage Corporation, (3) 6.140% Aa3 1,025,880
12,000 Federal Home Loan Mortgage Corporation, (3) 5.100% AA- 513,750
8,000 Federal Home Loan Mortgage Corporation, (3) 5.000% AA- 347,200
47,300 Federal Home Loan Mortgage Corporation, (3) 5.100% AA- 2,033,900
- ------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Agency 13,953,942
- ------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.8%
34,100 AT&T Wireless (CORTS) 8.000% A 889,158
18,300 AT&T Wireless, Series 2002-B (SATURNS) 9.250% A 488,427
93,500 Telephone and Data Systems Inc. 7.600% A- 2,344,045
33,900 United States Cellular Corporation 8.750% A- 888,519
272,100 United States Cellular Corporation 7.500% A- 6,856,920
- ------------------------------------------------------------------------------------------------------------------------------------
Total Wireless Telecommunication Services 11,467,069
- ------------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $779,428,006) 770,515,997
--------------------------------------------------------------------------------------------------------------------
20
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 36.0% (24.3% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 1.8%
$ 2,900 AAR Corporation, 144A 2.875% 2/01/24 BB- $ 3,900,500
5,205 Armor Holdings Inc. 2.000% 11/01/24 B+ 5,172,469
2,570 Ceradyne Inc. 2.875% 12/15/35 N/R 2,637,463
6,900 L-3 Communications Corporation, Series 144A 3.000% 8/01/35 BB+ 6,856,875
6,460 Lockheed Martin Corporation 4.090% 8/15/33 BBB+ 6,921,115
- ------------------------------------------------------------------------------------------------------------------------------------
24,035 Total Aerospace & Defense 25,488,422
- ------------------------------------------------------------------------------------------------------------------------------------
AIRLINES - 0.7%
2,740 Continental Airlines, Inc. 5.000% 6/15/23 CCC+ 3,496,925
5,875 JetBlue Airways Corporation 3.750% 3/15/35 B2 6,513,906
- ------------------------------------------------------------------------------------------------------------------------------------
8,615 Total Airlines 10,010,831
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES - 0.1%
785 Fleetwood Enterprises Inc., 144A 5.000% 12/15/23 B2 965,550
- ------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 2.4%
8,700 Amgen Inc. 0.000% 3/01/32 A+ 6,829,500
1,320 CV Therapeutics Inc. 2.750% 5/16/12 N/R 1,980,000
1,645 CV Therapeutics Inc. 3.250% 8/16/13 N/R 1,836,231
9,075 Genzyme Corporation 1.250% 12/01/23 BBB 10,288,781
6,000 Invitrogen Corporation 2.000% 8/01/23 N/R 6,540,000
6,900 Medimmune Inc. 1.000% 7/15/23 BBB 6,762,000
- ------------------------------------------------------------------------------------------------------------------------------------
33,640 Total Biotechnology 34,236,512
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 0.3%
3,595 BlackRock Inc. 2.625% 2/15/35 A+ 4,170,200
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.5%
6,435 Electronic Data Systems, Convertible Senior Notes, 144A 3.875% 7/15/23 BBB- 6,451,088
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.9%
7,057 Ciena Corporation 3.750% 2/01/08 B 6,510,083
5,565 Comverse Technology, Inc. 0.000% 5/15/23 BB- 8,424,019
4,095 Lucent Technologies Inc. 2.750% 6/15/23 B1 4,105,238
2,985 Nortel Networks Corp. 4.250% 9/01/08 B- 2,813,363
3,355 Powerwave Technologies Inc. 1.825% 11/15/24 N/R 4,244,075
1,240 Powerwave Technologies Inc. 1.875% 11/15/24 N/R 1,568,600
- ------------------------------------------------------------------------------------------------------------------------------------
24,297 Total Communications Equipment 27,665,378
- ------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.5%
7,205 Sealed Air Corporation, 144A 3.000% 6/30/33 BBB 7,223,013
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.5%
7,500 CapitalSource Inc. 3.500% 7/15/34 BBB- 7,237,500
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.2%
2,425 CenturyTel Inc. 4.750% 8/01/32 BBB+ 2,476,531
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.6%
13,125 Roper Industries Inc. 1.481% 1/15/34 BB- 7,251,563
1,360 Vishay Intertechnology Inc. 3.625% 8/01/23 B+ 1,332,800
- ------------------------------------------------------------------------------------------------------------------------------------
14,485 Total Electronic Equipment & Instruments 8,584,363
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 2.2%
2,600 Cal Dive International Inc. 3.250% 12/15/25 N/R 3,510,000
3,135 Diamond Offshore Drilling, Inc. 1.500% 4/15/31 A- 4,502,644
8,800 Nabors Industries Inc. 0.000% 6/15/23 N/R 10,417,000
2,325 Oil States International Inc., Series 144A 2.375% 7/01/25 N/R 2,766,750
5,265 Pride International Inc. 3.250% 5/01/33 Ba2 6,962,963
2,440 Schlumberger Limited 2.125% 6/01/23 A+ 3,172,000
- ------------------------------------------------------------------------------------------------------------------------------------
24,565 Total Energy Equipment & Services 31,331,357
- ------------------------------------------------------------------------------------------------------------------------------------
21
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS December 31, 2005
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.2%
$ 40 Southern Union Company, Series B 5.750% 8/16/06 Baa3 $ 2,858,025
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.9%
4,315 Advanced Medical Optics 2.500% 7/15/24 B 4,406,694
8,835 Fisher Scientific International Inc. 3.250% 3/01/24 BB+ 8,823,956
13,680 Medtronic, Inc. 1.250% 9/15/21 AA- 13,919,400
- ------------------------------------------------------------------------------------------------------------------------------------
26,830 Total Health Care Equipment & Supplies 27,150,050
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.4%
6,210 Roche Holdings Inc., 144A 0.000% 7/25/21 N/R 5,020,785
- ------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.7%
5,770 Caesars Entertainment Inc. 4.115% 4/15/24 BBB- 7,381,619
11,300 Carnival Corporation 1.132% 4/29/33 A- 8,927,000
3,315 Hilton Hotels Corporation 3.375% 4/15/23 BBB- 3,915,844
5,400 Kerzner International Limited, 144A 2.375% 4/15/24 B 6,959,250
6,305 Scientific Games Corporation 0.750% 12/01/24 B+ 6,785,756
2,915 Starwood Hotels and Resorts Worldwide Inc. 3.500% 5/16/23 BB+ 3,749,419
- ------------------------------------------------------------------------------------------------------------------------------------
35,005 Total Hotels, Restaurants & Leisure 37,718,888
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 1.5%
10,275 3M Company 0.000% 11/21/32 Aa1 9,183,281
5,120 Tyco International Group SA 3.125% 1/15/23 BBB+ 7,001,600
3,350 Tyco International Group SA, Convertible Notes, 144A 3.125% 1/15/23 BBB+ 4,581,125
- ------------------------------------------------------------------------------------------------------------------------------------
18,745 Total Industrial Conglomerates 20,766,006
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.8%
7,555 American Equity Investment Life Holding Company 5.250% 12/06/24 BB+ 8,754,356
2,300 American International Group Inc. 0.500% 5/15/07 AA 2,193,625
- ------------------------------------------------------------------------------------------------------------------------------------
9,855 Total Insurance 10,947,981
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES - 0.5%
7,100 Open Solutions Inc. 1.467% 2/02/35 N/R 3,754,125
5,845 Open Solutions Inc., 144A 1.467% 2/02/35 N/R 3,090,544
- ------------------------------------------------------------------------------------------------------------------------------------
12,945 Total Internet Software & Services 6,844,669
- ------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.1%
2,100 Digital River Inc. 1.250% 1/01/24 N/R 2,010,750
- ------------------------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS - 0.5%
6,195 K2 Corporation, Convertible Notes, 144A 5.000% 6/15/10 N/R 6,419,569
- ------------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.3%
4,180 AGCO Corporation, Series B 1.750% 12/31/33 BB- 3,934,425
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.6%
325 Comcast Corporation 2.000% 10/15/29 BBB 13,000,000
4,000 Echostar Communications Corporation, Convertible 5.750% 5/15/08 B 3,920,000
Subordinated Notes
6,365 Liberty Media Corporation 0.750% 3/30/23 BB+ 6,842,375
10,850 Liberty Media Corporation, Senior Debentures Exchangeable 3.500% 1/15/31 BB+ 11,148,375
for Motorola Common Stock
1,775 Lions Gate Entertainment Corporation, 144A 2.938% 10/15/24 N/R 1,550,906
2,500 Lions Gate Entertainment Corporation, 144A 3.625% 3/15/25 N/R 2,159,375
3,425 Sinclair Broadcast Group, Convertible Senior 4.875% 7/15/18 B 2,984,031
Subordinated Notes, 144A
2,600 Sirius Satellite Radio Inc. 3.250% 10/15/11 CCC 3,737,500
96 Tribune Company, Exchangeable Subordinated Debentures 2.000% 5/15/29 BBB+ 7,187,520
- ------------------------------------------------------------------------------------------------------------------------------------
31,936 Total Media 52,530,082
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.5%
6,325 Dominion Resources Inc., Series C 2.125% 12/15/23 Baa1 6,925,875
- ------------------------------------------------------------------------------------------------------------------------------------
22
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.7%
$ 1,175 Chesapeake Energy Corporation, 144A 2.750% 11/15/35 BB $ 1,255,781
17,480 Devon Energy Corporation 4.900% 8/15/08 BBB 20,211,250
2,075 McMoran Exploration Corporation, Notes, 144A 6.000% 7/02/08 N/R 3,065,813
- ------------------------------------------------------------------------------------------------------------------------------------
20,730 Total Oil, Gas & Consumable Fuels 24,532,844
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 2.6%
3,250 Alexion Pharmaceuticals Inc. 1.375% 2/01/12 N/R 2,766,563
3,390 Alexion Pharmaceuticals Inc., 144A 1.375% 2/01/12 N/R 2,885,738
9,550 Allergan Inc., Convertible Zero Coupon Senior Notes 0.000% 11/06/22 A 11,818,125
7,050 Alza Corporation 0.000% 7/28/20 AAA 5,851,500
6,575 Teva Pharmaceutical Finance, Series B 0.250% 2/01/24 BBB 8,218,750
6,400 Wyeth, 144A 1.000% 1/15/24 A 6,633,856
- ------------------------------------------------------------------------------------------------------------------------------------
36,215 Total Pharmaceuticals 38,174,532
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.1%
1,535 Avatar Holdings Inc., 144A 4.500% 4/01/24 N/R 1,698,094
- ------------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.6%
7,700 CSX Corporation 0.000% 10/30/21 BBB 7,392,000
585 Yellow Roadway Corporation 3.375% 11/25/23 BBB- 721,744
- ------------------------------------------------------------------------------------------------------------------------------------
8,285 Total Road & Rail 8,113,744
- ------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 2.7%
3,100 Agere Systems Inc. 6.500% 12/15/09 B 3,065,125
5,015 ASM International NV 4.250% 12/06/11 B- 4,845,744
4,890 ASM Lithography Holding NV 5.750% 10/15/06 B2 5,596,116
4,000 FEI Company, Convertible Notes 5.500% 8/15/08 B- 3,980,000
6,200 Intel Corporation, 144A 2.950% 12/15/35 N/R 6,083,750
6,475 LSI Logic Corporation 4.000% 5/15/10 Ba3 6,240,281
3,360 Micron Technology, Inc. 2.500% 2/01/10 B2 3,906,000
5,775 RF Micro Devices, Inc. 1.500% 7/01/10 B- 5,334,656
- ------------------------------------------------------------------------------------------------------------------------------------
38,815 Total Semiconductors & Equipment 39,051,672
- ------------------------------------------------------------------------------------------------------------------------------------
SOFTWARE - 1.0%
6,600 Mentor Graphics Corporation, Convertible Subordinated Notes 6.875% 6/15/07 N/R 6,591,750
3,350 Sybase Inc., 144A 1.750% 2/22/25 N/R 3,450,500
3,475 Sybase, Inc. 1.750% 2/22/25 N/R 3,579,250
- ------------------------------------------------------------------------------------------------------------------------------------
13,425 Total Software 13,621,500
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 1.5%
4,510 Dick's Sporting Goods Inc. 1.606% 2/18/24 B 3,162,638
6,710 Lowes Companies, Inc. 0.861% 10/19/21 A+ 7,817,150
3,545 Sonic Automotive Inc., Convertible Senior Subordinated Notes 5.250% 5/07/09 B 3,491,825
8,775 The TJX Companies, Inc. 0.000% 2/13/21 A- 7,052,906
- ------------------------------------------------------------------------------------------------------------------------------------
23,540 Total Specialty Retail 21,524,519
- ------------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.2%
2,830 GATX Corporation 7.500% 2/01/07 BBB- 3,321,713
- ------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.9%
3,495 American Tower Corporation 3.000% 8/15/12 BB- 5,050,275
6,500 NII Holdings Inc., 144A 2.750% 8/15/25 N/R 7,093,125
- ------------------------------------------------------------------------------------------------------------------------------------
9,995 Total Wireless Telecommunication Services 12,143,400
- ------------------------------------------------------------------------------------------------------------------------------------
473,318 Total Convertible Bonds (cost $482,939,613) 511,149,868
- ------------------------------------------------------------------------------------------------------------------------------------
23
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS December 31, 2005
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 15.5% (10.4% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.3%
$ 3,500 K&F Acquisition Inc. 7.750% 11/15/14 B- $ 3,552,500
- ------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.4%
1,600 Affinia Group Inc. 9.000% 11/30/14 CCC+ 1,272,000
2,575 Keystone Automotive Operations Inc. 9.750% 11/01/13 B- 2,240,250
2,500 Tenneco Auto, Inc. 10.250% 7/15/13 B2 2,743,750
- ------------------------------------------------------------------------------------------------------------------------------------
6,675 Total Auto Components 6,256,000
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.6%
2,000 Freeport McMoran Resources Inc. 7.000% 2/15/08 Ba3 2,050,000
1,000 Nell AF Sarl 8.375% 8/15/15 B2 995,000
1,335 OM Group Inc. 9.250% 12/15/11 B- 1,311,638
3,000 Resolution Performance Products LLC 8.000% 12/15/09 B+ 3,075,000
1,500 Rockwood Specialties Group Inc., Series WI 7.500% 11/15/14 B- 1,501,875
- ------------------------------------------------------------------------------------------------------------------------------------
8,835 Total Chemicals 8,933,513
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 0.2%
2,500 HBOS plc, Series 144A 6.413% 9/29/49 A1 2,537,500
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.6%
1,000 Allied Waste North America 7.875% 4/15/13 BB- 1,037,500
667 Allied Waste North America, Series B 9.250% 9/01/12 BB- 725,363
4,015 DST Systems Inc. 4.125% 8/15/23 N/R 5,339,950
1,000 National Mentor Inc. 9.625% 12/01/12 B- 1,050,000
- ------------------------------------------------------------------------------------------------------------------------------------
6,682 Total Commercial Services & Supplies 8,152,813
- ------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.5%
1,520 Berry Plastics Corporation 10.750% 7/15/12 B- 1,641,600
2,000 MDP Acquisitions plc, Senior Notes 9.625% 10/01/12 B- 2,010,000
2,000 Owens-Brockway Glass Containers, Guaranteed Senior Note 8.250% 5/15/13 B 2,075,000
2,000 Owens-Illinois Inc. 7.800% 5/15/18 B 2,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
7,520 Total Containers & Packaging 7,726,600
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.3%
2,000 INTELSAT Bermuda Limited, Series 144A 8.250% 1/15/13 B+ 2,030,000
1,500 Valor Telecommunications Enterprises LLC 7.750% 2/15/15 B1 1,575,000
- ------------------------------------------------------------------------------------------------------------------------------------
3,500 Total Diversified Telecommunication Services 3,605,000
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.5%
3,000 Midwest Generation LLC 8.750% 5/01/34 B1 3,318,750
500 Mirant North America LLC, 144A 7.375% 12/31/13 B1 508,125
3,000 Sierra Pacific Resources, Series 144A 6.750% 8/15/17 B1 3,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
6,500 Total Electric Utilities 6,826,875
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.2%
1,000 Lone Star Technologies Inc. 9.000% 6/01/11 B 1,055,000
1,500 Pride International Inc. 7.375% 7/15/14 Ba2 1,616,250
- ------------------------------------------------------------------------------------------------------------------------------------
2,500 Total Energy Equipment & Services 2,671,250
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.1%
2,000 Stater Brothers Holdings Inc. 8.125% 6/15/12 BB- 1,990,000
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.5%
5,943 Dole Foods Company 7.875% 7/15/13 B+ 6,151,005
356 Dole Foods Company 8.875% 3/15/11 B+ 366,680
- ------------------------------------------------------------------------------------------------------------------------------------
6,299 Total Food Products 6,517,685
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.6%
2,000 Omnicare, Inc. 6.875% 12/15/15 BB+ 2,040,000
1,500 Quintiles Transnational Corporation 10.000% 10/01/13 B 1,680,000
1,300 Select Medical Corporation 7.625% 2/01/15 B- 1,257,750
1,000 U.S. Oncology Inc. 9.000% 8/15/12 B2 1,075,000
2,500 U.S. Oncology Inc. 10.750% 8/15/14 B- 2,787,500
- ------------------------------------------------------------------------------------------------------------------------------------
8,300 Total Health Care Providers & Services 8,840,250
- ------------------------------------------------------------------------------------------------------------------------------------
24
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.3%
$ 2,000 Boyd Gaming Corporation 8.750% 4/15/12 B+ $ 2,155,000
2,000 Boyd Gaming Corporation 7.750% 12/15/12 B+ 2,105,000
2,552 Dominos Inc. 8.250% 7/01/11 B 2,679,600
1,500 Herbst Gaming Inc. 7.000% 11/15/14 B- 1,500,000
2,900 Intrawest Corporation 7.500% 10/15/13 B+ 2,950,750
2,000 Landry's Restaurants Inc., Series B 7.500% 12/15/14 B 1,880,000
1,600 Park Place Entertainment 8.125% 5/15/11 BB+ 1,774,000
2,500 Park Place Entertainment 7.000% 4/15/13 BBB- 2,678,245
6,000 Penn National Gaming Inc., Senior Subordinated Notes 8.875% 3/15/10 B 6,330,000
750 Pinnacle Entertainment Inc. 8.750% 10/01/13 B- 802,500
2,000 Pinnacle Entertainment Inc. 8.250% 3/15/12 B- 2,077,500
2,000 Town Sports International Inc. 9.625% 4/15/11 B2 2,105,000
4,000 Universal City Development Partners 11.750% 4/01/10 B2 4,505,000
- ------------------------------------------------------------------------------------------------------------------------------------
31,802 Total Hotels, Restaurants & Leisure 33,542,595
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 1.0%
2,000 K. Hovnanian Enterprises Inc., Senior Subordinated Notes 8.875% 4/01/12 Ba2 2,088,226
3,000 KB Home 8.625% 12/15/08 Ba2 3,201,519
3,300 Stanley Works Capital Trust I, 144A 5.902% 12/01/45 Baa1 3,284,714
5,175 Technical Olympic USA Inc., Senior Subordinated Notes 10.375% 7/01/12 B2 5,116,781
- ------------------------------------------------------------------------------------------------------------------------------------
13,475 Total Household Durables 13,691,240
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.1%
1,650 Central Garden & Pet Company 9.125% 2/01/13 B+ 1,749,000
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.1%
1,239 NRG Energy Inc., Series WI 8.000% 12/15/13 B1 1,387,680
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.3%
1,700 AIG Capital Trust I, 144A 5.900% 12/21/65 A 1,708,495
2,000 Fairfax Financial Holdings Ltd. 7.750% 4/26/12 BB 1,876,164
- ------------------------------------------------------------------------------------------------------------------------------------
3,700 Total Insurance 3,584,659
- ------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.5%
1,625 Global Cash Access LLC 8.750% 3/15/12 B- 1,736,719
4,750 SunGard Data Systems Inc., Series 144A 9.125% 8/15/13 B- 4,940,000
- ------------------------------------------------------------------------------------------------------------------------------------
6,375 Total IT Services 6,676,719
- ------------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.6%
1,220 Terex Corporation, Senior Subordinated Notes 10.375% 4/01/11 B 1,299,300
6,095 Terex Corporation, Senior Subordinated Notes 9.250% 7/15/11 B 6,536,888
1,000 The Greenbrier Companies, Inc. 8.375% 5/15/15 B+ 1,025,000
200 The Greenbrier Companies, Inc., 144A 8.375% 5/15/15 B+ 205,000
- ------------------------------------------------------------------------------------------------------------------------------------
8,515 Total Machinery 9,066,188
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 2.6%
4,000 Allbritton Communications Company, Series B 7.750% 12/15/12 B- 4,040,000
2,000 American Media Operations Inc. 8.875% 1/15/11 CCC+ 1,710,000
3,530 American Media Operations Inc., Series B 10.250% 5/01/09 CCC+ 3,238,775
5,000 Cablevision Systems Corporation 7.250% 7/15/08 B+ 5,012,500
1,000 Cablevision Systems Corporation, Series B 8.125% 8/15/09 B+ 1,015,000
2,000 Charter Communications Operating LLC, 144A 8.000% 4/30/12 B2 2,000,000
1,500 Lowes Cineplex Entertainment Corporation, Series WI 9.000% 8/01/14 B3 1,522,500
2,800 Mail-Well I Corporation, Senior Unsecured Note, 144A 9.625% 3/15/12 B+ 3,038,000
1,950 Panamsat Corporation 9.000% 8/15/14 B+ 2,052,375
6,000 Primedia Inc., Senior Notes 8.875% 5/15/11 B 5,565,000
4,550 Vertis Inc. 9.750% 4/01/09 B3 4,737,688
4,000 Young Broadcasting Inc., Senior Subordinated Note 10.000% 3/01/11 CCC 3,765,000
- ------------------------------------------------------------------------------------------------------------------------------------
38,330 Total Media 37,696,838
- ------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.2%
2,000 Chaparral Steel Company 10.000% 7/15/13 B1 2,165,000
- ------------------------------------------------------------------------------------------------------------------------------------
25
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS December 31, 2005
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.7%
$ 2,400 Baytex Energy Ltd. 9.625% 7/15/10 B- $ 2,532,000
400 Chaparral Energy Inc., 144A 8.500% 12/01/15 B 416,000
2,345 Chesapeake Energy Corporation 7.750% 1/15/15 BB 2,497,425
2,000 Hilcorp Energy I LP/Hilcorp Finance Company, Series 144A 7.750% 11/01/15 B 2,045,000
2,000 SemGroup LP, 144A 8.750% 11/15/15 B1 2,055,000
250 Whiting Petroleum Corporation, Series 144A 7.000% 2/01/14 B2 251,875
- ------------------------------------------------------------------------------------------------------------------------------------
9,395 Total Oil, Gas & Consumable Fuels 9,797,300
- ------------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.5%
2,000 Georgia Pacific Corporation, Debentures 7.700% 6/15/15 Ba2 1,940,000
5,000 Georgia Pacific Corporation, Notes 8.125% 5/15/11 Ba2 5,031,250
- ------------------------------------------------------------------------------------------------------------------------------------
7,000 Total Paper & Forest Products 6,971,250
- ------------------------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS - 0.1%
1,500 Prestige Brands Inc. 9.250% 4/15/12 B- 1,485,000
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.2%
2,000 Alpharma Inc., Reg S 8.625% 5/01/11 B- 2,182,500
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.2%
1,625 CB Richard Ellis Services Inc. 9.750% 5/15/10 BB- 1,779,370
1,000 Trustreet Properties, Inc. 7.500% 4/01/15 B+ 1,005,000
- ------------------------------------------------------------------------------------------------------------------------------------
2,625 Total Real Estate 2,784,370
- ------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 0.1%
800 Avago Technologies Finance Pte. Ltd., 144A 10.125% 12/01/13 B 826,000
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.9%
4,100 Asbury Automotive Group Inc. 9.000% 6/15/12 B 4,120,500
1,000 GSC Holdings Corporation, 144A 8.000% 10/01/12 Ba3 945,000
1,120 Movie Gallery Inc., Series WI 11.000% 5/01/12 B3 879,200
2,000 Stripes Acquisition/Susser Finance Corporation, Series 144A 10.625% 12/15/13 B 2,040,000
5,000 Warnaco Inc., Senior Notes 8.875% 6/15/13 B+ 5,412,500
- ------------------------------------------------------------------------------------------------------------------------------------
13,220 Total Specialty Retail 13,397,200
- ------------------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL - 0.2%
3,000 Jostens IH Corporation 7.625% 10/01/12 B- 3,030,000
- ------------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.1%
2,000 United Rentals North America Inc. 6.500% 2/15/12 BB- 1,957,500
- ------------------------------------------------------------------------------------------------------------------------------------
213,437 Total Corporate Bonds (cost $220,800,130) 219,601,025
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 29.6% (20.0% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 4.1%
2,500 Ahmanson Capital Trust I, 144A 8.360% 12/01/26 Baa1 2,646,975
1,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 1,056,801
4,850 BT Institutional Capital Trust A, 144A 8.090% 12/01/26 A2 5,150,128
3,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 3,171,900
1,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 1,296,193
27,500 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 28,445,175
3,000 First Security Capital I 8.410% 12/15/26 Aa2 3,202,908
8,000 UBS Preferred Funding Trust I 8.622% 10/29/49 AA- 9,160,296
3,800 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 4,096,313
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 58,226,689
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 19.1%
3,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 3,074,043
9,500 Abbey National Capital Trust I 8.963% 6/30/50 A2 12,963,672
6,500 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 6,678,841
26
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
3,000 Bank One Capital III 8.750% 9/01/30 A1 $ 4,044,363
1,000 BankAmerica Capital II, Series 2 8.000% 12/15/26 Aa3 1,062,330
6,000 BankBoston Capital Trust I, Series B 8.250% 12/15/26 Aa3 6,392,466
2,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 2,122,020
13,030 Barclays Bank plc, 144A (5) 8.550% 6/15/49 Aa3 15,049,090
3,000 Centura Capital Trust I, 144A 8.845% 6/01/27 A2 3,264,099
1,500 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 1,661,471
1,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 1,058,388
6,200 First Empire Capital Trust I 8.234% 2/01/27 Baa1 6,618,568
2,000 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 2,220,352
30,000 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 30,506,520
2,400 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 2,811,408
5,750 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 8,809,805
11,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A2 12,731,488
1,000 KeyCorp Capital II 6.875% 3/17/29 A3 1,105,898
6,300 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 6,671,505
18,600 Lloyds TSB Bank plc, Subordinated Note 6.900% 11/22/49 Aa2 18,909,820
20,000 M&I Capital Trust A 7.650% 12/01/26 A2 21,142,800
5,000 NB Capital Trust IV 8.250% 4/15/27 Aa3 5,355,760
1,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 A3 1,069,163
12,000 North Fork Capital Trust II 8.000% 12/15/27 A3 12,985,740
1,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 1,031,876
16,500 RBS Capital Trust B 6.800% 12/31/49 A1 16,754,414
100 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 109,077
2,365 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 2,461,643
8,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 8,061,040
10,500 St. George Funding Company LLC 8.485% 6/30/17 Baa1 11,452,403
1,650 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 1,895,264
2,000 Unicredito Italiano Capital Trust, 144A 9.200% 4/05/51 A- 2,318,756
300 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 33,693,750
100 Wachovia Capital Trust I, Capital Securities, 144A 7.640% 1/15/27 A1 105,902
5,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 5,340,080
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 271,533,815
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 1.6%
4,000 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 4,106,356
14,025 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 14,823,948
15 Citigroup Capital X 6.100% 9/30/33 Aa2 353,655
2,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 2,945,190
- ------------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 22,229,149
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.9%
10 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 A- 12,900,538
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 2.2%
250 Allstate Financing II 7.830% 12/01/45 A2 263,859
2,300 American General Capital II 8.500% 7/01/30 Aa3 3,098,808
4,000 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 3,982,656
1,000 MIC Financing Trust I 8.375% 2/01/27 A+ 1,024,851
7,250 Prudential plc 6.500% 6/29/49 A 7,194,770
9,500 Sun Life Canada Capital Trust, Capital Securities, 144A 8.526% 5/06/47 A+ 10,244,715
5,000 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 5,413,095
- ------------------------------------------------------------------------------------------------------------------------------------
Total Insurance 31,222,754
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.6%
1,200 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 1,285,772
6,110 KN Capital Trust III 7.630% 4/15/28 Baa3 6,783,811
- ------------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 8,069,583
- ------------------------------------------------------------------------------------------------------------------------------------
27
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS December 31, 2005
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.0%
12,250 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 $ 13,412,562
1,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 1,068,140
- ------------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 14,480,702
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 0.1%
48 Fannie Mae 5.100% 4/15/49 AA- 2,069,356
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $427,858,329) 420,732,586
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 1.7% (1.1% OF TOTAL INVESTMENTS)
Repurchase Agreement with State Street Bank, dated 12/30/05,
repurchase price $24,139,066, collateralized by $17,905,000,
$ 24,130 U.S. Treasury Bonds, 7.875%, due 2/15/21, value $24,619,375 3.250% 1/03/06 24,130,352
============------------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $24,130,352) 24,130,352
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,085,896,857) - 148.3% 2,105,496,592
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.6% 22,449,324
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (49.9)% (708,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $1,419,945,916
====================================================================================================================
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2005
FIXED RATE
PAID FIXED RATE FLOATING RATE FLOATING RATE UNREALIZED
NOTIONAL BY THE FUND PAYMENT RECEIVED PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT (ANNUALIZED) FREQUENCY BY THE FUND(4) FREQUENCY DATE (DEPRECIATION)
--------------------------------------------------------------------------------------------------------------------
JPMorgan $71,000,000 1.974% Monthly 4.370% Monthly 1/22/2006 $ 137,305
JPMorgan 71,000,000 3.395% Monthly 4.320% Monthly 7/06/2006 509,201
JPMorgan 71,000,000 2.994% Monthly 4.370% Monthly 1/22/2008 2,520,576
Morgan Stanley 71,000,000 2.567% Monthly 4.370% Monthly 1/22/2007 1,652,492
Morgan Stanley 71,000,000 3.406% Monthly 4.370% Monthly 1/22/2009 2,820,188
--------------------------------------------------------------------------------------------------------------------
$7,639,762
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Ratings (not covered by the report of independent
registered public accounting firm): Using the higher of
Standard & Poor's or Moody's rating. Ratings below Baa
by Moody's Investor Services, Inc. or BBB by Standard
and Poor's group are considered to be below investment
grade.
(3) Security is eligible for the Dividends Received
Deduction.
(4) Based on LIBOR (London Interbank Offered Rate).
(5) Investment valued at fair value using methods
determined in good faith by, or at the discretion of,
the Board of Trustees.
N/R Investment is not rated.
144A Securities are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These
securities may only be resold in transactions exempt
from registration which are normally those transactions
with qualified institutional buyers.
Reg S Regulation S allows U.S. companies to sell securities
to persons or entities located outside of the U.S.
without registering those securities with the
Securities and Exchange Commission. Specifically,
Reg S provides a safe harbor from the registration
requirements of the Securities Act for the offers and
sales of securities by both foreign and domestic
issuers that are made outside the United States.
CBTCS Corporate Backed Trust Certificates.
CORTS Corporate Backed Trust Securities.
PCARS Public Credit and Repackaged Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
28
Nuveen Preferred and Convertible Income Fund 2 (JQC)
Portfolio of
INVESTMENTS December 31, 2005
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 12.5% (8.5% OF TOTAL INVESTMENTS)
CHEMICALS - 0.6%
179,435 Celanese Corporation 4.250% N/R $ 5,051,095
152,195 Huntsman Corporation 5.000% N/R 6,160,854
- ------------------------------------------------------------------------------------------------------------------------------------
Total Chemicals 11,211,949
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 2.3%
12,090,000 Fortis Insurance NV, 144A 7.750% A+ 14,644,013
130,500 HSBC Finance Corporation 8.875% A1 5,174,978
351,450 Marshall and Ilsley Corporation 6.500% A2 9,306,396
273,600 National Australia Bank Limited 7.875% N/R 10,779,840
115,725 Washington Mutual, Inc., Unit 1 Trust 5.375% Baa1 6,316,502
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 46,221,729
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.4%
161,900 TXI Capital Trust I 6.500% B2 8,370,230
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.7%
13,400,000 SLM Corporation 4.150% A 13,782,972
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.2%
90,550 Entergy Corporation 7.625% BBB 4,504,863
154,500 FPL Group Inc. 8.000% A- 9,574,365
2,630,000 PG&E Corporation 9.500% N/R 7,337,700
76,430 PNM Resources Inc. 6.750% Baa3 3,599,089
- ------------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 25,016,017
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.3%
124,000 Baxter International Inc. 7.000% Baa1 6,665,000
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.4%
109,300 Omnicare Capital Trust II, Series B 4.000% BB 8,117,711
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.4%
187,325 Newell Financial Trust I 5.250% BBB- 7,820,819
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 2.8%
100,500 Aspen Insurance Holdings Limited 5.625% BBB- 4,924,500
503,775 Genworth Financial Inc. 6.000% A 19,173,677
154,575 IPC Holdings Limited 7.250% BBB- 4,231,491
570,475 MetLife Inc., Convertible, Series B 6.375% BBB+ 15,716,586
62,000 Platinum Underwriters Holdings Limited, Series A 6.000% BB+ 1,958,580
276,200 The Chubb Corporation 7.000% A 9,716,716
- ------------------------------------------------------------------------------------------------------------------------------------
Total Insurance 55,721,550
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.3%
137,000 Emmis Communications Corporation, Series A 6.250% CCC+ 6,107,460
- ------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.3%
4,265 Freeport McMoran Copper & Gold, Inc. 5.500% B- 5,118,000
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.3%
34,725 Amerada Hess Corporation 7.000% BB 3,753,078
91,900 Chesapeake Energy Corporation 4.500% B+ 8,869,269
31,950 Chesapeake Energy Corporation, 144A 5.000% B 3,378,713
222,100 Teekay Shipping Corporation 7.250% BB- 10,087,782
- ------------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 26,088,842
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.6%
217,875 Schering-Plough Corporation 6.000% BBB 11,719,496
- ------------------------------------------------------------------------------------------------------------------------------------
29
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS December 31, 2005
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.4%
86,650 New York Community Bancorp Inc Capital Trust V 6.000% Baa2 $ 4,046,555
140,000 PMI Group Inc. 5.875% A1 3,451,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 7,497,555
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 0.5%
111 Fannie Mae 5.375% AA- 10,227,623
- ------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $232,961,858) 249,686,953
- ------------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) SECURITIES - 50.9% (34.8% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.0%
3,000 DaimlerChrysler AG (CORTS) 7.875% A3 73,860
2,200 DaimlerChrysler Corp. (PPLUS) 7.250% A3 53,020
- ------------------------------------------------------------------------------------------------------------------------------------
Total Automobiles 126,880
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 4.4%
113,300 Bear Stearns Capital Trust III 7.800% A2 2,883,485
27,000 BNY Capital Trust IV, Series E 6.875% A1 679,050
306,984 BNY Capital Trust V, Series F 5.950% A1 7,438,222
218,000 Compass Capital Trust III 7.350% A3 5,519,760
31,600 CSFB USA, Series 2002-10 (SATURNS) 7.000% Aa3 794,740
49,000 First Union Capital II, Series II (CORTS) 7.500% A1 1,273,020
22,600 First Union Institutional Capital II (CORTS) 8.200% A1 610,426
18,800 First Union Institutional Capital II, Series III (CORTS) 7.500% A1 472,068
5,300 Goldman Sachs Capital I (CORTS) 6.000% A1 124,524
1,400 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 32,438
8,800 Goldman Sachs Group Inc., (3) 6.200% A2 224,400
9,400 Goldman Sachs Group Inc., PPLUS, Series GSC-3 6.000% A1 219,960
12,300 Goldman Sachs Group Inc., Series 2003-06 (SATURNS) 6.000% Aa3 291,018
4,800 Goldman Sachs Group Inc., Series 2004-04 (SATURNS) 6.000% A1 111,600
1,300 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 30,290
198,350 Lehman Brothers Holdings Inc., Series C, (3) 5.940% BBB+ 9,917,500
96,800 Lehman Brothers Holdings Inc., Series D, (3) 5.670% A3 4,680,280
425,000 Lehman Brothers Holdings Inc., Series F, (3) 6.500% A- 11,156,250
71,500 Merrill Lynch Capital Trust II 8.000% A1 1,850,420
48,400 Merrill Lynch Preferred Capital Trust 7.750% A1 1,239,040
264,400 Merrill Lynch Preferred Capital Trust III 7.000% A1 6,773,928
188,800 Merrill Lynch Preferred Capital Trust IV 7.120% A1 4,857,824
283,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 7,402,408
117,980 Morgan Stanley (PPLUS) 7.050% Aa3 3,014,389
211,850 Morgan Stanley Capital Trust II 7.250% A1 5,395,820
203,200 Morgan Stanley Capital Trust III 6.250% A1 4,956,048
138,400 Morgan Stanley Capital Trust IV 6.250% A1 3,354,816
14,100 Morgan Stanley Capital Trust V 5.750% A+ 320,634
13,400 UBS Preferred Funding Trust III 7.250% AA- 339,690
50,300 Washington Mutual Capital Trust I, Series 2001-22, 7.650% Baa1 1,270,075
Class A-1 (CORTS)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 87,234,123
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 11.2%
58,700 Abbey National plc, Series B 7.250% A1 1,490,980
36,200 Abbey National plc, Series B 7.375% A 955,318
303,200 Abbey National PLC, Series C 7.375% A2 7,761,920
863,770 ABN AMRO Capital Fund Trust V 5.900% A 20,462,711
79,779 ABN AMRO Capital Fund Trust VI 6.250% A 1,994,475
17,021 ABN AMRO Capital Trust Fund VII 6.080% A 415,312
115,200 ASBC Capital I 7.625% Baa1 2,951,424
203,410 BAC Capital Trust I 7.000% Aa3 5,158,478
560,200 BAC Capital Trust II 7.000% Aa3 14,262,692
163,900 BAC Capital Trust III 7.000% Aa3 4,181,089
1,010,000 Banco Santander 6.410% A2 25,351,000
71,750 Banco Totta & Acores Finance, Series A 8.875% A3 1,838,594
5,600 BancorpSouth Capital Trust I 8.150% Baa2 142,464
13,400 Banesto Holdings, Series A, 144A 10.500% A2 402,000
167,700 Bank One Capital Trust VI 7.200% A1 4,283,058
53,200 BankNorth Capital Trust II 8.000% A3 1,371,496
145,700 Chittenden Capital Trust I 8.000% Baa1 3,740,119
30
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
146,500 Cobank ABC, 144A, (3) 7.000% N/R $ 7,577,126
118,600 Comerica Capital Trust I 7.600% A3 2,994,650
17,400 Fleet Capital Trust II (CORTS) 8.000% Aa3 443,700
512,200 Fleet Capital Trust VII 1.800% Aa3 12,917,684
430,300 Fleet Capital Trust VIII 7.200% Aa3 10,938,226
62,400 HSBC Finance Corporation 6.875% A1 1,621,152
37,600 KeyCorp (PCARS) 7.500% A3 955,040
135,700 KeyCorp Capital Trust V 5.875% A3 3,182,165
29,600 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 771,080
35,800 KeyCorp, Series B (CORTS) 8.250% A3 898,938
92,600 National Commerce Capital Trust II 7.700% A1 2,361,300
63,900 National Westminster Bank plc, Series A 7.875% Aa2 1,623,699
21,700 ONB Capital Trust II 8.000% Baa2 558,558
54,400 PNC Capital Trust 6.125% A3 1,312,672
26,400 Regions Finance Trust I 8.000% A2 663,960
270,700 Royal Bank of Scotland Group plc, Series L 5.750% A1 6,239,635
124,740 Royal Bank of Scotland Group plc, Series N 6.350% A1 3,134,716
160,600 SunTrust Capital Trust IV 7.125% A1 4,058,362
110,300 SunTrust Capital Trust V 7.050% A1 2,791,693
664,800 USB Capital Trust III 7.750% Aa3 16,939,104
348,900 USB Capital Trust IV 7.350% Aa3 8,907,417
301,200 USB Capital Trust V 7.250% Aa3 7,635,420
31,800 USB Capital Trust VI 5.750% Aa3 727,584
39,200 USB Capital Trust VII 5.875% Aa3 914,144
39,100 VNB Capital Trust I 7.750% Baa1 996,268
11,000 Well Fargo Capital Trust IX 5.625% Aa2 251,680
40,000 Wells Fargo Capital Trust IV 7.000% Aa2 1,022,400
483,400 Wells Fargo Capital Trust V 7.000% Aa2 12,220,352
115,100 Wells Fargo Capital Trust VI 6.950% Aa2 2,907,426
236,550 Wells Fargo Capital Trust VII 5.850% Aa2 5,684,297
21,800 Wells Fargo Capital Trust VIII 5.625% Aa2 505,978
117,800 Zions Capital Trust B 8.000% Baa1 3,069,868
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 223,589,424
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.1%
17,600 IBM Inc. (CORTS) 7.125% A+ 443,344
28,700 IBM Inc., Series 2001-1 (SATURNS) 7.125% A+ 722,953
13,700 IBM Trust II (CORTS) 7.125% A+ 344,418
8,000 IBM Trust III (CORTS) 7.200% A+ 204,880
24,800 IBM Trust IV (CORTS) 7.000% A+ 627,440
- ------------------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 2,343,035
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.7%
40,900 Household Capital Trust VI 8.250% A2 1,038,860
99,400 Household Capital Trust VII 7.500% A2 2,538,676
28,400 SLM Corporation 6.000% A 673,080
174,000 SLM Corporation, Series A, (3) 6.970% BBB+ 9,218,520
- ------------------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 13,469,136
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.5%
13,800 BBVA Preferred Capital Ltd., Series B 7.750% A1 348,105
236,500 CIT Group Inc., Series A, (3) 6.350% BBB+ 6,113,525
27,700 CIT Group Incorporated (CORTS) 7.750% A3 747,346
270,700 Citigroup Capital Trust IX 6.000% Aa2 6,556,354
197,400 Citigroup Capital Trust VII 7.125% Aa2 5,008,038
1,138,322 Citigroup Capital Trust VIII 6.950% Aa2 28,708,481
24,000 Citigroup Inc., Series H, (3) 6.231% Aa3 1,257,600
3,200 Citigroup, Series CIT (CORTS) 6.750% A3 80,320
63,100 General Electric Capital Corporation 5.875% AAA 1,538,378
40,500 General Electric Capital Corporation 6.625% AAA 1,023,030
1,900 General Electric Capital Corporation (CORTS) 6.000% AAA 47,025
755,475 ING Group N.V. 7.050% A 19,332,605
592,320 ING Group N.V. 7.200% A 15,204,854
43,200 JPM Capital Trust (CORTS) 7.200% A2 1,118,448
31
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS December 31, 2005
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
9,900 JPM Capital Trust I, Series 2001-1, Class A-1 (CORTS) 7.850% A1 $ 257,301
71,965 JPMorgan Chase & Company (PCARS) 7.125% A2 1,800,564
22,000 JPMorgan Chase Capital Trust IX, Series I 7.500% A1 560,780
712,420 JPMorgan Chase Capital Trust X 7.000% A1 18,116,841
32,200 JPMorgan Chase Capital Trust XVI 6.350% A1 805,644
73,600 JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS) 7.125% A1 1,898,880
- ------------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 110,524,119
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.6%
68,900 AT&T Inc. 7.000% A 1,728,012
37,900 BellSouth Capital Funding (CORTS) 7.100% A1 976,683
29,100 BellSouth Corporation (CORTS) 7.000% Aa3 730,119
50,600 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 1,266,518
32,600 BellSouth Inc. (CORTS) 7.000% A 842,384
71,000 BellSouth Telecommunications (PPLUS) 7.300% Aa3 1,785,650
60,600 Deutsche Telekom International Finance B.V., Series 2001-24, 7.875% A- 1,521,060
Class A-1 (CORTS)
27,300 Verizon Communications (CORTS) 7.625% A+ 697,788
48,100 Verizon Communications (CORTS) 7.375% A+ 1,227,512
50,700 Verizon New England Inc., Series B 7.000% A3 1,292,850
30,300 Verizon South Inc., Series F 7.000% A 767,802
- ------------------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 12,836,378
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.6%
6,000 Consolidated Edison Company 7.250% A2 153,780
16,300 Consolidated Edison Company of New York Inc. 7.500% A1 411,575
21,100 DTE Energy Trust I 7.800% Baa3 537,206
28,900 Entergy Louisiana Inc. 7.600% A- 733,771
8,300 Entergy Mississippi Inc. 7.250% A- 215,136
3,000 Georgia Power Capital Trust V 7.125% A3 75,690
6,900 Georgia Power Company 5.700% AAA 168,291
1,500 Georgia Power Company 5.900% A 36,225
130,000 Interstate Power and Light Company, (3) 7.100% BBB- 3,513,900
11,700 Mississippi Power Capital Trust II 7.200% A2 295,659
4,500 National Rural Utilities Cooperative Finance Corporation 7.600% A3 113,490
5,200 National Rural Utilities Cooperative Finance Corporation 7.400% A3 133,120
1,500 National Rural Utilities Cooperative Finance Corporation 6.100% A3 35,790
1,900 National Rural Utilities Cooperative Finance Corporation 5.950% A3 44,840
33,600 Northern States Power Company 8.000% A3 864,864
34,300 Southern Company Capital Trust I (CORTS) 7.375% BBB+ 886,655
15,300 Southern Company Capital Trust I (CORTS) 8.190% BBB+ 420,138
13,100 Southern Company Capital Trust VI 7.125% BBB+ 337,587
8,100 Tennessee Valley Authority, Series A 4.081% AAA 195,291
122,500 Virginia Power Capital Trust 7.375% Baa1 3,138,450
- ------------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 12,311,458
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
75,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 7,532,813
- ------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.1%
75,300 AGL Capital Trust II 8.000% BBB 1,916,385
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.7%
587,500 Aetna Inc. 8.500% BBB+ 14,969,500
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.0%
5,000 General Electric Company, Series GE (CORTS) 6.800% AAA 130,150
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 11.3%
1,127,233 Ace Ltd., Series C 7.800% Baa2 29,420,781
1,398,400 Aegon N.V. 6.375% A- 35,323,584
6,100 Allstate Corporation (PCARS) 7.150% A2 154,513
1,500 AMBAC Financial Group Inc. 7.000% AA 37,830
90,300 AMBAC Financial Group Inc. 5.950% AA 2,167,200
676,401 Delphi Financial Group, Inc. 8.000% BBB 17,647,302
198,456 EverestRe Capital Trust II 6.200% Baa1 4,395,800
32
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
95,500 EverestRe Group Limited 7.850% Baa1 $ 2,433,340
12,600 Financial Security Assurance Holdings 6.875% AA 320,796
338,200 Hartford Capital Trust III, Series C 7.450% Baa1 8,546,314
45,700 Hartford Life Capital Trust II, Series B 7.625% Baa1 1,164,436
56,500 Lincoln National Capital Trust V, Series E 7.650% Baa1 1,435,665
1,404,000 Lincoln National Capital Trust VI 6.750% Baa1 35,521,200
827,600 MetLife Inc., Series B, (3) 6.500% Baa1 21,451,392
82,700 PartnerRe Limited 7.900% A3 2,108,850
903,702 PartnerRe Limited, Series C 6.750% BBB+ 21,842,477
80,400 PLC Capital Trust III 7.500% BBB+ 2,046,984
68,700 PLC Capital Trust IV 7.250% BBB+ 1,750,476
23,900 PLC Capital Trust V 6.125% BBB+ 568,581
38,800 Prudential plc 6.750% A 999,876
124,700 RenaissanceRe Holdings Limited, Series B 7.300% BBB 3,149,922
3,400 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 68,680
115,800 RenaissanceRe Holdings Ltd., Series A 8.100% BBB+ 2,927,424
23,100 Safeco Capital Trust I (CORTS) 8.750% Baa2 683,760
29,300 Safeco Capital Trust I (CORTS) 8.700% Baa2 820,986
22,100 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 576,921
47,200 Safeco Capital Trust III (CORTS) 8.072% Baa2 1,246,080
17,200 Safeco Capital Trust IV (CORTS) 8.375% Baa2 461,218
39,300 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 1,014,137
39,800 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 1,038,382
6,700 Saint Paul Capital Trust I 7.600% Baa1 171,855
61,600 Torchmark Capital Trust I 7.750% A- 1,589,896
121,600 W.R. Berkley Capital Trust, Series 2002-1 (CBTCS) 8.125% BBB- 1,235,456
709,300 W.R. Berkley Corporation 6.750% BBB- 17,732,500
68,800 XL Capital Ltd, Series A 8.000% Baa1 1,750,272
103,900 XL Capital Ltd, Series B 7.625% Baa1 2,649,450
- ------------------------------------------------------------------------------------------------------------------------------------
Total Insurance 226,454,336
- ------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.0%
2,500 Vertex Industries Inc. (PPLUS) 7.625% A+ 63,988
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.1%
52,700 CBS Corporation 7.300% BBB+ 1,325,405
5,500 The Walt Disney Company 7.000% A- 140,250
1,200 Walt Disney Company (CORTS) 6.875% A- 30,780
- ------------------------------------------------------------------------------------------------------------------------------------
Total Media 1,496,435
- ------------------------------------------------------------------------------------------------------------------------------------
MULTILINE RETAIL - 0.0%
4,000 Nordstrom Inc. (CORTS) 7.625% A- 102,800
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.2%
52,400 Dominion CNG Capital Trust I 7.800% Baa1 1,337,248
30,700 Dominion Resources Capital Trust II 8.400% Baa2 780,701
88,100 Energy East Capital Trust I 8.250% BBB- 2,260,646
- ------------------------------------------------------------------------------------------------------------------------------------
Total Multi-Utilities 4,378,595
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
685,000 Nexen, Inc. 7.350% Baa3 17,686,700
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
50,000 Bristol Myers Squibb Company (CORTS) 6.250% A+ 1,280,000
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 11.2%
243,757 AMB Property Corporation, Series O 7.000% Baa2 6,184,115
77,100 AvalonBay Communities, Inc., Series H 8.700% BBB 2,104,830
220,400 BRE Properties, Series B 8.080% BBB- 5,571,712
111,466 BRE Properties, Series D 6.750% BBB- 2,730,917
617,657 CarrAmerica Realty Corporation, Series E 7.500% BBB- 15,595,839
104,300 Developers Diversified Realty Corporation, Series G 8.000% BBB- 2,675,295
1,264,845 Developers Diversified Realty Corporation, Series H 7.375% BBB- 31,494,641
125,600 Duke Realty Corporation, Series L 6.600% BBB 3,042,032
98,000 Duke-Weeks Realty Corporation 6.625% BBB 2,413,740
33
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS December 31, 2005
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
25,000 Duke-Weeks Realty Corporation, Series B 7.990% BBB $ 1,262,500
5,400 Duke-Weeks Realty Corporation, Series I 8.450% BBB 135,270
193,200 Equity Office Properties Trust, Series G 7.750% BBB- 4,918,872
3,200 Equity Residential Properties Trust, Series C 9.125% BBB 81,216
15,400 Equity Residential Properties Trust, Series D 8.600% BBB 393,316
348,622 Equity Residential Properties Trust, Series N 6.480% BBB 8,321,607
140,000 Federal Realty Investment Trust 8.500% BBB- 3,607,800
10,400 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 267,176
426,229 HRPT Properties Trust, Series A 9.875% BBB- 10,839,003
459,400 HRPT Properties Trust, Series B 8.750% BBB- 11,898,460
99,800 New Plan Excel Realty Trust, Series E 7.625% BBB- 2,509,970
3,997 Prologis Trust, Series C 8.540% BBB 234,074
96,275 Prologis Trust, Series G 6.750% BBB 2,377,993
299,600 PS Business Parks, Inc. 7.000% BBB- 7,250,320
2,000 PS Business Parks, Inc., Series F 8.750% BBB- 50,860
700 PS Business Parks, Inc., Series K 7.950% BBB- 18,060
243,000 PS Business Parks, Inc., Series L 7.600% BBB- 6,160,050
149,000 Public Storage, Inc., Series E 6.750% BBB+ 3,687,750
14,600 Public Storage, Inc., Series F 6.450% BBB+ 337,260
31,400 Public Storage, Inc., Series Q 8.600% BBB+ 785,628
156,850 Public Storage, Inc., Series R 8.000% BBB+ 3,969,874
55,860 Public Storage, Inc., Series S 7.875% BBB+ 1,417,168
45,000 Public Storage, Inc., Series T 7.625% BBB+ 1,141,200
174,000 Public Storage, Inc., Series U 7.625% BBB+ 4,403,940
31,500 Public Storage, Inc., Series V 7.500% BBB+ 813,015
166,100 Regency Centers Corporation 7.450% BBB- 4,194,025
20,500 Simon Property Group, Inc., Series F 8.750% Baa2 521,725
20,650 Simon Property Group, Inc., Series G 7.890% BBB 1,063,475
2,600 United Dominion Realty Trust 8.600% BBB- 66,872
500,000 Ventas Realty LP, Series WI 7.125% BB+ 527,500
30,000 Vornado Realty Trust, Series E 7.000% BBB- 756,600
1,200 Vornado Realty Trust, Series F 6.750% BBB- 28,500
165,000 Vornado Realty Trust, Series G 6.625% BBB- 3,847,800
183,000 Vornado Realty Trust, Series H 6.750% BBB- 4,337,100
76,776 Vornado Realty Trust, Series I 6.625% BBB- 1,782,739
1,987,734 Wachovia Preferred Funding Corporation 7.250% A2 55,537,288
130,300 Weingarten Realty Trust, Series E 6.950% A- 3,329,165
- ------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate 224,688,292
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.0%
30,300 Sherwin Williams Company, Series III (CORTS) 7.250% A+ 788,406
- ------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.0%
81,500 Countrywide Capital Trust II, Series II (CORTS) 8.000% BBB+ 2,078,250
70,800 Countrywide Capital Trust III (PPLUS) 8.050% BBB+ 1,845,756
668,400 Countrywide Capital Trust IV 6.750% BBB+ 16,863,732
3,800 Countrywide Financial Corporation Capital Trust I (CORTS) 8.000% BBB+ 98,002
4,200 Washington Mutual Incorporated (CORTS) 7.750% Baa1 106,260
- ------------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 20,992,000
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 1.0%
6,700 Fannie Mae, (3) 4.750% AA- 273,494
23,100 Fannie Mae, (3) 5.125% AA- 1,020,558
30,000 Fannie Mae, (3) 5.810% AA- 1,500,000
44,300 Fannie Mae, (3) 6.129% AA- 2,222,310
23,000 Federal Home Loan Mortgage Corporation 5.300% AA- 1,024,220
34,700 Federal Home Loan Mortgage Corporation, (3) 5.000% AA- 1,505,980
59,100 Federal Home Loan Mortgage Corporation, (3) 6.000% AA- 2,866,350
108,000 Federal Home Loan Mortgage Corporation, (3) 6.140% Aa3 5,378,400
40,000 Federal Home Loan Mortgage Corporation, (3) 5.100% AA- 1,712,500
48,300 Federal Home Loan Mortgage Corporation, (3) 5.100% AA- 2,076,900
- ------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Agency 19,580,712
- ------------------------------------------------------------------------------------------------------------------------------------
34
SHARES DESCRIPTION(1) COUPON RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.8%
60,100 AT&T Wireless (CORTS) 8.000% A $ 1,567,108
28,000 AT&T Wireless, Series 2002-B (SATURNS) 9.250% A 747,320
117,300 Telephone and Data Systems Inc. 7.600% A- 2,940,711
50,600 United States Cellular Corporation 8.750% A- 1,326,226
344,100 United States Cellular Corporation 7.500% A- 8,671,320
- ------------------------------------------------------------------------------------------------------------------------------------
Total Wireless Telecommunication Services 15,252,685
- ------------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $1,038,896,453) 1,019,748,350
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 33.8% (23.0% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 1.6%
$ 3,860 AAR Corporation, 144A 2.875% 2/01/24 BB- 5,191,700
4,600 Armor Holdings Inc. 2.000% 11/01/24 B+ 4,571,250
3,515 Ceradyne Inc. 2.875% 12/15/35 N/R 3,607,269
9,450 L-3 Communications Corporation, Series 144A 3.000% 8/01/35 BB+ 9,390,938
8,815 Lockheed Martin Corporation 4.090% 8/15/33 BBB+ 9,444,215
- ------------------------------------------------------------------------------------------------------------------------------------
30,240 Total Aerospace & Defense 32,205,372
- ------------------------------------------------------------------------------------------------------------------------------------
AIRLINES - 0.7%
3,735 Continental Airlines, Inc. 5.000% 6/15/23 CCC+ 4,766,794
7,985 JetBlue Airways Corporation 3.750% 3/15/35 B2 8,853,369
- ------------------------------------------------------------------------------------------------------------------------------------
11,720 Total Airlines 13,620,163
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES - 0.1%
1,025 Fleetwood Enterprises Inc., 144A 5.000% 12/15/23 B2 1,260,750
- ------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 2.6%
11,800 Amgen Inc. 0.000% 3/01/32 A+ 9,263,000
5,000 Cephalon Inc. 0.000% 6/15/33 B- 5,968,750
1,780 CV Therapeutics Inc. 2.750% 5/16/12 N/R 2,670,000
2,250 CV Therapeutics Inc. 3.250% 8/16/13 N/R 2,511,563
12,400 Genzyme Corporation 1.250% 12/01/23 BBB 14,058,500
8,000 Invitrogen Corporation 2.000% 8/01/23 N/R 8,720,000
9,450 Medimmune Inc. 1.000% 7/15/23 BBB 9,261,000
- ------------------------------------------------------------------------------------------------------------------------------------
50,680 Total Biotechnology 52,452,813
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 0.3%
4,855 BlackRock Inc. 2.625% 2/15/35 A+ 5,631,800
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 0.2%
4,000 U.S. Bancorp, Series 144A 2.660% 8/21/35 Aa2 3,975,000
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.4%
7,000 Electronic Data Systems, Convertible Senior Notes, 144A 3.875% 7/15/23 BBB- 7,017,500
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.3%
9,200 Ciena Corporation 3.750% 2/01/08 B 8,487,000
5,595 Lucent Technologies Inc. 2.750% 6/15/23 B1 5,608,988
3,905 Nortel Networks Corp. 4.250% 9/01/08 B- 3,680,463
4,475 Powerwave Technologies Inc. 1.825% 11/15/24 N/R 5,660,875
1,700 Powerwave Technologies Inc. 1.875% 11/15/24 N/R 2,150,500
- ------------------------------------------------------------------------------------------------------------------------------------
24,875 Total Communications Equipment 25,587,826
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 0.4%
8,500 Quanta Services Incorporated 4.000% 7/01/07 B 8,245,000
- ------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.5%
9,825 Sealed Air Corporation, 144A 3.000% 6/30/33 BBB 9,849,563
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.6%
10,325 CapitalSource Inc. 3.500% 7/15/34 BBB- 9,963,625
2,650 JMH Finance Limited 4.750% 9/06/07 N/R 2,674,619
- ------------------------------------------------------------------------------------------------------------------------------------
12,975 Total Diversified Financial Services 12,638,244
- ------------------------------------------------------------------------------------------------------------------------------------
35
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS December 31, 2005
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.2%
$ 3,325 CenturyTel Inc. 4.750% 8/01/32 BBB+ $ 3,395,656
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.7%
17,940 Roper Industries Inc. 1.481% 1/15/34 BB- 9,911,850
3,510 Vishay Intertechnology Inc. 3.625% 8/01/23 B+ 3,439,800
- ------------------------------------------------------------------------------------------------------------------------------------
21,450 Total Electronic Equipment & Instruments 13,351,650
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 2.1%
3,495 Cal Dive International Inc. 3.250% 12/15/25 N/R 4,718,250
4,200 Diamond Offshore Drilling, Inc. 1.500% 4/15/31 A- 6,032,250
12,025 Nabors Industries Inc. 0.000% 6/15/23 N/R 14,234,594
3,185 Oil States International Inc., Series 144A 2.375% 7/01/25 N/R 3,790,150
7,115 Pride International Inc. 3.250% 5/01/33 Ba2 9,409,588
3,325 Schlumberger Limited 2.125% 6/01/23 A+ 4,322,500
- ------------------------------------------------------------------------------------------------------------------------------------
33,345 Total Energy Equipment & Services 42,507,332
- ------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.1%
30 Southern Union Company, Series B 5.750% 8/16/06 Baa3 2,167,785
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.7%
5,745 Advanced Medical Optics 2.500% 7/15/24 B 5,867,081
8,195 Fisher Scientific International Inc. 3.250% 3/01/24 BB+ 8,184,756
18,695 Medtronic, Inc. 1.250% 9/15/21 AA- 19,022,163
- ------------------------------------------------------------------------------------------------------------------------------------
32,635 Total Health Care Equipment & Supplies 33,074,000
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.3%
8,510 Roche Holdings Inc., 144A 0.000% 7/15/21 N/R 6,880,335
- ------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.9%
7,875 Caesars Entertainment Inc. 4.115% 4/15/24 BBB- 10,074,566
18,205 Carnival Corporation 1.132% 4/29/33 A- 14,381,950
8,535 Hilton Hotels Corporation 3.375% 4/15/23 BBB- 10,081,969
7,125 Kerzner International Limited, 144A 2.375% 4/15/24 B 9,182,344
8,475 Scientific Games Corporation 0.750% 12/01/24 B+ 9,121,219
3,875 Starwood Hotels and Resorts Worldwide Inc. 3.500% 5/16/23 BB+ 4,984,219
- ------------------------------------------------------------------------------------------------------------------------------------
54,090 Total Hotels, Restaurants & Leisure 57,826,267
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 1.1%
5,720 3M Company 0.000% 11/21/32 Aa1 5,112,250
7,200 Tyco International Group SA 3.125% 1/15/23 BBB+ 9,846,000
4,650 Tyco International Group SA, Convertible Notes, 144A 3.125% 1/15/23 BBB+ 6,358,875
- ------------------------------------------------------------------------------------------------------------------------------------
17,570 Total Industrial Conglomerates 21,317,125
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.6%
10,315 American Equity Investment Life Holding Company 5.250% 12/06/24 BB+ 11,952,506
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES - 0.4%
7,800 Open Solutions Inc. 1.467% 2/02/35 N/R 4,124,250
7,885 Open Solutions Inc., 144A 1.467% 2/02/35 N/R 4,169,194
- ------------------------------------------------------------------------------------------------------------------------------------
15,685 Total Internet Software & Services 8,293,444
- ------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.1%
2,900 Digital River Inc. 1.250% 1/01/24 N/R 2,776,750
- ------------------------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS - 0.1%
1,165 K2 Corporation, Convertible Notes, 144A 5.000% 6/15/10 N/R 1,207,231
- ------------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.3%
5,635 AGCO Corporation, Series B 1.750% 12/31/33 BB- 5,303,944
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.3%
415 Comcast Corporation 2.000% 10/15/29 BBB 16,600,000
8,480 Liberty Media Corporation 0.750% 3/30/23 BB+ 9,116,000
14,725 Liberty Media Corporation, Senior Debentures Exchangeable 3.500% 1/15/31 BB+ 15,129,938
for Motorola Common Stock
26,800 Liberty Media Corporation, Senior Debentures, Exchangeable
for PCS Common Stock, Series 1 4.000% 11/15/29 BB+ 15,845,500
2,395 Lions Gate Entertainment Corporation, 144A 2.938% 10/15/24 N/R 2,092,631
36
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA (continued)
$ 3,300 Lions Gate Entertainment Corporation, 144A 3.625% 3/15/25 N/R $ $2,850,375
3,500 Sirius Satellite Radio Inc. 3.250% 10/15/11 CCC 5,031,250
- ------------------------------------------------------------------------------------------------------------------------------------
59,615 Total Media 66,665,694
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.5%
8,625 Dominion Resources Inc., Series C 2.125% 12/15/23 Baa1 9,444,375
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.6%
1,600 Chesapeake Energy Corporation, 144A 2.750% 11/15/35 BB 1,710,000
23,475 Devon Energy Corporation 4.900% 8/15/08 BBB 27,142,969
1,720 McMoran Exploration Corporation, Notes, 144A 6.000% 7/02/08 N/R 2,541,300
- ------------------------------------------------------------------------------------------------------------------------------------
26,795 Total Oil, Gas & Consumable Fuels 31,394,269
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 2.2%
4,150 Alexion Pharmaceuticals Inc. 1.375% 2/01/12 N/R 3,532,688
4,580 Alexion Pharmaceuticals Inc., 144A 1.375% 2/01/12 N/R 3,898,725
13,055 Allergan Inc., Convertible Zero Coupon Senior Notes 0.000% 11/06/22 A 16,155,563
9,450 Teva Pharmaceutical Finance, Series B 0.250% 2/01/24 BBB 11,812,500
8,500 Wyeth, 144A 1.000% 1/15/24 A 8,810,590
- ------------------------------------------------------------------------------------------------------------------------------------
39,735 Total Pharmaceuticals 44,210,066
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.1%
2,040 Avatar Holdings Inc., 144A 4.500% 4/01/24 N/R 2,256,750
- ------------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.5%
10,500 CSX Corporation 0.000% 10/30/21 BBB 10,080,000
- ------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 2.5%
8,325 Agere Systems Inc. 6.500% 12/15/09 B 8,231,344
6,710 ASM International NV 4.250% 12/06/11 B- 6,483,538
5,500 ASM Lithography Holding NV 5.750% 10/15/06 B2 6,294,200
8,450 Intel Corporation, 144A 2.950% 12/15/35 N/R 8,291,563
9,220 LSI Logic Corporation 4.000% 5/15/10 Ba3 8,885,775
4,590 Micron Technology, Inc. 2.500% 2/01/10 B2 5,335,875
7,370 RF Micro Devices, Inc. 1.500% 7/01/10 B- 6,808,038
- ------------------------------------------------------------------------------------------------------------------------------------
50,165 Total Semiconductors & Equipment 50,330,333
- ------------------------------------------------------------------------------------------------------------------------------------
SOFTWARE - 0.8%
7,100 Mentor Graphics Corporation, Convertible Subordinated Notes 6.875% 6/15/07 N/R 7,091,125
4,525 Sybase Inc., 144A 1.750% 2/22/25 N/R 4,660,750
4,880 Sybase, Inc. 1.750% 2/22/25 N/R 5,026,400
- ------------------------------------------------------------------------------------------------------------------------------------
16,505 Total Software 16,778,275
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 2.0%
7,820 Charming Shoppes Inc. 4.750% 6/01/12 BB- 11,055,525
6,130 Dick's Sporting Goods Inc. 1.606% 2/18/24 B 4,298,663
9,170 Lowes Companies, Inc. 0.861% 10/19/21 A+ 10,683,050
5,135 Sonic Automotive Inc., Convertible Senior Subordinated Notes 5.250% 5/07/09 B 5,057,975
11,975 The TJX Companies, Inc. 0.000% 2/13/21 A- 9,624,906
- ------------------------------------------------------------------------------------------------------------------------------------
40,230 Total Specialty Retail 40,720,119
- ------------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.2%
3,860 GATX Corporation 7.500% 2/01/07 BBB- 4,530,675
- ------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.8%
4,755 American Tower Corporation 3.000% 8/15/12 BB- 6,870,975
9,000 NII Holdings Inc., 144A 2.750% 8/15/25 N/R 9,821,250
- ------------------------------------------------------------------------------------------------------------------------------------
13,755 Total Wireless Telecommunication Services 16,692,225
- ------------------------------------------------------------------------------------------------------------------------------------
644,175 Total Convertible Bonds (cost $639,874,795) 675,640,837
- ------------------------------------------------------------------------------------------------------------------------------------
37
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS December 31, 2005
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 15.1% (10.3% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.2%
$ 3,500 K&F Acquisition Inc. 7.750% 11/15/14 B- $ 3,552,500
- ------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.3%
1,950 Affinia Group Inc. 9.000% 11/30/14 CCC+ 1,550,250
1,300 Keystone Automotive Operations Inc. 9.750% 11/01/13 B- 1,131,000
3,000 Tenneco Auto, Inc. 10.250% 7/15/13 B2 3,292,500
- ------------------------------------------------------------------------------------------------------------------------------------
6,250 Total Auto Components 5,973,750
- ------------------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS - 0.2%
4,000 Jacuzzi Brands, Inc. 9.625% 7/01/10 B 4,270,000
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.7%
2,000 Nell AF Sarl 8.375% 8/15/15 B2 1,990,000
6,500 OM Group Inc. 9.250% 12/15/11 B- 6,386,250
3,500 Resolution Performance Products LLC 8.000% 12/15/09 B+ 3,587,500
3,000 Rockwood Specialties Group Inc., Series WI 7.500% 11/15/14 B- 3,003,750
- ------------------------------------------------------------------------------------------------------------------------------------
15,000 Total Chemicals 14,967,500
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 0.2%
4,000 HBOS plc, Series 144A 6.413% 9/29/49 A1 4,060,000
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.5%
5,500 DST Systems Inc. 4.125% 8/15/23 N/R 7,315,000
2,000 National Mentor Inc. 9.625% 12/01/12 B- 2,100,000
- ------------------------------------------------------------------------------------------------------------------------------------
7,500 Total Commercial Services & Supplies 9,415,000
- ------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.6%
2,000 Berry Plastics Corporation 10.750% 7/15/12 B- 2,160,000
3,450 MDP Acquisitions plc, Senior Notes 9.625% 10/01/12 B- 3,467,250
3,000 Owens-Brockway Glass Containers, Guaranteed Senior Note 8.250% 5/15/13 B 3,112,500
3,000 Owens-Illinois Inc. 7.500% 5/15/10 B 3,060,000
- ------------------------------------------------------------------------------------------------------------------------------------
11,450 Total Containers & Packaging 11,799,750
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES - 0.1%
2,000 Service Corporation International 7.700% 4/15/09 BB 2,110,000
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.1%
2,000 INTELSAT Bermuda Limited, Series 144A 8.250% 1/15/13 B+ 2,030,000
750 Syniverse Technologies Inc., Series B 7.750% 8/15/13 B 759,375
- ------------------------------------------------------------------------------------------------------------------------------------
2,750 Total Diversified Telecommunication Services 2,789,375
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.2%
2,000 Midwest Generation LLC 8.750% 5/01/34 B1 2,212,500
500 Mirant North America LLC., 144A 7.375% 12/31/13 B1 508,125
1,000 Sierra Pacific Resources, Series 144A 6.750% 8/15/17 B1 1,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
3,500 Total Electric Utilities 3,720,625
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.1%
2,500 Pride International Inc. 7.375% 7/15/14 Ba2 2,693,750
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.1%
3,000 Stater Brothers Holdings Inc. 8.125% 6/15/12 BB- 2,985,000
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.8%
7,610 Del Monte Corporation 8.625% 12/15/12 B 8,123,675
7,000 Dole Foods Company 8.750% 7/15/13 B+ 7,245,000
1,096 Dole Foods Company 8.625% 5/01/09 B+ 1,128,880
- ------------------------------------------------------------------------------------------------------------------------------------
15,706 Total Food Products 16,497,555
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.4%
3,000 Quintiles Transnational Corporation 10.000% 10/01/13 B 3,360,000
700 Select Medical Corporation 7.625% 2/01/15 B- 677,250
3,000 U.S. Oncology Inc. 10.750% 8/15/14 B- 3,345,000
- ------------------------------------------------------------------------------------------------------------------------------------
6,700 Total Health Care Providers & Services 7,382,250
- ------------------------------------------------------------------------------------------------------------------------------------
38
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.1%
$ 5,190 Aztar Corporation 9.000% 8/15/11 Ba3 $ 5,520,863
2,345 Boyd Gaming Corporation 8.750% 4/15/12 B+ 2,526,738
4,075 Boyd Gaming Corporation 7.750% 12/15/12 B+ 4,288,938
3,172 Dominos Inc. 8.250% 7/01/11 B 3,330,600
1,500 Herbst Gaming Inc. 7.000% 11/15/14 B- 1,500,000
4,100 Intrawest Corporation 7.500% 10/15/13 B+ 4,171,750
2,000 Landry's Restaurants Inc., Series B 7.500% 12/15/14 B 1,880,000
2,000 MGM Mirage, Inc. 6.750% 8/01/07 BB 2,037,500
1,000 Park Place Entertainment 9.375% 2/15/07 BB+ 1,043,750
1,000 Park Place Entertainment 7.875% 3/15/10 BB+ 1,080,000
4,000 Penn National Gaming Inc., Senior Subordinated Notes 8.875% 3/15/10 B+ 4,220,000
3,000 Pinnacle Entertainment Inc. 8.750% 10/01/13 B- 3,210,000
2,000 Pinnacle Entertainment Inc. 8.250% 3/15/12 B- 2,077,500
4,000 Universal City Development Partners 11.750% 4/01/10 B2 4,505,000
- ------------------------------------------------------------------------------------------------------------------------------------
39,382 Total Hotels, Restaurants & Leisure 41,392,639
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.7%
4,500 K. Hovnanian Enterprises Inc., Senior Subordinated Notes 8.875% 4/01/12 Ba2 4,698,509
5,000 KB Home 8.625% 12/15/08 Ba2 5,335,865
4,600 Stanley Works Capital Trust I, 144A 5.902% 12/01/45 Baa1 4,578,693
- ------------------------------------------------------------------------------------------------------------------------------------
14,100 Total Household Durables 14,613,067
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.1%
1,239 NRG Energy Inc., Series WI 8.000% 12/15/13 Ba3 1,387,680
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.2%
2,300 AIG Capital Trust I, 144A 5.900% 12/21/65 A 2,311,493
2,500 Fairfax Financial Holdings Ltd 7.750% 4/26/12 BB 2,345,205
- ------------------------------------------------------------------------------------------------------------------------------------
4,800 Total Insurance 4,656,698
- ------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.4%
1,950 Global Cash Access LLC 8.750% 3/15/12 B- 2,084,063
4,750 SunGard Data Systems Inc., Series 144A 9.125% 8/15/13 B- 4,940,000
- ------------------------------------------------------------------------------------------------------------------------------------
6,700 Total IT Services 7,024,063
- ------------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.4%
3,000 Terex Corporation, Senior Subordinated Notes 10.375% 4/01/11 B 3,195,000
3,000 Terex Corporation, Senior Subordinated Notes 9.250% 7/15/11 B 3,217,500
1,000 The Greenbrier Companies, Inc. 8.375% 5/15/15 B+ 1,025,000
800 The Greenbrier Companies, Inc., 144A 8.375% 5/15/15 B+ 820,000
- ------------------------------------------------------------------------------------------------------------------------------------
7,800 Total Machinery 8,257,500
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.7%
6,900 Allbritton Communications Company, Series B 7.750% 12/15/12 B- 6,969,000
2,000 AMC Entertainment Inc. 8.000% 3/01/14 B3 1,820,000
1,345 American Media Operations Inc. 8.875% 1/15/11 CCC+ 1,149,975
5,100 American Media Operations Inc., Series B 10.250% 5/01/09 CCC+ 4,679,250
3,000 Cablevision Systems Corporation 7.250% 7/15/08 B+ 3,007,500
2,000 Cablevision Systems Corporation 8.125% 7/15/09 B+ 2,030,000
5,000 Cablevision Systems Corporation, Series B 8.125% 8/15/09 B+ 5,075,000
2,000 Charter Communications Operating LLC, 144A 8.000% 4/30/12 B2 2,000,000
6,000 Cinemark USA Inc. 9.000% 2/01/13 B- 6,375,000
1,000 Dex Media West LLC 8.500% 8/15/10 B1 1,052,500
2,198 Dex Media West LLC 9.875% 8/15/13 B 2,450,770
3,000 Lowes Cineplex Entertainment Corporation, Series WI 9.000% 8/01/14 B3 3,045,000
3,855 Mail-Well I Corporation, Senior Unsecured Note, 144A 9.625% 3/15/12 B+ 4,182,675
4,000 Medianews Group Inc. 6.375% 4/01/14 B+ 3,710,000
1,950 Panamsat Corporation 9.000% 8/15/14 B+ 2,052,375
7,000 Primedia Inc., Senior Notes 8.875% 5/15/11 B 6,492,500
2,000 R. H. Donnelley Finance Corp 1 10.875% 12/15/12 B+ 2,265,000
2,000 Sun Media Corporation 7.625% 2/15/13 Ba3 2,060,000
6,200 Vertis Inc. 9.750% 4/01/09 B3 6,455,750
2,000 Young Broadcasting Inc. 8.750% 1/15/14 CCC 1,772,500
5,500 Young Broadcasting Inc., Senior Subordinated Note 10.000% 3/01/11 CCC 5,176,875
- ------------------------------------------------------------------------------------------------------------------------------------
74,048 Total Media 73,821,670
- ------------------------------------------------------------------------------------------------------------------------------------
39
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS December 31, 2005
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.3%
$ 3,000 Chaparral Steel Company 10.000% 7/15/13 B1 $ 3,247,500
1,682 United States Steel Corporation 9.750% 5/15/10 BB 1,837,585
- ------------------------------------------------------------------------------------------------------------------------------------
4,682 Total Metals & Mining 5,085,085
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.0%
500 Northwestern Corporation 5.875% 11/01/14 BB+ 503,440
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.6%
600 Chaparral Energy Inc., 144A 8.500% 12/01/15 B 624,000
4,345 Chesapeake Energy Corporation 7.750% 1/15/15 BB 4,627,425
2,000 Hilcorp Energy I LP/Hilcorp Finance Company, Series 144A 7.750% 11/01/15 B 2,045,000
2,000 Premcor Refining Group Inc. 7.500% 6/15/15 BBB- 2,133,242
3,000 SemGroup LP, 144A 8.750% 11/15/15 B1 3,082,500
250 Whiting Petroleum Corporation, Series 144A 7.000% 2/01/14 B2 251,875
- ------------------------------------------------------------------------------------------------------------------------------------
12,195 Total Oil, Gas & Consumable Fuels 12,764,042
- ------------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.3%
2,000 Georgia Pacific Corporation, Debentures 7.700% 6/15/15 BB- 1,940,000
5,000 Georgia Pacific Corporation, Notes 8.125% 5/15/11 BB- 5,031,250
- ------------------------------------------------------------------------------------------------------------------------------------
7,000 Total Paper & Forest Products 6,971,250
- ------------------------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS - 0.1%
1,600 Prestige Brands Inc. 9.250% 4/15/12 B- 1,584,000
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
2,000 Alpharma Inc., Reg S 8.625% 5/01/11 B- 2,182,500
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.1%
1,000 Trustreet Properties, Inc. 7.500% 4/01/15 B+ 1,005,000
- ------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 0.1%
1,200 Avago Technologies Finance Pte. Ltd., 144A 10.125% 12/01/13 B 1,239,000
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.9%
6,000 Asbury Automotive Group Inc. 9.000% 6/15/12 B 6,030,000
1,000 GSC Holdings Corporation, 144A 8.000% 10/01/12 Ba3 945,000
1,110 Movie Gallery Inc., Series WI 11.000% 5/01/12 B3 871,350
1,000 Quiksilver Inc. 6.875% 4/15/15 BB- 967,500
8,000 Warnaco Inc., Senior Notes 8.875% 6/15/13 B+ 8,660,000
- ------------------------------------------------------------------------------------------------------------------------------------
17,110 Total Specialty Retail 17,473,850
- ------------------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL - 0.2%
4,000 Jostens IH Corporation 7.625% 10/01/12 B- 4,040,000
- ------------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.1%
2,000 United Rentals North America Inc. 6.500% 2/15/12 BB- 1,957,500
- ------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.2%
4,000 Nextel Communications, Inc., Series D 7.375% 8/01/15 A- 4,224,568
- ------------------------------------------------------------------------------------------------------------------------------------
293,212 Total Corporate Bonds (cost $304,127,859) 302,400,607
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 32.2% (21.9% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 5.7%
6,273 BT Capital Trust, Series B1 7.900% 1/15/27 A2 6,629,313
15,000 BT Institutional Capital Trust A, 144A 8.090% 12/01/26 A2 15,928,230
2,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 2,114,600
1,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 1,296,193
32,750 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 33,875,618
3,000 Compass Trust I, Series A 8.230% 1/15/27 A3 3,173,604
3,500 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 4,454,139
500 First Union Institutional Capital II 7.850% 1/01/27 A1 530,632
40
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS (continued)
2,000 First Union Institutional Capital Securities I 8.040% 12/01/26 A1 $ 2,122,250
19,335 Mellon Capital Trust I, Series A 7.720% 12/01/26 A2 20,485,142
9,000 State Street Institutional Capital Trust, 144A 8.035% 3/15/27 A1 9,610,524
12,419 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 13,387,396
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 113,607,641
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 17.9%
2,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 2,049,362
8,000 Abbey National Capital Trust I 8.963% 6/30/50 A2 10,916,776
43,100 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 44,285,853
12,120 Bank One Capital III 8.750% 9/01/30 A1 16,339,227
1,974 BankAmerica Capital II, Series 2 8.000% 12/15/26 Aa3 2,097,039
2,600 BankAmerica Institutional Capital Trust, Series B, 144A 7.700% 12/31/26 Aa3 2,750,834
5,000 BankAmerica Institutional Trust, 144A 8.070% 12/31/26 Aa3 5,323,220
2,000 BankBoston Capital Trust I, Series B 8.250% 12/15/26 Aa3 2,130,822
1,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 1,061,010
4,500 Barclays Bank plc 6.278% 12/15/55 Aa3 4,533,750
4,000 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 4,619,828
500 Barnett Capital I 8.060% 12/01/26 Aa3 530,878
2,200 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 2,436,823
4,315 First Chicago NBD Institutional Capital Trust, Series B, 144A 7.750% 12/01/26 A1 4,560,183
6,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 6,350,328
5,750 First Empire Capital Trust I 8.234% 2/01/27 Baa1 6,138,188
11,550 First Empire Capital Trust II 8.277% 6/01/27 Baa1 12,429,867
4,250 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 4,718,248
41,650 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 42,353,219
12,838 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 15,038,690
14,000 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 21,449,960
19,605 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A2 22,690,984
4,000 KeyCorp Capital III 7.750% 7/15/29 A3 4,852,504
15,000 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 15,884,535
17,000 Lloyds TSB Bank plc, Subordinated Note 6.900% 11/22/49 Aa2 17,283,169
1,000 Nordbanken AB, 144A 8.950% 11/29/49 A 1,129,288
18,500 North Fork Capital Trust II 8.000% 12/15/27 A3 20,019,683
500 PNC Institutional Capital Securities, 144A 7.950% 12/15/26 A3 530,274
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 2,063,752
16,750 RBS Capital Trust B 6.800% 12/31/49 A1 17,008,260
2,000 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 2,181,538
1,202 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 1,267,831
6,200 Royal Bank of Scotland Group plc 9.118% 3/31/49 A1 7,109,056
4,000 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 4,163,456
4,472 St. George Funding Company LLC, 144A 8.485% 12/31/47 Baa1 4,877,870
2,250 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 2,584,451
13,330 Unicredito Italiano Capital Trust, 144A 9.200% 4/05/51 A- 15,454,509
3,800 Union Planters Capital Trust A 8.200% 12/15/26 A2 4,038,184
2,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 2,136,032
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 357,389,481
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 2.6%
9,000 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 9,239,301
1,000 Citigroup Capital III 7.625% 12/01/36 Aa2 1,248,709
10,000 ING Capital Funding Trust III 8.439% 12/30/49 A 11,382,080
2,150 JPM Capital Trust I 7.540% 1/15/27 A1 2,271,036
3,000 JPM Capital Trust II 7.950% 2/01/27 A1 3,196,953
23,600 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 24,823,778
- ------------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 52,161,857
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.2%
19 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 A- 24,720,525
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.9%
987 Allstate Financing II 7.830% 12/01/45 A2 1,041,716
41
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS December 31, 2005
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION(1) COUPON MATURITY RATINGS(2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
10,000 American General Capital II 8.500% 7/01/30 Aa3 $ 13,473,070
4,980 American General Institutional Capital, 144A 8.125% 3/15/46 Aa3 6,483,831
14,250 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 14,188,212
3,750 Prudential plc 6.500% 6/29/49 A 3,721,433
13,500 Sun Life Canada Capital Trust, Capital Securities, 144A 8.526% 5/06/47 A+ 14,558,279
23,000 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 24,900,237
- ------------------------------------------------------------------------------------------------------------------------------------
Total Insurance 78,366,778
- ------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.7%
12,355 KN Capital Trust III 7.630% 4/15/28 Baa3 13,717,509
- ------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.2%
500 Countrywide Capital Trust I 8.000% 12/15/26 BBB+ 511,673
3,365 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 3,594,291
- ------------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 4,105,964
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 0.0%
8 Fannie Mae 5.100% 4/15/49 AA- 347,035
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $655,426,603) 644,416,790
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) COUPON MATURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.2% (1.5% OF TOTAL INVESTMENTS)
Repurchase Agreement with State Street Bank, dated 12/30/05,
repurchase price $44,921,363, collateralized by
$46,235,000, U.S. Treasury Notes, 4.000%, due 6/15/09,
$ 44,905 valued at $45,805,523 3.250% 1/03/06 44,905,147
=============-----------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $44,905,147) 44,905,147
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,916,192,715) - 146.7% 2,936,798,684
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 30,280,796
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (48.2)% (965,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $2,002,079,480
====================================================================================================================
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2005:
FIXED RATE
PAID FIXED RATE FLOATING RATE FLOATING RATE UNREALIZED
NOTIONAL BY THE FUND PAYMENT RECEIVED PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT (ANNUALIZED) FREQUENCY BY THE FUND(4) FREQUENCY DATE (DEPRECIATION)
--------------------------------------------------------------------------------------------------------------------
JPMorgan $97,000,000 3.395% Monthly 4.320% Monthly 7/06/2006 $ 695,669
JPMorgan 97,000,000 3.360% Monthly 4.370% Monthly 1/23/2009 3,986,124
Morgan Stanley 97,000,000 2.025% Monthly 4.370% Monthly 1/23/2006 181,185
Morgan Stanley 97,000,000 3.048% Monthly 4.370% Monthly 1/23/2008 3,343,454
Royal Bank
of Canada 97,000,000 2.679% Monthly 4.370% Monthly 1/23/2007 2,148,218
--------------------------------------------------------------------------------------------------------------------
$10,354,650
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Ratings (not covered by the report of independent
registered public accounting firm): Using the higher of
Standard & Poor's or Moody's rating. Ratings below Baa
by Moody's Investor Services, Inc. or BBB by Standard
and Poor's group are considered to be below investment
grade.
(3) Security is eligible for the Dividends Received
Deduction.
(4) Based on LIBOR (London Interbank Offered Rate).
N/R Investment is not rated.
144A Securities are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These
securities may only be resold in transactions exempt
from registration which are normally those transactions
with qualified institutional buyers.
Reg S Regulation S allows U.S. companies to sell securities
to persons or entities located outside of the U.S.
without registering those securities with the
Securities and Exchange Commission. Specifically, Reg S
provides a safe harbor from the registration
requirements of the Securities Act for the offers and
sales of securities by both foreign and domestic
issuers that are made outside the United States.
CBTCS Corporate Backed Trust Certificates.
CORTS Corporate Backed Trust Securities.
PCARS Public Credit and Repackaged Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
42
Statement of
ASSETS AND LIABILITIES December 31, 2005
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $2,085,896,857 and $2,916,192,715, respectively) $2,105,496,592 $2,936,798,684
Cash 160,781 --
Unrealized appreciation on interest rate swaps 7,639,762 10,354,650
Receivables:
Dividends 3,220,058 3,003,505
Interest 12,891,661 19,767,406
Investments sold 830,593 2,437,650
Reclaims -- 69,108
Other assets 85,704 106,549
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 2,130,325,151 2,972,537,552
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Cash overdraft -- 1,461,252
Payable for investments purchased 548,039 1,608,984
Accrued expenses:
Management fees 958,784 1,293,984
Other 533,725 648,334
FundPreferred shares dividends payable 338,687 445,518
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,379,235 5,458,072
- ------------------------------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 708,000,000 965,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $1,419,945,916 $2,002,079,480
====================================================================================================================================
Common shares outstanding 100,123,177 141,007,000
====================================================================================================================================
Net asset value per Common share outstanding (net assets applicable to
Common shares, divided by Common shares outstanding) $ 14.18 $ 14.20
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
- ------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 1,001,232 $ 1,410,070
Paid-in surplus 1,416,573,486 1,996,472,573
Undistributed (Over-distribution of) net investment income (24,775,814) (26,435,019)
Accumulated net realized gain (loss) from investments and derivative transactions (92,485) (328,763)
Net unrealized appreciation (depreciation) of investments and derivative transactions 27,239,497 30,960,619
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $1,419,945,916 $2,002,079,480
====================================================================================================================================
Authorized shares:
Common Unlimited Unlimited
FundPreferred shares Unlimited Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
43
Statement of
OPERATIONS Year Ended December 31, 2005
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $16,529 and $27,074, respectively) $ 65,842,132 $ 84,962,721
Interest 61,953,435 92,552,309
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income 127,795,567 177,515,030
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 18,402,455 25,009,419
Dividend expense on securities sold short 148,139 174,994
FundPreferred shares - auction fees 1,750,967 2,375,283
FundPreferred shares - dividend disbursing agent fees 32,241 53,466
Shareholders' servicing agent fees and expenses 11,641 11,876
Custodian's fees and expenses 539,903 705,587
Trustees' fees and expenses 32,184 49,115
Professional fees 105,450 163,302
Shareholders' reports - printing and mailing expenses 341,174 434,161
Stock exchange listing fees 38,795 54,382
Investor relations expense 325,278 431,740
Other expenses 208,595 349,537
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 21,936,822 29,812,862
Custodian fee credit (7,767) (6,623)
Expense reimbursement (6,940,916) (9,609,892)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 14,988,139 20,196,347
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 112,807,428 157,318,683
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from:
Investments 19,497,960 12,860,799
Futures (425,117) 245,100
Interest rate swaps 1,556,692 2,000,191
Change in net unrealized appreciation (depreciation) of:
Investments (96,969,970) (119,738,770)
Futures 325,875 424,500
Interest rate swaps 3,055,918 4,331,569
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (72,958,642) (99,876,611)
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (21,981,246) (29,789,687)
From accumulated net realized gains (482,035) (944,714)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from distributions to
FundPreferred shareholders (22,463,281) (30,734,401)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares from operations $ 17,385,505 $ 26,707,671
====================================================================================================================================
See accompanying notes to financial statements.
44
Statement of
CHANGES IN NET ASSETS
PREFERRED AND PREFERRED AND
CONVERTIBLE INCOME (JPC) CONVERTIBLE INCOME 2 (JQC)
---------------------------------------------- -----------------------------------------------
FIVE FIVE
YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
12/31/05 12/31/04 7/31/04 12/31/05 12/31/04 7/31/04
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 112,807,428 $ 51,569,038 $ 125,132,929 $ 157,318,683 $ 72,289,589 $ 163,337,100
Net realized gain (loss) from:
Investments 19,497,960 2,985,875 27,972,286 12,860,799 8,940,540 8,739,463
Futures (425,117) -- -- 245,100 -- --
Interest rate swaps 1,556,692 (974,786) (2,330,892) 2,000,191 (1,354,773) (3,205,449)
Change in net unrealized
appreciation (depreciation) of:
Investments (96,969,970) 85,689,077 39,651,341 (119,738,770) 120,207,237 90,207,632
Futures 325,875 (325,875) -- 424,500 (424,500) --
Interest rate swaps 3,055,918 (989,371) 5,573,214 4,331,569 (1,354,625) 7,377,706
Distributions to
FundPreferred shareholders:
From net investment income (21,981,246) (4,040,083) (8,171,424) (29,789,687) (7,259,855) (11,296,561)
From accumulated net
realized gains (482,035) (1,465,951) (384,871) (944,714) (211,517) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets applicable to
Common shares from operations 17,385,505 132,447,924 187,442,583 26,707,671 190,832,096 255,159,891
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
COMMON SHAREHOLDERS
From net investment income (114,775,658) (50,311,897) (121,827,639) (153,140,768) (68,740,915) (164,952,618)
From accumulated net
realized gains (16,385,704) (23,388,774) (4,581,333) (12,048,934) (2,777,838) (25,575)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets
applicable to
Common shares from
distributions to
Common shareholders (131,161,362) (73,700,671) (126,408,972) (165,189,702) (71,518,753) (164,978,193)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Offering costs adjustments -- (4,237) (188,221) -- (4,047) 176,684
Net proceeds from shares
issued to shareholders
due to reinvestment
of distributions -- -- 1,175,103 -- -- --
FundPreferred shares offering
costs and adjustments -- (4,237) (20,355) (1,595) (4,047) (19,723,013)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets applicable
to Common shares from capital
share transactions -- (8,474) 966,527 (1,595) (8,094) (19,546,329)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets applicable
to Common shares (113,775,857) 58,738,779 62,000,138 (138,483,626) 119,305,249 70,635,369
Net assets applicable to
Common shares at
the beginning of period 1,533,721,773 1,474,982,994 1,412,982,856 2,140,563,106 2,021,257,857 1,950,622,488
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable
to Common shares
at the end of period $1,419,945,916 $1,533,721,773 $1,474,982,994 $2,002,079,480 $2,140,563,106 $2,021,257,857
====================================================================================================================================
Undistributed (Over-distribution
of) net investment income
at the end of period $ (24,775,814) $ (11,275,840) $ (5,581,774) $ (26,435,019) $ (14,268,017) $ (6,443,674)
====================================================================================================================================
See accompanying notes to financial statements.
45
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 Preferred and Convertible
Income Fund (JPC) and Nuveen Preferred and Convertible Income Fund 2 (JQC). The
Funds are registered under the Investment Company Act of 1940, as amended, as
diversified, closed-end management investment companies.
Each Fund seeks to provide high current income by investing primarily in a
portfolio of preferred securities, convertible securities and, to a lesser
degree, high yield securities. Each Fund may also invest in other debt
instruments and common stocks acquired upon conversion of a convertible
security.
The Board of Trustees of the Funds approved a change in the Funds' fiscal year
end from July 31 to December 31 upon completion of the Funds' July 31, 2004
fiscal year.
Effective January 1, 2005, Nuveen Institutional Advisory Corp. ("NIAC") the
Funds' previous adviser, and its affiliate, Nuveen Advisory Corp. ("NAC"), were
merged into Nuveen Asset Management ("NAM"), each wholly owned subsidiaries of
Nuveen Investments, Inc. ("Nuveen"). As a result of the merger, NAM is now the
Adviser to all funds previously advised by either NIAC or NAC.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities and instruments, other than futures, are generally
valued at the last sales price on the exchange on which such securities or
instruments are primarily traded. Securities or instruments traded on an
exchange for which there are no transactions on a given day or securities or
instruments not listed on an exchange are valued at the mean of the closing bid
and asked prices. Securities traded on Nasdaq are valued at the Nasdaq Official
Closing Price. Futures contracts are valued using the closing settlement price
or, in the absence of such a price, at the mean of the bid and asked prices.
Prices of other derivative instruments are provided by an independent pricing
service approved by the Funds' Board of Trustees. The prices of fixed-income
securities are generally also provided by an independent pricing service
approved by the Funds' Board of Trustees and based on the mean between the bid
and asked prices. When price quotes are not readily available, the pricing
service or, in the absence of a pricing service for a particular security or
instrument, the Board of Trustees of the Funds, or its designee, may establish
fair market value using a wide variety of market data including yields or prices
of securities of comparable quality, type of issue, coupon, maturity and rating,
market quotes or indications of value from security dealers, evaluations of
anticipated cash flows or collateral, general market conditions and other
information and analysis, including the obligor's credit characteristics
considered relevant by the pricing service or the Board of Trustee's designee.
Short-term investments are valued at amortized cost, which approximates market
value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. Investments purchased on a when-issued or delayed
delivery basis may have extended settlement periods. Any investments so
purchased are subject to market fluctuation during this period. The Funds have
instructed the custodian to segregate assets with a current value at least equal
to the amount of the when-issued and delayed delivery purchase commitments. At
December 31, 2005, there were no such outstanding purchase commitments in either
fund.
46
Investment Income
Dividend income on securities purchased and dividend expense on securities sold
short are recorded on the ex-dividend date or, for foreign securities, when
information is available. Interest income, which includes the amortization of
premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis.
Professional Fees
Professional fees presented in the Statement of Operations consist of legal fees
incurred in the normal course of operations, audit fees, tax consulting fees
and, in some cases, workout expenditures. Workout expenditures are incurred in
an attempt to protect or enhance an investment, or to pursue other claims or
legal actions on behalf of Fund shareholders.
Federal Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to distribute substantially all net investment income and net capital
gains to shareholders and to otherwise comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no federal income tax provision is required.
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
Distributions to Common shareholders are declared monthly. With respect to the
Real Estate Investment Trust ("REIT") securities held in the Funds' Portfolio of
Investments, distributions received by the Funds are generally comprised of
ordinary income, long-term and short-term capital gains, and a return of REIT
capital. The actual character of amounts received during the period is not known
until after the fiscal year-end. For the fiscal year ended December 31, 2005,
the character of distributions to the Funds from the REITs was as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- --------------------------------------------------------------------------------
Ordinary income 66.92% 71.62%
Long-term and short-term capital gains 33.08 28.38
Return of REIT capital -- --
================================================================================
For the fiscal period ended December 31, 2004, the character of distributions to
the Funds from the REITs was as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- --------------------------------------------------------------------------------
Ordinary income 83.15% 83.29%
Long-term and short-term capital gains 14.69 15.13
Return of REIT capital 2.16 1.58
================================================================================
For the fiscal year ended July 31, 2004, the character of distributions to the
Funds from the REITs was as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- --------------------------------------------------------------------------------
Ordinary income 83.54% 81.49%
Long-term and short-term capital gains 16.33 18.44
Return of REIT capital .13 .07
================================================================================
47
Notes to
FINANCIAL STATEMENTS (continued)
For the fiscal year ended December 31, 2005, and the fiscal period ended
December 31, 2004, each Fund applied the actual character of distributions
reported by the REITs in which the Fund invests to its receipts from the REITS.
If a REIT held in the portfolio of investments did not report the actual
character of its distributions during the period, the Fund treated the
distributions as ordinary income.
For the fiscal year ended July 31, 2004, each Fund applied a percentage estimate
for the breakdown of income type, to its receipts from the REITs and treated as
income in the Statement of Operations only the amount of ordinary income so
calculated. Each Fund adjusted that estimated breakdown of income type (and
consequently its net investment income) as necessary in the following calendar
year when the REITs informed their shareholders of the actual breakdown of
income type.
For the fiscal year ended December 31, 2005, and the fiscal period ended
December 31, 2004, each Fund applied the actual character of distributions
reported by the REITs in which the Fund invests to the distributions paid to
each Fund's shareholders.
With respect to the portion of each Fund's monthly distribution to its
shareholders derived from the Fund's investments in REIT securities for the
fiscal year ended July 31, 2004, each Fund treated that portion of its
distribution as being entirely from net investment income. The Funds
recharacterized those distributions as being from ordinary income, long-term and
short-term capital gains, and return of capital, if necessary, in the subsequent
calendar year, based upon the income type breakdown information conveyed at that
time by the REITs whose securities were held in each Fund's portfolio.
Consequently, the financial statements for the fiscal year ended July 31, 2004,
reflected 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 Funds to shareholders from the portfolio REITs were
treated as something other than ordinary income.
48
FundPreferred Shares
The Funds have issued and outstanding FundPreferred shares, $25,000 stated value
per share, as a means of effecting financial leverage. Each Fund's FundPreferred
shares are issued in more than one Series. The dividend rate paid by the Fund on
each Series is determined every seven days, pursuant to a dutch auction process
overseen by the auction agent, and is payable at the end of each rate period.
The number of shares outstanding, by Series and in total, for each Fund is as
follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- --------------------------------------------------------------------------------
Number of shares:
Series M 4,720 3,860
Series M2 -- 3,860
Series T 4,720 3,860
Series T2 -- 3,860
Series W 4,720 3,860
Series W2 -- 3,860
Series TH 4,720 3,860
Series TH2 -- 3,860
Series F 4,720 3,860
Series F2 4,720 3,860
- --------------------------------------------------------------------------------
Total 28,320 38,600
================================================================================
Interest Rate Swap Transactions
The Funds may invest in certain derivative financial instruments. The Funds' use
of interest rate swap transactions is intended to mitigate the negative impact
that an increase in short-term interest rates could have on Common share net
earnings as a result of leverage. Interest rate swap transactions involve each
Fund's agreement with the counterparty to pay a fixed rate payment in exchange
for the counterparty paying the Fund a variable rate payment that is intended to
approximate each Fund's variable rate payment obligation on FundPreferred shares
or any variable rate borrowing. The payment obligation is based on the notional
amount of the interest rate swap contract. Interest rate swaps do not involve
the delivery of securities or other underlying assets or principal. Accordingly,
the risk of loss with respect to the swap counterparty on such transactions is
limited to the net amount of interest payments that each Fund is to receive.
Interest rate swap positions are valued daily. Although there are economic
advantages of entering into interest rate swap transactions, there are also
additional risks. The Funds help manage the credit risks associated with
interest rate swap transactions by entering into agreements only with
counterparties the Adviser believes have the financial resources to honor their
obligations and by having the Adviser continually monitor the financial
stability of the swap counterparties.
Futures Contracts
Each Fund may use futures contracts to hedge against changes in the values of
securities the Fund owns. Each Fund bears the market risk arising from changes
in the value of these financial instruments. At the time a Fund enters into a
futures contract, the Fund deposits and maintains as collateral an initial
margin as required by the exchange on which the transaction is affected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract.
Such receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses on futures contracts. Risk may arise from the
potential inability of the counterparty to meet the terms of the contract. When
a contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
time is was closed. At December 31, 2005, there were no open futures contracts
in either Fund.
49
Notes to
FINANCIAL STATEMENTS (continued)
Short Sales
The Funds are authorized to make short sales of securities if the Funds own at
least an equal amount of such securities or securities convertible into
securities of the same issuer. To secure its obligation to deliver securities
sold short, the Funds have instructed the custodian to segregate assets in an
equivalent amount of the securities sold short or securities convertible into or
exchangeable for such securities. The Fund is obligated to pay to the party to
which the securities were sold short, dividends declared on the stock by the
issuer and records such amounts as expense in the Statement of Operations. Short
sales are valued daily and the corresponding unrealized gains or losses are
included in "Change in net unrealized appreciation (depreciation) of
investments." At December 31, 2005, there were no outstanding short sales in
either Fund.
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.
Offering Costs
Costs incurred by Preferred and Convertible Income 2 (JQC) in connection with
its offering of FundPreferred shares ($19,728,655) during the fiscal year ended
July 31, 2004, were recorded as a reduction to paid-in surplus.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on each Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
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.
50
2. FUND SHARES
Transactions in Common and FundPreferred shares were as follows:
PREFERRED AND PREFERRED AND
CONVERTIBLE INCOME (JPC) CONVERTIBLE INCOME 2 (JQC)
--------------------------------------- ----------------------------------------
YEAR FOR THE FIVE YEAR YEAR FOR THE FIVE YEAR
ENDED MONTHS ENDED ENDED ENDED MONTHS ENDED ENDED
12/31/05 12/31/04 7/31/04 12/31/05 12/31/04 7/31/04
- ----------------------------------------------------------------------------------------------------------------
Common shares issued to
shareholders due to
reinvestment of
distributions -- -- 79,185 -- -- --
- ----------------------------------------------------------------------------------------------------------------
-- -- 79,185 -- -- --
================================================================================================================
FundPreferred shares sold -- -- -- -- -- 38,600
================================================================================================================
3. INVESTMENT TRANSACTIONS
Purchases and sales (including maturities and transactions in securities sold
short but excluding short-term investments and derivative transactions) during
the fiscal year ended December 31, 2005, were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- --------------------------------------------------------------------------------
Purchases $773,346,851 $1,001,583,371
Sales and maturities 790,526,712 1,006,461,840
================================================================================
51
Notes to
FINANCIAL STATEMENTS (continued)
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis based on the
information currently available to the Funds. Differences between amounts for
financial statement and federal income tax purposes are primarily due to timing
differences in the recognition of income and timing differences in recognizing
certain gains and losses on investment transactions.
At December 31, 2005, the cost of investments was as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- --------------------------------------------------------------------------------
Cost of investments $2,110,480,376 $2,944,047,652
================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments
at December 31, 2005, were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- ------------------------------------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 70,993,985 $ 88,656,751
Depreciation (75,977,769) (95,905,719)
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $ (4,983,784) $ (7,248,968)
============================================================================================================
The tax components of undistributed net ordinary income and net realized gains
at December 31, 2005, were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- --------------------------------------------------------------------------------
Undistributed net ordinary income* $247,471 $1,795,011
Undistributed net long-term capital gains -- --
================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
52
The tax character of distributions paid during the fiscal periods ended December
31, 2005, December 31, 2004, and July 31, 2004, was designated for purposes of
the dividends paid deduction as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
YEAR ENDED DECEMBER 31, 2005 (JPC) (JQC)
- --------------------------------------------------------------------------------
Distributions from ordinary income* $136,580,519 $182,688,579
Distributions from net long-term capital gains** 16,867,739 12,933,648
================================================================================
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
FIVE MONTHS ENDED DECEMBER 31, 2004 (JPC) (JQC)
- --------------------------------------------------------------------------------
Distributions from net ordinary income* $82,128,245 $89,938,792
Distributions from net long-term capital gains 7,112,884 2,762,657
================================================================================
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
YEAR ENDED JULY 31, 2004 (JPC) (JQC)
- --------------------------------------------------------------------------------
Distributions from net ordinary income* $134,895,598 $162,336,998
Distributions from net long-term capital gains -- 22,781
================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
** The Fund designated as a long-term capital gain dividend, pursuant to
Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the
earnings and profits of the Fund related to net capital gain to zero for
the tax period ended December 31, 2005.
Calculation of certain of the amounts presented above (namely, undistributed net
ordinary income for tax purposes) involves the application of complex aspects of
the Internal Revenue Code to certain securities held by the Funds. In
calculating the amount of taxable income derived from these securities,
management made assumptions as to the correct tax treatment of certain of those
securities and made estimates about the tax characteristics of income received
from those securities, based on information currently available to the Funds.
The use of these assumptions and estimates will not affect the qualification of
the Funds as regulated investment companies under Subchapter M of the Internal
Revenue Code, nor is it expected that these assumptions and estimates will be
used in computing taxable income for purposes of preparing the federal and state
income and excise tax returns.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Each Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by the
Adviser, and a specific fund-level component, based only on the amount of assets
within each individual fund. This pricing structure enables Nuveen fund
shareholders to benefit from growth in the assets within each individual fund as
well as from growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly, for each Fund is based upon the
average daily Managed Assets of each Fund as follows:
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
- --------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
================================================================================
53
Notes to
FINANCIAL STATEMENTS (continued)
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the table below. As
of December 31, 2005, the complex-level fee rate was .1895%.
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE
- --------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion(2) .1400
================================================================================
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds in
the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level fee
rate for such complex-wide Managed Assets shall be .1400% until such time as
a different rate or rates is determined.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser is
responsible for the overall strategy and asset allocation decisions. The Adviser
has entered into Sub-Advisory Agreements with Spectrum Asset Management, Inc.
("Spectrum"), Froley, Revy Investment Co., Inc. ("Froley, Revy") and Symphony
Asset Management, LLC ("Symphony"). Spectrum manages the portion of the Funds'
investment portfolios allocated to preferred securities. Froley, Revy manages
the portion of the Funds' investment portfolios allocated to convertible
securities. Symphony manages the portion of the Funds' investment portfolios
allocated to debt securities. Spectrum, Froley, Revy and Symphony are
compensated for their 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.
54
For the first eight years of Preferred and Convertible Income's (JPC)
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
MARCH 31, MARCH 31,
- --------------------------------------------------------------------------------
2003* .32% 2008 .32%
2004 .32 2009 .24
2005 .32 2010 .16
2006 .32 2011 .08
2007 .32
================================================================================
*From the commencement of operations.
The Adviser has not agreed to reimburse Preferred and Convertible Income (JPC)
for any portion of its fees and expenses beyond March 31, 2011.
For the first eight years of Preferred and Convertible Income 2's (JQC)
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,
- --------------------------------------------------------------------------------
2003* .32% 2008 .32%
2004 .32 2009 .24
2005 .32 2010 .16
2006 .32 2011 .08
2007 .32
================================================================================
*From the commencement of operations.
The Adviser has not agreed to reimburse Preferred and Convertible Income 2 (JQC)
for any portion of its fees and expenses beyond June 30, 2011.
6. ANNOUNCEMENT REGARDING PARENT COMPANY OF ADVISER
In early April, 2005, The St. Paul Travelers Companies, Inc. ("St. Paul
Travelers"), which owned 79% of Nuveen, (A) completed a public offering of a
substantial portion of its equity stake in Nuveen, (B) sold Nuveen $200 million
of its Nuveen shares, (C) entered into an agreement with Nuveen to sell an
additional $400 million of its Nuveen shares on a "forward" basis with payment
for and settlement of these shares delayed for several months, and (D) entered
into agreements with two unaffiliated investment banking firms to sell an amount
equal to most or all of its remaining Nuveen shares for current payment but for
future settlement. Transactions (C) and (D) above were settled in late July,
which effectively reduced St. Paul Travelers' controlling stake in Nuveen and
was deemed an "assignment" (as defined in the 1940 Act) of the investment
management agreements between the Funds and the Adviser, which resulted in the
automatic termination of each agreement under the 1940 Act. In anticipation of
such deemed assignment, the Board of Trustees had approved new ongoing
investment management agreements for each Fund and the submission of those
agreements for approval by each respective Fund's shareholders, which
shareholder approval was received prior to the settlement of transactions (C)
and (D). The new ongoing management agreements took effect upon such settlement.
7. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Funds declared Common share distributions which were paid on February 1,
2006, to shareholders of record on January 15, 2006, as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
- --------------------------------------------------------------------------------
Distribution per share $.0850 $.0840
================================================================================
Announcement of Open-Market Share Repurchase Program
On February 3, 2006, the Funds' Board of Trustees approved an open market share
repurchase program, as part of a broad, ongoing program of activity designed to
support the market prices of the Funds' Common shares. At the Adviser's
discretion, each Fund may repurchase up to 10% of its outstanding Common shares.
55
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
-------------------------------------------------------------------- -------------------------------
Distributions Distributions
from Net from Net
Beginning Investment Capital Investment Capital
Common Net Income to Gains to Income to Gains to
Share Net Realized/ FundPreferred FundPreferred Common Common
Net Asset Investment Unrealized Share- Share- Share- Share-
Value Income(a) Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
PREFERRED AND
CONVERTIBLE INCOME (JPC)
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2005 $15.32 $1.13 $(.74) $(.22) $ -- $ .17 $(1.15) $(.16) $(1.31)
8/01/04-12/31/04 14.73 .52 .85 (.04) (.01) 1.32 (.50) (.23) (.73)
Year Ended 7/31:
2004 14.12 1.25 .71 (.08) -- 1.88 (1.22) (.05) (1.27)
2003(b) 14.33 .30 (.02) (.02) -- .26 (.30) -- (.30)
PREFERRED AND
CONVERTIBLE INCOME 2 (JQC)
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2005 15.18 1.12 (.70) (.21) (.01) .20 (1.09) (.09) (1.18)
8/01/04-12/31/04 14.33 .51 .90 (.05) -- 1.36 (.49) (.02) (.51)
Year Ended 7/31:
2004 13.83 1.16 .73 (.08) -- 1.81 (1.17) -- (1.17)
2003(c) 14.33 .04 (.53) -- -- (.49) -- -- --
====================================================================================================================================
Total Returns
--------------------
Based
Offering on
Costs and Ending Common
FundPreferred Common Based Share
Share Share Ending on Net
Underwriting Net Asset Market Market Asset
Discounts Value Value Value** Value**
==========================================================================================
PREFERRED AND
CONVERTIBLE
INCOME (JPC)
- ------------------------------------------------------------------------------------------
Year Ended 12/31:
2005 $ -- $14.18 $11.97 (7.63)% 1.32%
8/01/04-12/31/04 -- 15.32 14.33 8.06 9.07
Year Ended 7/31:
2004 -- 14.73 13.95 4.34 13.44
2003(b) (.17) 14.12 14.57 (.89) .58
PREFERRED AND
CONVERTIBLE
INCOME 2 (JQC)
- ------------------------------------------------------------------------------------------
Year Ended 12/31:
2005 -- 14.20 12.11 (4.40) 1.41
8/01/04-12/31/04 -- 15.18 13.87 6.20 9.59
Year Ended 7/31:
2004 (.14) 14.33 13.54 .10 12.25
2003(c) (.01) 13.83 14.69 (2.07) (3.49)
==========================================================================================
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
----------------------------- -----------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
==================================================================================================================
PREFERRED AND
CONVERTIBLE
INCOME (JPC)
- ------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2005 $1,419,946 1.50% 7.25% 1.03% 7.72% 37%
8/01/04-12/31/04 1,533,722 1.51* 7.66* 1.04* 8.13* 13
Year Ended 7/31:
2004 1,474,983 1.53 7.90 1.05 8.37 19
2003(b) 1,412,983 1.29* 5.67* .87* 6.09* 21
PREFERRED AND
CONVERTIBLE
INCOME 2 (JQC)
- ------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2005 2,002,079 1.46 7.25 .99 7.72 34
8/01/04-12/31/04 2,140,563 1.47* 7.81* 1.00* 8.28* 13
Year Ended 7/31:
2004 2,021,258 1.47 7.51 1.00 7.98 27
2003(c) 1,950,622 .97* 2.86* .65* 3.18* 5
==================================================================================================================
FundPreferred Shares at End of Period
----------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
==================================================================
PREFERRED AND
CONVERTIBLE
INCOME (JPC)
- ------------------------------------------------------------------
Year Ended 12/31:
2005 $708,000 $25,000 $75,139
8/01/04-12/31/04 708,000 25,000 79,157
Year Ended 7/31:
2004 708,000 25,000 77,083
2003(b) 708,000 25,000 74,893
PREFERRED AND
CONVERTIBLE
INCOME 2 (JQC)
- ------------------------------------------------------------------
Year Ended 12/31:
2005 965,000 25,000 76,867
8/01/04-12/31/04 965,000 25,000 80,455
Year Ended 7/31:
2004 965,000 25,000 77,364
2003(c) -- -- --
==================================================================
* Annualized.
** Total Return on Market Value is the combination of changes in the market
price per share and the effect of reinvested dividend income and reinvested
capital gains distributions, if any, at the average price paid per share at
the time of reinvestment. Total Return on Common Share Net Asset Value is
the combination of changes in Common Share net asset value, reinvested
dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ o Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders.
o Income ratios reflect income earned on assets attributable to
FundPreferred shares.
o Each ratio includes the effect of the dividend expense on securities
sold short as follows:
Ratio of
Dividend
Expense on
Securities
Sold Short to
Average Net
Assets Applicable
to Common Shares
------------------
PREFERRED AND CONVERTIBLE INCOME (JPC)
Year Ended 12/31:
2005 .01%
8/01/04-12/31/04 .04*
Year Ended 7/31:
2004 .03
2003(b) --
PREFERRED AND CONVERTIBLE INCOME 2 (JQC)
Year Ended 12/31:
2005 .01%
8/01/04-12/31/04 .05*
Year Ended 7/31:
2004 .03
2003(c) --
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) For the period March 26, 2003 (commencement of operations) through July 31,
2003.
(c) For the period June 25, 2003 (commencement of operations) through July 31,
2003.
See accompanying notes to financial statements.
56-57 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 Fund is currently set
at nine. None of the board members who are not "interested" persons of the Funds
has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
- ------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS:
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger(1) Chairman of 1994 Chairman (since 1996) and Director of Nuveen Investments, 156
3/28/49 the Board Inc., Nuveen Investments, LLC, Nuveen Advisory Corp. and
333 W. Wacker Drive and Trustee Nuveen Institutional Advisory Corp.(3); Director (since 1996)
Chicago, IL 60606 of Institutional Capital Corporation; Chairman and Director
(since 1997) of Nuveen Asset Management; Chairman and
Director of Rittenhouse Asset Management, Inc. (since 1999);
Chairman of Nuveen Investments Advisers Inc. (since 2002).
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
- ------------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Board member 1997 Private Investor and Management Consultant. 156
8/22/40
333 W. Wacker Drive
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Board member 1993 Retired (since 1989) as Senior Vice President of The 156
7/29/34 Northern Trust Company; Director (since 2002) Community
333 W. Wacker Drive Advisory Board for Highland Park and Highwood, United
Chicago, IL 60606 Way of the North Shore.
- ------------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Board member 1999 President, The Hall-Perrine Foundation, a private philanthropic 156
10/22/48 corporation (since 1996); Director and Vice Chairman, United
333 W. Wacker Drive Fire Group, a publicly held company; Adjunct Faculty Member,
Chicago, IL 60606 University of Iowa; Director, Gazette Companies; Life Trustee
of Coe College and Iowa College Foundation; formerly,
Director, Alliant Energy; formerly, Director, Federal Reserve
Bank of Chicago; formerly, President and Chief Operating Officer,
SCI Financial Group, Inc., a regional financial services firm.
- ------------------------------------------------------------------------------------------------------------------------------------
William C. Hunter Board member 2004 Dean and Distinguished Professor of Finance, School of 156
3/6/48 Business at the University of Connecticut (since 2002);
333 W. Wacker Drive previously, Senior Vice President and Director of Research
Chicago, IL 60606 at the Federal Reserve Bank of Chicago (1995-2003); Director
(since 1997), Credit Research Center at Georgetown University;
Director (since 2004) of Xerox Corporation; Director
SS&C Technologies, Inc. (May 2005 - October 2005).
- ------------------------------------------------------------------------------------------------------------------------------------
David J. Kundert Board member 2005 Retired (since 2004) as Chairman, JPMorgan Fleming Asset 154
10/28/42 Management, President and CEO, Banc One Investment
333 W. Wacker Drive Advisors Corporation, and President, One Group Mutual
Chicago, IL 60606 Funds; prior thereto, Executive Vice President, Banc One
Corporation and Chairman and CEO, Banc One Investment
Management Group; Board of Regents, Luther College;
member of the Wisconsin Bar Association; member of Board
of Directors, Friends of Boerner Botanical Gardens.
58
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
- ------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
- ------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Chairman of Miller-Valentine Partners Ltd., a real estate 156
9/24/44 investment company; formerly, Senior Partner and Chief
333 W. Wacker Drive Operating Officer (retired, December 2004), of Miller-Valentine
Chicago, IL 60606 Group; formerly, Vice President, Miller-Valentine Realty;
Board Member, Chair of the Finance Committee and member
of the Audit Committee of Premier Health Partners, the
not-for-profit company of Miami Valley Hospital; Vice
President, Dayton Philharmonic Orchestra Association; Board
Member, Regional Leaders Forum, which promotes cooperation on
economic development issues; Director, Dayton Development
Coalition; formerly, Member, Community Advisory Board,
National City Bank, Dayton, Ohio and Business Advisory
Council, Cleveland Federal Reserve Bank.
- ------------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale Board member 1997 Executive Director, Gaylord and Dorothy Donnelley 156
12/29/47 Foundation (since 1994); prior thereto, Executive Director,
333 W. Wacker Drive Great Lakes Protection Fund (from 1990 to 1994).
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine Board member 2005 Senior Vice President for Business and Finance, 156
1/22/50 Northwestern University (since 1997); Director (since 2003),
333 W. Wacker Drive Chicago Board Options Exchange; Director (since 2003),
Chicago, IL 60606 National Mentor Holdings, a privately-held, national provider
of home and community-based services; Chairman (since
1997), Board of Directors, Rubicon, a pure captive insurance
company owned by Northwestern University; Director (since
1997), Evanston Chamber of Commerce and Evanston
Inventure, a business development organization.
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(4) DURING PAST 5 YEARS OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND:
- ------------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary and 156
9/9/56 Administrative Associate General Counsel, formerly, Vice President and
333 W. Wacker Drive Officer Assistant General Counsel, of Nuveen Investments, LLC;
Chicago, IL 60606 Managing Director (2002-2004), General Counsel (1998-2004)
and Assistant Secretary, formerly, Vice President of Nuveen
Advisory Corp. and Nuveen Institutional Advisory Corp.(3);
Managing Director (since 2002) and Assistant Secretary and
Associate General Counsel, formerly, Vice President (since
1997), of Nuveen Asset Management; Managing Director
(since 2004) and Assistant Secretary (since 1994) of Nuveen
Investments, Inc.; Assistant Secretary of NWQ Investment
Management Company, LLC. (since 2002); Vice President and
Assistant Secretary of Nuveen Investments Advisers Inc.
(since 2002); Managing Director, Associate General Counsel
and Assistant Secretary of Rittenhouse Asset Management,
Inc. (since 2003); Chartered Financial Analyst.
59
Board Members
AND OFFICERS (CONTINUED)
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(4) DURING PAST 5 YEARS OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
- ------------------------------------------------------------------------------------------------------------------------------------
Julia L. Antonatos Vice President 2004 Managing Director (since 2005), formerly Vice President 156
9/22/63 (since 2002); formerly, Assistant Vice President (since 2000)
333 W. Wacker Drive of Nuveen Investments, LLC; Chartered Financial Analyst.
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant Vice 156
2/3/66 and Assistant President (since 2000) of Nuveen Investments, LLC.
333 W. Wacker Drive Secretary
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999); Vice 156
11/28/67 and Treasurer President and Treasurer (since 1999) of Nuveen Investments,
333 W. Wacker Drive Inc.; Vice President and Treasurer (1999-2004) of Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen Institutional Advisory Corp.(3);
Vice President and Treasurer of Nuveen Asset Management
(since 2002) and of Nuveen Investments Advisers Inc. (since
2002); Assistant Treasurer of NWQ Investment Management
Company, LLC. (since 2002); Vice President and Treasurer of
Nuveen Rittenhouse Asset Management, Inc. (since 2003);
Chartered Financial Analyst.
- ------------------------------------------------------------------------------------------------------------------------------------
John N. Desmond Vice President 2005 Vice President, Director of Investment Operations, Nuveen 156
8/24/61 Investments, LLC (since January 2005); formerly, Director,
333 W. Wacker Drive Business Manager, Deutsche Asset Management (2003-2004),
Chicago, IL 60606 Director, Business Development and Transformation, Deutsche
Trust Bank Japan (2002-2003); previously, Senior Vice
President, Head of Investment Operations and Systems,
Scudder Investments Japan, (2000-2002), Senior Vice
President, Head of Plan Administration and Participant
Services, Scudder Investments (1995-2002).
- ------------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 1998 Vice President (since 2002), Assistant Secretary and 156
9/24/64 and Secretary Assistant General Counsel (since 1998) formerly, Assistant
333 W. Wacker Drive Vice President (since 1998) of Nuveen Investments, LLC;
Chicago, IL 60606 Vice President (2002-2004) and Assistant Secretary (1998-2004)
formerly, Assistant Vice President of Nuveen Advisory Corp.
and Nuveen Institutional Advisory Corp.(3); Vice President and
Assistant Secretary (since 2005) of Nuveen Asset Management.
- ------------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Managing Director (since 2004), formerly, Vice President of 156
10/24/45 Nuveen Investments, LLC, Managing Director (2004) formerly,
333 W. Wacker Drive Vice President (1998-2004) of Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp.(3); Managing Director
(since 2005) of Nuveen Asset Management.
- ------------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002), formerly, Vice President of 156
3/2/64 Nuveen Investments; Managing Director (1997-2004) of
333 W. Wacker Drive Nuveen Advisory Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp.(3); Managing Director of Nuveen Asset Management
(since 2001); Vice President of Nuveen Investments Advisers
Inc. (since 2002); Chartered Financial Analyst.
60
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(4) DURING PAST 5 YEARS OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller (since 1998) 156
5/31/54 and Controller of Nuveen Investments, LLC; formerly, Vice President and
333 W. Wacker Drive Funds Controller (1998-2004) of Nuveen Investments, Inc.;
Chicago, IL 60606 Certified Public Accountant.
- ------------------------------------------------------------------------------------------------------------------------------------
James D. Grassi Vice President 2004 Vice President and Deputy Director of Compliance (since 2004) 156
4/13/56 and Chief of Nuveen Investments, LLC, Nuveen Investments Advisers Inc.,
333 W. Wacker Drive Compliance Nuveen Asset Management and Rittenhouse Asset Management,
Chicago, IL 60606 Officer Inc.; previously, Vice President and Deputy Director of Compliance
(2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory
Corp.(3); formerly, Senior Attorney (1994-2004), The Northern
Trust Company.
- ------------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, 156
3/22/63 LLC; Certified Public Accountant.
333 W. Wacker Drive
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President of Nuveen Investments, LLC (since 1999). 156
8/27/61
333 W. Wacker Drive
Chicago, IL 60606
- ------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and Assistant General 156
7/27/51 and Assistant Counsel of Nuveen Investments, LLC; Vice President and
333 W. Wacker Drive Secretary Assistant Secretary of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.(3); Vice President (since 2005)
and Assistant Secretary of Nuveen Investments, Inc.; Vice
President (since 2005) and Assistant Secretary (since 1997)
of Nuveen Asset Management; Vice President (since 2000),
Assistant Secretary and Assistant General Counsel (since
1998) of Rittenhouse Asset Management, Inc.; Vice President
and Assistant Secretary of Nuveen Investments Advisers Inc.
(since 2002); Assistant Secretary of NWQ Investment
Management Company, LLC (since 2002).
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and board member of
the Adviser.
(2) Board members serve an indefinite term until his/her successor is elected.
The year first elected or appointed represents the year in which the board
member was first elected or appointed to any fund in the Nuveen Complex.
(3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were
reorganized into Nuveen Asset Management, effective January 1, 2005.
(4) Officers serve one year terms through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
61
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 EXCHANGE-TRADED CLOSED-END FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Exchange-Traded Closed-End Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of the shares may increase before
purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
62
Other Useful
INFORMATION
In April, 2005, The St. Paul Travelers Companies, Inc. (`'St. Paul Travelers ")
sold the majority of its controlling equity interest in Nuveen Investments, Inc.
(`'Nuveen") to the general public. Nuveen is the parent of Nuveen Asset
Management ("NAM"), which is each Fund's investment manager. This sale was
deemed to be an `'assignment" of the investment management agreement between
each Fund and NAM and, if applicable, of the sub-advisory agreement between NAM
and the Fund's sub-adviser. As required by law, the shareholders of each Fund
were asked to approve a new investment management agreement and, if applicable,
a new subadvisory agreement that reflected this change in ownership. The
shareholders of each Fund voted this approval at a Shareholders' Meeting on July
26, 2005. There were no changes to the investment objectives or management of
any Fund as a result of these actions.
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
The Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
most recent 12-month period ended June 30, 2005, and (iii) a description of the
policies and procedures that the Fund used to determine how to vote proxies
relating to portfolio securities are available without charge, upon request, by
calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com. You may also obtain this and other Fund information directly
from the Securities and Exchange Commission ("SEC"). The SEC may charge a
copying fee for this information. Visit the SEC on-line at http://www.sec.gov or
in person at the SEC's Public Reference Room in Washington, D.C. Call the SEC at
1-202-942-8090 for room hours and operation. You may also request Fund
information by sending an e-mail request to publicinfo@sec.gov or by writing to
the SEC's Public Reference Section at 450 Fifth Street NW, Washington, D.C.
20549.
CEO CERTIFICATION DISCLOSURE
Each Fund's Chief Executive Officer has submitted to the New York Stock Exchange
the annual CEO certification as required by Section 303A.12(a) of the NYSE
Listed Company Manual.
Each Fund has filed with the Securities and Exchange Commission the
certification of its Chief Executive Officer and Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act.
INVESTMENTS IN SYNTHETIC CONVERTIBLE SECURITIES
Although the Funds' respective prospectuses indicated that they did not
currently intend to invest in "synthetic convertible securities", the Funds have
now determined to invest up to 10% of their respective Managed Assets in such
securities. Synthetic convertibles possess the two principal characteristics of
a true convertible security: a fixed-income component, and an equity component.
Synthetic convertibles are usually created by third parties (such as investment
banks) and typically involve the marrying of non-convertible fixed-income
instruments such as bonds or preferred stocks with equity instruments such as
warrants or options. Because synthetic convertible securities can sometimes be
comprised of two separate and unrelated instruments from unrelated obligors,
their performance may differ somewhat from true convertibles.
DISTRIBUTION INFORMATION
Nuveen Preferred and Convertible Income Fund (JPC) and Nuveen Preferred and
Convertible Income Fund 2 (JQC) designate 11.37% and 8.68%, respectively, of
dividends declared from net investment income as dividends qualifying for the
70% dividends received deduction for corporations and 14.38% and 12.43%,
respectively, as qualified dividend income for individuals under the Jobs and
Growth Tax Relief Reconciliation Act of 2003.
BOARD OF TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
David J. Kundert
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Eugene S. Sunshine
FUND MANAGER
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
TRANSFER AGENT AND SHAREHOLDER SERVICES
State Street Bank & Trust Company
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
The Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the period covered by this report. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
63
Nuveen Investments:
SERVING Investors
For GENERATIONS
Photo of: 2 women looking at a photo album.
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past century,
Nuveen Investments has adhered to the belief that the best approach to investing
is to apply conservative risk-management principles to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity and
fixed-income solutions that are integral to a well-diversified core portfolio.
Our clients have come to appreciate this diversity, as well as our continued
adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT NEEDS.
Managing more than $135 billion in assets, Nuveen Investments offers access to a
number of different asset classes and investing solutions through a variety of
products. Nuveen Investments markets its capabilities under four distinct
brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in
value-style equities; Rittenhouse, a leader in growth-style equities; and
Symphony, a leading institutional manager of market-neutral alternative
investment portfolios.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers, talk to
your financial advisor, or call us at (800) 257-8787. Please read the
information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should consider the
investment objective and policies, risk considerations, charges and expenses of
the Fund carefully before investing. The prospectus contains this and other
information relevant to an investment in the Fund. For a prospectus, please
contact your securities representative or Nuveen Investments, 333 W. Wacker Dr.,
Chicago, IL 60606. Please read the prospectus carefully before you invest or
send money.
o Share prices
o Fund details
Learn more o Daily financial news
about Nuveen Funds at o Investor education
WWW.NUVEEN.COM/ETF o Interactive planning tools
Logo: NUVEEN Investments
EAN-F-1205D
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. There were no amendments to or waivers
from the Code during the period covered by this report. The registrant has
posted the code of ethics on its website at www.nuveen.com/etf. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then click on Code of Conduct.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors or Trustees determined that the registrant
has at least one "audit committee financial expert" (as defined in Item 3 of
Form N-CSR) serving on its Audit Committee. The registrant's audit committee
financial expert is Jack B. Evans, Chairman of the Audit Committee, who is
"independent" for purposes of Item 3 of Form N-CSR.
Mr. Evans was formerly President and Chief Operating Officer of SCI Financial
Group, Inc., a full service registered broker-dealer and registered investment
adviser ("SCI"). As part of his role as President and Chief Operating Officer,
Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and
actively supervised the CFO's preparation of financial statements and other
filings with various regulatory authorities. In such capacity, Mr. Evans was
actively involved in the preparation of SCI's financial statements and the
resolution of issues raised in connection therewith. Mr. Evans has also served
on the audit committee of various reporting companies. At such companies, Mr.
Evans was involved in the oversight of audits, audit plans, and the preparation
of financial statements. Mr. Evans also formerly chaired the audit committee of
the Federal Reserve Bank of Chicago.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Nuveen Preferred and Convertible Income Fund
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP the Audit Committee approved in advance all
audit services and non-audit services that Ernst & Young LLP provided to the
Fund, except for those non-audit services that were subject to the pre-approval
exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The
pre-approval exception for services provided directly to the Fund waives the
pre-approval requirement for services other than audit, review or attest
services if: (A) the aggregate amount of all such services provided constitutes
no more than 5% of the total amount of revenues paid by the Fund to its
accountant during the fiscal year in which the services are provided; (B) the
Fund did not recognize the services as non-audit services at the time of the
engagement; and (C) the services are promptly brought to the Audit Committee's
attention, and the Committee (or its delegate) approves the services before the
audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND BILLED TO FUND BILLED TO FUND BILLED TO FUND
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 2005 $ 19,502 $ 0 $ 4,731 $ 3,750
- ------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 (1) $ 18,139 $ 0 $ 7,549 $ 3,450
- ------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
- ------------------------------------------------------------------------------------------------------------------------------
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.
(1) This fund changed its fiscal year end from July 31 to December 31. For the
stub period ending, 12/31/04 the fund incurred the following fees : Audit
fees of $18,139 ; Tax fees of $855 ; and All Other fees of $1,800.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling,
controlled by or under common control with NAM ("Control Affiliate") that
provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for
engagements directly related to the Fund's operations and financial reporting,
during the Fund's last two full fiscal years.
The tables also show the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES
BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER
AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND
SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS
- -----------------------------------------------------------------------------------------------------------
December 31, 2005 $ 0 $ 282,575 $ 0
- -----------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
- -----------------------------------------------------------------------------------------------------------
December 31, 2004 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
- -----------------------------------------------------------------------------------------------------------
The above "Tax Fees" are primarily fees billed to the Adviser for Fund tax
return preparation.
NON-AUDIT SERVICES
The following table shows the amount of fees that Ernst & Young LLP billed
during the Fund's last two full fiscal years for non-audit services. For
engagements entered into on or after May 6, 2003, the Audit Committee is
required to pre-approve non-audit services that Ernst & Young LLP provides to
the Adviser and any Affiliated Fund Services Provider, if the engagement related
directly to the Fund's operations and financial reporting (except for those
subject to the de minimis exception described above). The Audit Committee
requested and received information from Ernst & Young LLP about any non-audit
services that Ernst & Young LLP rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating Ernst & Young LLP's independence.
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES
BILLED TO ADVISER AND
AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES
PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND
RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE
TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER
BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 2005 $ 8,481 $ 282,575 $ 0 $ 291,056
December 31, 2004 (2) $ 10,999 $ 0 $ 0 $ 10,999
The above "Non-Audit Fees billed to Adviser" for 2005 include "Tax-Fees" billed
to Adviser in the amount of $282,575 from previous table.
(2) This fund changed its fiscal year end from July 31 to December 31. For the
stub period ending, 12/31/04 the fund incurred total Non-Audit fees of
$2,655.
Audit Committee Pre-Approval Policies and Procedures. Generally, the Audit
Committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the Audit Committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the Audit Committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the Audit Committee at
the next Audit Committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant's Board of Directors or Trustees has a separately designated
Audit Committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (15 U.S.C. 78c(a)(58)(A)). The
members of the audit committee are Robert P. Bremner, Lawrence H. Brown, Jack B.
Evans, William J. Schneider and Eugene S. Sunshine.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Adviser has engaged Spectrum Asset Management, Inc. ("Spectrum") for
preferred securities, Froley, Revy Investment Company Inc. ("Froley, Revy") for
convertible securities and Symphony Asset Management, LLC ("Symphony") for
high-yield fixed income securities (Spectrum, Froley, Revy and Symphony are also
collectively referred to as "Sub-Advisers") as Sub-Advisers to provide
discretionary investment advisory services. As part of these services, the
Adviser has also delegated to each Sub-Adviser the full responsibility for proxy
voting and related duties in accordance with the Sub-Adviser's policy and
procedures. The Adviser periodically will monitor each Sub-Adviser's voting to
ensure that they are carrying out their duties. The Sub-Advisers' proxy voting
policies and procedures are summarized as follows:
SYMPHONY
Symphony uses the proxy voting services of Institutional Shareholder Services
("ISS"). The ISS Proxy Voting Services provide Symphony and its clients with an
independent source of proxy voting research and services. The use of ISS is
designed to offer client-centered proxy voting which minimizes conflicts of
interests between Symphony's interests and those of its clients.
In order to monitor how ISS votes client proxies, Symphony has established a
Proxy Voting Review Committee (the "Committee"). The Committee is composed of
Symphony's Chief Operating Officer and its Chief Investment Officer. Each year,
the Committee reviews ISS proxy voting policies and practices to determine
whether such policies and practices are consistent with Symphony's fiduciary
duty to the clients for whom Symphony is responsible for voting proxies. During
the year, the Committee review how ISS votes on specific issues. From time to
time, the Committee discusses the proxy voting process with representatives of
ISS in order to ensure that Symphony's client interests are being protected.
When Symphony disagrees with ISS' policies with respect to certain issues,
Symphony will direct the voting of its clients' proxies according to what
Symphony believes is the best interests of its clients.
Clients who have questions about how particular proxies are voted for their
account may request such information from Symphony by calling (800) 847-6369.
FROLEY, REVY
Froley, Revy will vote proxies upon a client's request as set forth in the
Investment Management contract. Proxies will be voted in the best interests of
the account's participants and beneficiaries. Thus, the primary consideration in
voting a proxy is the ultimate economic value of the stock based on Froley,
Revy's independent analysis of the stock's investment potential. Froley, Revy
utilizes a proxy committee. With respect to each proxy issue, the committee will
analyze the economic impact on the company of voting in favor or against the
proposal. The committee will vote based on the best ultimate long-term economic
interest of the plan. Froley, Revy may determine not to vote proxies relating to
certain securities if Froley, Revy determines it would be in its clients'
overall best interest not to vote. If Froley, Revy manages the assets of a
company or its pension plan and any of Froley, Revy's clients hold any
securities of that company, to avoid conflicts of interest, the client will be
asked to vote the proxy.
Clients that would like to obtain a copy of Froley, Revy's proxy policies and
procedures and/or the voting history for their account may do so by writing to
the offices of Froley, Revy Investment Co., Inc. at 10900 Wilshire Blvd. Suite
900, Los Angeles, CA 90024, Attn: Compliance Department.
SPECTRUM
Spectrum has adopted a Policy on Proxy Voting for Investment Advisory Clients
(the "Voting Policy"), which provides that Spectrum aims to ensure that, when
delegated proxy voting authority by a client, Spectrum acts (1) solely in the
interest of the client in providing for ultimate long-term stockholder value,
and (2) without undue influence from individuals or groups who may have an
economic interest in the outcome of a proxy vote. Spectrum relies on the
custodian bank to deliver proxies to Spectrum for voting.
Spectrum has selected Institutional Shareholder Services, Inc. ("ISS") to assist
with Spectrum's proxy voting responsibilities. Spectrum generally follows ISS
standard proxy voting guidelines which embody the positions and factors Spectrum
considers important in casting proxy votes. In connection with each proxy vote,
ISS prepares a written analysis and recommendation based on its guidelines. In
order to avoid any conflict of interest for ISS, the CCO will require ISS to
deliver additional information or certify that ISS has adopted policies and
procedures to detect and mitigate such conflicts of interest in issuing voting
recommendations. Spectrum also may obtain voting recommendations from two proxy
voting services as an additional check on the independence of ISS' voting
recommendations.
Spectrum may, on any particular proxy vote, diverge from ISS' guidelines or
recommendations. In such a case, Spectrum's Voting Policy requires that: (i) the
requesting party document the reason for the request; (ii) the approval of the
Chief Investment Officer; (iii) notification to appropriate compliance
personnel; (iv) a determination that the decision is not influenced by any
conflict of interest; and (v) a written record of the process.
When Spectrum determines not to follow ISS' guidelines or recommendations,
Spectrum classifies proxy voting issues into three broad categories: (1) Routine
Administrative Items; (2) Special Interest Issues; and (3) Issues having the
Potential for Significant Economic Impact, and casts proxy votes in accordance
with the philosophy and decision guidelines developed for that category in the
Voting Policy.
o Routine Administrative Items. Spectrum is willing to defer to
management on matters of a routine administrative nature. Examples of issues on
which Spectrum will normally defer to management's recommendation include
selection of auditors, increasing the authorized number of common shares and the
election of unopposed directors.
o Special Interest Issues. In general, Spectrum will abstain from
voting on shareholder social, political, environmental proposals because their
long-term impact on share value cannot be calculated with any reasonable degree
of confidence.
o Issues Having the Potential for Significant Economic Impact.
Spectrum is not willing to defer to management on proposals which have the
potential for major economic impact on the corporation and value of its shares
and believes such issues should be carefully analyzed and decided by
shareholders. Examples of such issues are classification of board of directors'
cumulative voting and supermajority provisions, defensive strategies (e.g.,
greenmail prevention), business combinations and restructurings and executive
and director compensation.
Conflicts of Interest. There may be a material conflict of interest when
Spectrum votes, on behalf of a client, a proxy that is solicited by an
affiliated person of Spectrum or another Spectrum client. To avoid such
conflicts, Spectrum has established procedures under its Voting Policy to seek
to ensure that voting decisions are based on a client's best interests and are
not the product of a material conflict. In addition to employee monitoring for
potential conflicts, the CCO reviews Spectrum's and its affiliates' material
business relationships and personal and financial relationships of senior
personnel of Spectrum and its affiliates to monitor for conflicts of interest.
If a conflict of interest is identified, Spectrum considers both financial and
non-financial materiality to determine if a conflict of interest is material. If
a material conflict of interest is found to exist, the CCO discloses the
conflict to affected clients and obtains consent from each client in the manner
in which Spectrum proposed to vote.
Spectrum clients can obtain a copy of the Voting Policy or information on how
Spectrum voted their proxies by calling Spectrum's Compliance Department at
(203) 322-0189.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The portfolios of the Funds are managed by three different sub-advisers:
Spectrum for preferred securities; Froley Revy for convertible securities and
Symphony for high yield fixed-income securities. Following is disclosure
regarding the portfolio managers responsible for each asset class:
SPECTRUM ASSET MANAGEMENT - PREFERRED SECURITIES
A. PORTFOLIO MANAGER BIOGRAPHIES
BERNARD M. SUSSMAN is Chief Investment Officer and Chairman of Spectrum's
Investment Committee. Prior to joining Spectrum in 1995, Mr. Sussman was with
Goldman Sachs & Co. for nearly 18 years.
MARK A. LIEB is Chief Financial Officer and is responsible for business
development. Prior to founding Spectrum in 1987, Mr. Lieb was a Founder,
Director and Partner of DBL Preferred Management, Inc., a wholly owned corporate
cash management subsidiary of Drexel Burnham Lambert, Inc.
L. PHILLIP JACOBY, IV is a Senior Vice President and joined Spectrum in 1995.
From 1989-1995, Mr. Jacoby was a Senior Investment Officer at USL Capital
Corporation (a subsidiary of Ford Motor Corporation) and was co-portfolio
manager of a $600 million preferred stock portfolio.
B. OTHER ACCOUNTS MANAGED BY SPECTRUM
- ------------------------------------------------------------------------------------------------------------------------------------
(a)(1) (a)(2) For each person identified in column (a)(1), provide (a)(3) PERFORMANCE FEE ACCOUNTS. For each of the
Identify number of accounts other than the Funds managed by the person categories in column (a)(2), provide number of
portfolio within each category below and the total assets in the accounts accounts and the total assets in the accounts
manager(s) of managed within each category below with respect to which the ADVISORY FEE IS BASED
the Adviser ON THE PERFORMANCE OF THE ACCOUNT
to be named
in the Fund
prospectus
- ------------------------------------------------------------------------------------------------------------------------------------
Registered Investment Other Pooled Other Accounts Registered Other Pooled Other Accounts
Companies Investment Investment Investment Vehicles
Vehicles Companies
- ------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
Number Total Number Total Number Total Number Total Number of Total Number Total
of Assets of Assets of Assets of Assets Accounts Assets of Assets
Accounts ($mills) Accounts ($mill) Accounts ($mill) Accounts Accounts ($mill)
- ------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
- ------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
Bernard M.
Sussman 10 $8.12 16 $2.52 42 $2.58 - - - - - -
- ------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
Mark A. Lieb 10 $8.12 16 $2.52 42 $2.58 - - - - - -
- ------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
Phil Jacoby 10 $8.12 16 $2.52 38 $2.57 - - - - - -
- ------------- --------- ------------ ---------- -------- ---------- --------- ------- ------- ---------- --------- --------- -------
C. POTENTIAL MATERIAL CONFLICTS OF INTEREST
As described above, the portfolio manager may manage other accounts
with investment strategies similar to the Fund, including other
investment companies and separately managed accounts. Fees earned by
the sub-advisers may vary among these accounts and the portfolio
managers may personally invest in some but not all of these accounts.
These factors could create conflicts of interest because a portfolio
manager may have incentives to favor certain accounts over others,
resulting in other accounts outperforming the Fund. A conflict may also
exist if a portfolio manager identified a limited investment
opportunity that may be appropriate for more than one account, but the
Fund is not able to take full advantage of that opportunity due to the
need to allocate that opportunity among multiple accounts. In addition,
the portfolio manager may execute transactions for another account that
may adversely impact the value of securities held by the Fund. However,
the sub-advisers believe that these risks are mitigated by the fact
that accounts with like investment strategies managed by a particular
portfolio manager are generally managed in a similar fashion, subject
to exceptions to account for particular investment restrictions or
policies applicable only to certain accounts, differences in cash flows
and account sizes, and other factors. In addition, each sub-adviser has
adopted trade allocation procedures that require equitable allocation
of trade orders for a particular security among participating accounts.
D. FUND MANAGER COMPENSATION
All employees of Spectrum Asset Management are paid a base salary and
discretionary bonus. The bonus is paid quarterly and may represent a significant
proportion of an individual's total annual compensation. Discretionary bonuses
are determined by management after consideration of several factors including
but not necessarily limited to:
o Changes in overall firm assets under management (employees have no
direct incentive to increase assets)
o Portfolio performance relative to benchmarks
o Contribution to client servicing
o Compliance with firm and/or regulatory policies and procedures
o Work ethic
o Seniority and length of service
o Contribution to overall functioning of organization
E. OWNERSHIP OF JPC SECURITIES AS DECEMBER 31, 2005.
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Portfolio Manager None $1-$10,000 $10,001-$50,000 $50,001-$100,000 $100,001-$500,000 $500,001 - over
$1,000,000 $1,000,000
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Bernard M. Sussman X
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Mark A. Lieb X
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Phil Jacoby X
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
FROLEY REVY - CONVERTIBLE SECURITIES
A. PORTFOLIO MANAGER BIOGRAPHY
K. ANDREA REVY O'CONNELL, CFA - President and Chairman of Froley, Revy since
2005 and President and CEO of FR Fund Management LLC since 2000. Previously,
President and CEO of Froley, Revy since 2000.
B. OTHER ACCOUNTS MANAGED BY FROLEY REVY
Number of Accounts Total assets as of 12/31/05
a) Registered Investment Companies 3 $ 1.6 billion
b) Pooled Investment Vehicles 0
c) Other Accounts 10 $ 1 billion
No accounts pay fees based on performance.
C. POTENTIAL MATERIAL CONFLICTS OF INTEREST
As described above, the portfolio manager may manage other accounts
with investment strategies similar to the Fund, including other
investment companies and separately managed accounts. Fees earned by
the sub-advisers may vary among these accounts and the portfolio
managers may personally invest in some but not all of these accounts.
These factors could create conflicts of interest because a portfolio
manager may have incentives to favor certain accounts over others,
resulting in other accounts outperforming the Fund. A conflict may also
exist if a portfolio manager identified a limited investment
opportunity that may be appropriate for more than one account, but the
Fund is not able to take full advantage of that opportunity due to the
need to allocate that opportunity among multiple accounts. In addition,
the portfolio manager may execute transactions for another account that
may adversely impact the value of securities held by the Fund. However,
the sub-advisers believe that these risks are mitigated by the fact
that accounts with like investment strategies managed by a particular
portfolio manager are generally managed in a similar fashion, subject
to exceptions to account for particular investment restrictions or
policies applicable only to certain accounts, differences in cash flows
and account sizes, and other factors. In addition, each sub-adviser has
adopted trade allocation procedures that require equitable allocation
of trade orders for a particular security among participating accounts.
D. FUND MANAGER COMPENSATION
Froley, Revy's portfolio managers receive base compensation and
benefits, which are competitive with the industry standards. Bonuses
are a reflection of both the individual's contribution and firm wide
profitability. Ms. O'Connell's compensation is not based on the
performance of her portfolios and is not directly tied to the
gathering of assets. Rather any increases in assets are reflected
through overall firm profitability. Ms. O'Connell is a profit
participant in the firm and her bonus is based on a percentage of net
profitability (including all bonuses paid to employees).
Due to the complex and varying natures of the portfolios managed,
there is no simple comparison to an index, nor is compensation tied to
performance against an index in the short term. Over a longer cycle,
however, actual over and under performance is evaluated.
E. OWNERSHIP OF JPC SECURITIES AS DECEMBER 31, 2005.
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Portfolio Manager None $1-$10,000 $10,001-$50,000 $50,001-$100,000 $100,001-$500,000 $500,001 - over
$1,000,000 $1,000,000
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Andrea Revy X
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
SYMPHONY ASSET MANAGEMENT - HIGH YIELD SECURITIES
A. PORTFOLIO MANAGER BIOGRAPHIES
Gunther Stein, Director of Fixed Income Strategies, Portfolio Manager
Gunther Stein is the lead portfolio manager for High Yield strategies at
Symphony Asset Management and is the lead portfolio manager of Nuveen's senior
loan asset management team. Prior to joining Symphony in 1999, Stein was a high
yield portfolio manager at Wells Fargo Bank, where he was responsible for
investing in public high yield bonds and bank loans and also managed a team of
credit analysts. Stein joined Wells Fargo in 1993 as an Associate in its Loan
Syndications/Leveraged Finance Group. Previously, Stein worked for four years as
a euro-currency deposit trader with First Interstate Bank. He has also worked
for Standard Chartered Bank, Mexico City and Citibank Investment Bank, London.
He completed Wells Fargo's Credit Management Training program and holds an
M.B.A. from the University of Texas, Austin. He graduated from the University of
California at Berkeley with a B.A. in Economics.
Lenny Mason, Portfolio Manager
Lenny Mason is a High Yield portfolio manager for Symphony Asset Management and
is also a portfolio manager on the Nuveen's senior loan asset management team.
Prior to joining Symphony in 2001, Mason was a Managing Director in
FleetBoston's Technology & Communications Group, where he headed its five member
Structuring and Advisory Team. He joined FleetBoston in 1995 as an Assistant
Vice President in its Media & Communications Group. Previously, Mason worked for
Wells Fargo Bank's Corporate Banking Group dealing primarily with leveraged
transactions and for Coopers & Lybrand as an auditor. He holds an M.B.A. in
Finance from the University of Chicago, a B.S. in Accounting from Babson College
and is also a C.P.A.
B. OTHER ACCOUNTS MANAGED BY SYMPHONY
GUNTHER STEIN LENNY MASON
(a) RICS
Number of accts 7 7
Assets ($000s) $ 2,790,982 $ 2,790,982
(b) Other pooled accts
Non-performance fee accts
Number of accts 2 2
Assets ($000s) $ 520,932 $ 520,932
Performance fee accts
Number of accts 9 6
Assets ($000s) $ 846,422 $ 407,989
(c) Other
Non-performance fee accts
Number of accts 5 5
Assets ($000s) $ 1,513 $ 1,366
Performance fee accts
Number of accts 3 0
Assets ($000s) $ 262,097
C. POTENTIAL MATERIAL CONFLICTS OF INTEREST
As described above, the portfolio manager may manage other accounts with
investment strategies similar to the Fund, including other investment companies
and separately managed accounts. Fees earned by the sub-advisers may vary among
these accounts and the portfolio managers may personally invest in some but not
all of these accounts. These factors could create conflicts of interest because
a portfolio manager may have incentives to favor certain accounts over others,
resulting in other accounts outperforming the Fund. A conflict may also exist if
a portfolio manager identified a limited investment opportunity that may be
appropriate for more than one account, but the Fund is not able to take full
advantage of that opportunity due to the need to allocate that opportunity among
multiple accounts. In addition, the portfolio manager may execute transactions
for another account that may adversely impact the value of securities held by
the Fund. However, the sub-advisers believe that these risks are mitigated by
the fact that accounts with like investment strategies managed by a particular
portfolio manager are generally managed in a similar fashion, subject to
exceptions to account for particular investment restrictions or policies
applicable only to certain accounts, differences in cash flows and account
sizes, and other factors. In addition, each sub-adviser has adopted trade
allocation procedures that require equitable allocation of trade orders for a
particular security among participating accounts.
D. FUND MANAGER COMPENSATION
Symphony investment professionals receive competitive base salaries and
participate in a bonus pool which is tied directly to the firm's operating
income with a disproportionate amount paid to the managers responsible for
generating the alpha. The bonus paid to investment personnel is based on acumen,
overall contribution and strategy performance. However, there is no fixed
formula which guides bonus allocations. Bonuses are paid on an annual basis. In
addition, investment professionals may participate in an equity-based
compensation pool.
E. OWNERSHIP OF JPC SECURITIES AS DECEMBER 31, 2005.
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Portfolio Manager None $1-$10,000 $10,001-$50,000 $50,001-$100,000 $100,001-$500,000 $500,001 - over
$1,000,000 $1,000,000
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Gunther Stein X
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
Lenny Mason X
- -------------------- ------- ------------ ------------------ ------------------- -------------------- ------------- ---------------
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board during the reporting period and
implemented after the registrant last provided disclosure in response to this
Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
(17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because the code is posted on registrant's website at www.nuveen.com/etf and
there were no amendments during the period covered by this report. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then Code of Conduct.)
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
Attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Preferred and Convertible Income Fund
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By (Signature and Title)* /s/ Jessica R. Droeger
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Jessica R. Droeger
Vice President and Secretary
Date: March 8, 2006
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
----------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: March 8, 2006
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By (Signature and Title)* /s/ Stephen D. Foy
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Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: March 8, 2006
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* Print the name and title of each signing officer under his or her signature.