UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21137
Nuveen Quality Preferred Income Fund 2
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
---------------------
Date of fiscal year end: December 31
-------------------
Date of reporting period: December 31, 2006
-----------------------
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, 2006
NUVEEN INVESTMENTS
CLOSED-END
FUNDS
NUVEEN QUALITY
PREFERRED INCOME
FUND
JTP
NUVEEN QUALITY
PREFERRED INCOME
FUND 2
JPS
NUVEEN QUALITY
PREFERRED INCOME
FUND 3
JHP
HIGH CURRENT INCOME
FROM A PORTFOLIO OF
INVESTMENT-GRADE
PREFERRED SECURITIES
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<Table>
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dividends and statements from dividends and statements directly
your financial advisor or from Nuveen.
brokerage account.
(Be sure to have the address
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</Table>
NUVEEN LOGO
(TIMOTHY SCHWERTFEGER PHOTO)
Timothy R. Schwertfeger
Chairman of the Board
CHAIRMAN'S
LETTER TO SHAREHOLDERS
Dear Shareholder:
I am very pleased to report that over the twelve-month period covered by
this report, your Fund continued to provide you with attractive monthly
income from a diversified portfolio of quality preferred securities. 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 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.
"PORTFOLIO DIVERSIFICATION IS A RECOGNIZED WAY TO TRY TO REDUCE SOME OF THE RISK
THAT COMES WITH INVESTING."
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.
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,
(TIMOTHY SCHWERFEGER SIG)
Timothy R. Schwertfeger
Chairman of the Board
February 15, 2007
Nuveen Investments Closed-End Funds (JTP, JPS, JHP)
PORTFOLIO MANAGERS'
COMMENTS
The Nuveen Quality Preferred Income Funds are subadvised by a team of
specialists at Spectrum Asset Management, Inc., an affiliate of Principal
Capital(SM). Mark Lieb, Bernie Sussman and Phil Jacoby, who have more than 50
years of combined experience in the preferred securities markets, lead the team.
Here Mark, Bernie and Phil talk about their management strategy and the
performance of each Fund for the 12-month period ended December 31, 2006.
WHAT WERE THE GENERAL ECONOMIC CONDITIONS AND MARKET TRENDS OVER THE COURSE OF
2006?
In 2006, the U.S. economy benefited from increased flexibility stemming mainly
from productivity advancements and globalization, which seems to be reducing the
reliance on monetary policy actions to offset unexpected shocks. We began the
year still in the midst of a Fed tightening cycle. The departing Federal Reserve
Chairman, Alan Greenspan warned, "History cautions that people experiencing long
periods of relative stability are prone to excess. We must thus remain vigilant
against complacency, especially since several important economic challenges
confront policymakers in the years ahead." By June, after two full years of
raising the short-term fed funds rate at regular intervals, the Fed finally
paused. The uncertainty of the Fed's actions throughout the remainder of year
led to a fair amount of volatility in the long end of the bond market, as the
30-year Treasury bond traded as high as 5.31% in the spring only to rally for
the entire summer and close the year at 4.81%, just 27 basis points cheaper than
where it started in January.
The bond rally in the second half of the year led to a U.S. Treasury yield curve
inversion. The U.S. has experienced five yield curve inversions since the 1970s,
with the average length of time being 12 months and the longest being 19 months.
We do not think that this inversion will last too much longer because, according
to the Fed, "economic growth has slowed over the course of the year, partly
reflecting a substantial cooling of the housing market." Nonetheless, new
Federal Reserve Chairman Bernanke still has lingering concerns over inflation
risks even though the pressures seemed to moderate along with slowing aggregate
demand around the globe. It seems that a soft landing for the U.S. economy is
underway and this is making the bond market a bit anxious for a Fed rate cut (or
two) next year.
4
There were some very good buying opportunities for the Funds during the year. We
believed that some closed-end funds were underpriced, and confusion in the
hybrid preferred market due to the National Association of Insurance
Commissioners' (NAIC) classification of several preferred structures as common
equity. Since about 25% of the hybrid capital securities market is comprised of
insurance company buyers, the IPO market for institutional deals took a timeout
in April thanks to the NAIC, only to come back strong later in the year as it
became evident that the buyer base went significantly beyond insurance companies
to hedge funds, dealer proprietary funds and traditional corporate bond
managers. Even the $25 par market has found new buyer breadth as equity income
and balanced funds are the latest institutional buyers competing with retail
investors. Overall, new issuance in hybrid-preferred securities set a record in
2006 of over $74 billion - about 60% more than the issuance amount the previous
year, which at the time was also a record year.
WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE TWELVE MONTHS ENDED DECEMBER
31, 2006?
We generally maintained the 60/40 portfolio mix between the $25 par sector and
the Capital Securities sector for each of the portfolios. We sold Dividends
Received Deduction (DRD) tax-advantaged securities as spreads tightened from the
cheap positioning that took place in 2005. These sale proceeds were reinvested
roughly equally in fully taxable $25 par securities and in competitors'
closed-end funds that were priced at discounts to their net asset values.
In the Capital Security sector, we decreased concentrations in "Euro-listed"
securities and purchased Yankee Tier 1 and secondary "enhanced equity" hybrid
securities that offered more return potential with less duration risk. We also
sold some high coupon, callable capital securities that had little potential
upside and used the proceeds to purchase some IPOs of "enhanced equity" hybrids
that were priced attractively, particularly in the late summer. These actions
were part of an ongoing effort to support the earnings potential of the
portfolios while maintaining credit quality and diversity.
5
HOW DID THE FUNDS PERFORM OVER THIS TWELVE-MONTH PERIOD?
The performance of JTP, JPS and JHP, as well as the performance of a comparative
index and benchmark, is shown in the following chart:
TOTAL RETURN ON NET ASSET VALUE
For the twelve-month period ended December 31, 2006
<Table>
JTP 7.26%
- -------------------------------------------------------------------------------------------
JPS 7.09%
- -------------------------------------------------------------------------------------------
JHP 7.49%
- -------------------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index(1) 4.30%
- -------------------------------------------------------------------------------------------
Comparative Benchmark(2) 6.50%
- -------------------------------------------------------------------------------------------
</Table>
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1 The Lehman Brothers Aggregate Bond Index is an unmanaged index that includes
all investment-grade, publicly issued, fixed-rate, dollar denominated,
nonconvertible debt issues and commercial mortgage backed securities with
maturities of at least one year and outstanding par values of $150 million or
more. Index returns do not include the effects of any sales charges or
management fees. It is not possible to invest directly in an index.
2 Comparative benchmark performance is a blended return consisting of: 1) 55% of
the Merrill Lynch Preferred Stock Hybrid Securities Index, an unmanaged index
of investment-grade, exchange traded preferred stocks with outstanding market
values of at least $30 million and at least one year to maturity; and 2) 45%
of the Lehman Tier 1 Capital Securities Index, an unmanaged index that
includes securities that can generally be viewed as hybrid fixed income
securities that either receive regulatory capital treatment or a degree of
"equity credit" from a rating agency.
- --------------------------------------------------------------------------------
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.
For the twelve months ended December 31, 2006, all three funds outperformed the
unleveraged, unmanaged Lehman Brothers Aggregate Bond Index and their
comparative benchmark.
One driver of the Funds' performance was our allocation to DRD-eligible
securities. We continued to opportunistically increase the Funds' concentrations
in DRDs due to the relative attractiveness of the sector. As the year progressed
and spreads in this area tightened while spreads in other sectors widened, we
took some profits in order to redeploy proceeds into competitor CEFs and newer
hybrid issues. We also switched from $25 par securities and capital securities
that were soon callable into relatively cheap bullet capital securities and
perpetuals whose structures and pricing seemed attractive. We also benefited
from the strong performance of the IPO market for floating rate DRD paper.
While the added volatility in the "enhanced equity" hybrid and Tier 1 securities
provided some trading opportunities for the Funds, it sometimes hurt our
holdings in these sectors. We also made a decision to stop selling callable
hybrid securities because it became unclear whether the issuers would have
adequate incentive to call them. As a result, the portfolio duration drifted
lower than the comparative benchmark and switches for lower yield and more
duration became less attractive than holding the higher income, low duration
securities.
6
DISTRIBUTION AND SHARE PRICE
INFORMATION
Each of these Funds uses financial leverage in an effort to enhance its
dividend-paying capabilities. While this strategy adds volatility to a Fund's
net asset value and share price, it generally enhances the amount of income the
Fund has to distribute to its common shareholders. The extent of this benefit is
tied in part to the short-term rates these Funds pay their FundPreferred(TM)
shareholders. As short-term rates rose through this reporting period, the Funds
paid higher dividends to their FundPreferred shareholders, marginally reducing
the benefits of the Funds' use of financial leverage.
JTP and JPS each paid steady monthly distributions over the course of the
period. JHP declared a monthly distribution decrease in March. The distribution
decreased from $0.0945 to $0.0910 per share.
The following table provides information regarding JHP's distributions and total
return performance for the fiscal year ended December 31, 2006. The distribution
information is presented on a tax basis rather than on a generally accepted
accounting principles (GAAP) basis. This information is intended to help you
better understand whether the Fund's returns for the specified time period was
sufficient to meet the Fund's distributions. Information regarding such
distributions in the future will likely vary based on the Fund's investment
activities and portfolio investment value changes at that time.
<Table>
<Caption>
- -------------------------------------------------------------------------------
AS OF 12/31/2006 JHP
-----------------------------------------------------------------------
Inception date 12/18/02
Calendar Year:
Per share distribution:
From net investment income $1.10
From short-term capital gains --
From long-term capital gains --
From return of capital $0.01
-------
Total per share distribution $1.11
-------
Distribution rate on NAV 7.81%
One-year total return on NAV 7.49%
Annualized since inception total return on NAV 8.36%
- -------------------------------------------------------------------------------
</Table>
As of December 31, 2006, the Funds' shares were trading at premiums to their
NAVs as shown in the accompanying table:
<Table>
<Caption>
12/31/06 12-MONTH AVERAGE
PREMIUM DISCOUNT
- -------------------------------------------------------------------------------
JTP 5.25% -2.34%
- -------------------------------------------------------------------------------
JPS 3.14% -2.87%
- -------------------------------------------------------------------------------
JHP 4.92% -1.09%
- -------------------------------------------------------------------------------
</Table>
7
Nuveen Quality Preferred Income Fund
JTP
PERFORMANCE
OVERVIEW As of December 31, 2006
(PORTFOLIO ALLOCATION PIE CHART)
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
$25 Par (or similar) Preferred Securities 56.5%
- --------------------------------------------------------------------------------
Capital Preferred Securities 39.0%
- --------------------------------------------------------------------------------
Investment Companies 2.1%
- --------------------------------------------------------------------------------
Short-Term Investments 1.5%
- --------------------------------------------------------------------------------
Corporate Bonds 0.8%
- --------------------------------------------------------------------------------
Convertible Preferred Securities 0.1%
- --------------------------------------------------------------------------------
</Table>
(2006 MONTHLY DISTRIBUTIONS PER SHARE BAR CHART)
<Table>
Jan 0.09
Feb 0.09
Mar 0.09
Apr 0.09
May 0.09
Jun 0.09
Jul 0.09
Aug 0.09
Sept 0.09
Oct 0.09
Nov 0.09
Dec 0.09
</Table>
(SHARE PRICE PERFORMANCE CHART)
Past performance is not predictive of future results.
<Table>
<Caption>
1/01/06 12.53
12.71
12.95
13.07
12.92
13.15
13.33
13.35
13.53
13.55
13.30
13.45
13.66
13.29
13.15
12.68
12.75
12.89
13.04
12.93
12.81
12.95
13.28
12.95
12.87
12.87
12.94
13.05
13.06
13.02
13.62
13.76
13.95
14.03
13.99
14.11
14.05
13.89
13.93
14.08
14.33
14.32
14.30
14.34
14.62
14.08
14.47
14.41
14.36
14.47
14.53
14.76
14.71
14.74
14.84
12/31/06 14.84
</Table>
FUND SNAPSHOT
<Table>
- --------------------------------------------------------------------------------
Common Share Price $14.84
- --------------------------------------------------------------------------------
Common Share
Net Asset Value $14.10
- --------------------------------------------------------------------------------
Premium/(Discount) to NAV 5.25%
- --------------------------------------------------------------------------------
Current Distribution Rate(1) 7.28%
- --------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $909,608
- --------------------------------------------------------------------------------
</Table>
AVERAGE ANNUAL TOTAL RETURN
(Inception 6/25/02)
<Table>
<Caption>
- --------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
- --------------------------------------------------------------------------------
1-Year 29.51% 7.26%
- --------------------------------------------------------------------------------
Since
Inception 8.24% 7.95%
- --------------------------------------------------------------------------------
</Table>
INDUSTRIES
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
Commercial Banks 27.2%
- --------------------------------------------------------------------------------
Insurance 17.3%
- --------------------------------------------------------------------------------
Real Estate 17.0%
- --------------------------------------------------------------------------------
Diversified Financial Services 10.0%
- --------------------------------------------------------------------------------
Capital Markets 9.9%
- --------------------------------------------------------------------------------
Thrifts and Mortgage 3.6%
- --------------------------------------------------------------------------------
Short-Term Investments 1.5%
- --------------------------------------------------------------------------------
Other 13.5%
- --------------------------------------------------------------------------------
</Table>
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
ING Group NV 3.0%
- --------------------------------------------------------------------------------
Banco Santander Central Hispano S.A. 2.7%
- --------------------------------------------------------------------------------
JPMorgan Chase & Company 2.6%
- --------------------------------------------------------------------------------
HSBC Holdings Public
Limited Company 2.5%
- --------------------------------------------------------------------------------
Washington Mutual Incorporated 2.3%
- --------------------------------------------------------------------------------
</Table>
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
8
Nuveen Quality Preferred Income Fund 2
JPS
PERFORMANCE
OVERVIEW As of December 31, 2006
(PORTFOLIO ALLOCATION PIE CHART)
(as of % of total investments)
<Table>
- --------------------------------------------------------------------------------
$25 Par (or similar) Preferred Securities 57.5%
- --------------------------------------------------------------------------------
Capital Preferred Securities 39.4%
- --------------------------------------------------------------------------------
Investment Companies 1.9%
- --------------------------------------------------------------------------------
Corporate Bonds 0.6%
- --------------------------------------------------------------------------------
Short-Term Investments 0.5%
- --------------------------------------------------------------------------------
Convertible Preferred Securities 0.1%
- --------------------------------------------------------------------------------
</Table>
(2006 MONTHLY DISTRIBUTIONS PER SHARE BAR CHART)
<Table>
<Caption>
Jan 0.093
Feb 0.093
Mar 0.093
Apr 0.093
May 0.093
Jun 0.093
Jul 0.093
Aug 0.093
Sept 0.093
Oct 0.093
Nov 0.093
Dec 0.093
</Table>
(SHARE PRICE PERFORMANCE CHART)
Past performance is not predictive of future results.
<Table>
<Caption>
1/01/06 13.02
13.39
13.68
13.89
13.87
14.09
14.12
13.90
13.98
13.93
13.55
13.74
13.96
13.65
13.70
13.24
13.40
13.64
13.47
13.48
13.25
13.34
13.64
13.40
13.44
13.59
13.64
13.80
13.82
13.85
14.09
14.24
14.19
13.91
14.22
14.29
14.45
14.43
14.43
14.56
14.65
14.53
14.42
14.70
14.88
14.43
14.90
14.78
14.81
14.92
14.90
15.05
15.04
15.08
15.12
12/31/06 15.12
</Table>
FUND SNAPSHOT
<Table>
- --------------------------------------------------------------------------------
Common Share Price $15.12
- --------------------------------------------------------------------------------
Common Share
Net Asset Value $14.66
- --------------------------------------------------------------------------------
Premium/(Discount) to NAV 3.14%
- --------------------------------------------------------------------------------
Current Distribution Rate(1) 7.38%
- --------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $1,753,392
- --------------------------------------------------------------------------------
</Table>
AVERAGE ANNUAL TOTAL RETURN
(Inception 9/24/02)
<Table>
<Caption>
- --------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
- --------------------------------------------------------------------------------
1-Year 27.75% 7.09%
- --------------------------------------------------------------------------------
Since
Inception 9.35% 9.34%
- --------------------------------------------------------------------------------
</Table>
INDUSTRIES
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
Commercial Banks 26.4%
- --------------------------------------------------------------------------------
Insurance 20.0%
- --------------------------------------------------------------------------------
Real Estate 15.4%
- --------------------------------------------------------------------------------
Capital Markets 9.9%
- --------------------------------------------------------------------------------
Diversified Financial Services 9.5%
- --------------------------------------------------------------------------------
Thrifts and Mortgage 3.9%
- --------------------------------------------------------------------------------
Short-Term Investments 0.5%
- --------------------------------------------------------------------------------
Other 14.4%
- --------------------------------------------------------------------------------
</Table>
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
Wachovia Corporation 3.7%
- --------------------------------------------------------------------------------
ING Group NV 3.0%
- --------------------------------------------------------------------------------
Washington Mutual Incorporated 2.5%
- --------------------------------------------------------------------------------
Aegon NV 2.5%
- --------------------------------------------------------------------------------
Banco Santander Central Hispano S.A. 2.2%
- --------------------------------------------------------------------------------
</Table>
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
9
Nuveen Quality Preferred Income Fund 3
JHP
PERFORMANCE
OVERVIEW As of December 31, 2006
(PORTFOLIO ALLOCATION PIE CHART)
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
$25 Par (or similar) Preferred Securities 61.8%
- --------------------------------------------------------------------------------
Capital Preferred Securities 34.7%
- --------------------------------------------------------------------------------
Investment Companies 2.0%
- --------------------------------------------------------------------------------
Short-Term Investments 0.8%
- --------------------------------------------------------------------------------
Corporate Bonds 0.7%
- --------------------------------------------------------------------------------
</Table>
(2006 MONTHLY DISTRIBUTIONS PER SHARE BAR CHART)
<Table>
<Caption>
Jan 0.0945
Feb 0.0945
Mar 0.091
Apr 0.091
May 0.091
Jun 0.091
Jul 0.091
Aug 0.091
Sept 0.091
Oct 0.091
Nov 0.091
Dec 0.091
</Table>
(SHARE PRICE PERFORMANCE CHART)
(Past performance is not predictive of future results.
<Table>
<Caption>
1/01/06 13.17
13.41
13.71
13.73
13.65
13.77
14.14
14.02
14.08
13.98
13.51
13.39
13.49
13.16
13.29
12.88
13.11
13.24
13.19
13.10
12.98
12.82
13.15
13.08
13.01
13.02
12.99
13.03
13.10
13.11
13.45
14.00
14.14
14.33
14.27
14.38
14.78
14.44
14.66
14.78
14.76
14.55
14.25
14.34
14.60
14.44
14.82
14.92
14.81
14.76
14.84
14.92
14.87
14.85
14.92
12/31/06 14.92
</Table>
FUND SNAPSHOT
<Table>
- --------------------------------------------------------------------------------
Common Share Price $14.92
- --------------------------------------------------------------------------------
Common Share
Net Asset Value $14.22
- --------------------------------------------------------------------------------
Premium/(Discount) to NAV 4.92%
- --------------------------------------------------------------------------------
Current Distribution Rate(1) 7.32%
- --------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $336,540
- --------------------------------------------------------------------------------
</Table>
AVERAGE ANNUAL TOTAL RETURN
(Inception 12/18/02)
<Table>
<Caption>
- --------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
- --------------------------------------------------------------------------------
1-Year 25.00% 7.49%
- --------------------------------------------------------------------------------
Since
Inception 8.63% 8.36%
- --------------------------------------------------------------------------------
</Table>
INDUSTRIES
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
Commercial Banks 25.0%
- --------------------------------------------------------------------------------
Insurance 22.3%
- --------------------------------------------------------------------------------
Real Estate 16.0%
- --------------------------------------------------------------------------------
Capital Markets 12.1%
- --------------------------------------------------------------------------------
Diversified Financial Services 8.3%
- --------------------------------------------------------------------------------
Thrifts and Mortgage 3.3%
- --------------------------------------------------------------------------------
Short-Term Investments 0.8%
- --------------------------------------------------------------------------------
Other 12.2%
- --------------------------------------------------------------------------------
</Table>
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
<Table>
- --------------------------------------------------------------------------------
Wachovia Corporation 3.6%
- --------------------------------------------------------------------------------
ING Group NV 3.3%
- --------------------------------------------------------------------------------
Union Planters Corporation 2.5%
- --------------------------------------------------------------------------------
Public Storage Incorporated 2.4%
- --------------------------------------------------------------------------------
Bank of America Corporation 2.3%
- --------------------------------------------------------------------------------
</Table>
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
10
Report of
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN QUALITY PREFERRED INCOME FUND
NUVEEN QUALITY PREFERRED INCOME FUND 2
NUVEEN QUALITY PREFERRED INCOME FUND 3
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Nuveen Quality Preferred Income Fund, Nuveen
Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 (the
"Funds") as of December 31, 2006, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2006, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and
Nuveen Quality Preferred Income Fund 3 at December 31, 2006, the results of
their operations for the year then ended, changes in their net assets for each
of the two years in the period then ended, and the financial highlights for the
periods indicated therein in conformity with U.S. generally accepted accounting
principles.
(ERNST & YOUNG LLP LOGO)
Chicago, Illinois
February 20, 2007
11
Nuveen Quality Preferred Income Fund (JTP)
Portfolio of
INVESTMENTS December 31, 2006
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 0.1% (0.1% OF TOTAL INVESTMENTS)
INSURANCE - 0.1%
37,500 XL Capital Ltd 6.500% A2 $ 886,125
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED SECURITIES (COST $924,651) 886,125
================================================================================================================
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 82.9% (56.5% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.0%
5,300 DaimlerChrysler, Series DCX (CORTS) 7.250% A3 $ 133,560
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 7.4%
40,358 Bear Stearns Capital Trust III 7.800% A2 1,027,111
296,187 BNY Capital Trust V, Series F 5.950% A1 7,324,705
244,295 Compass Capital Trust III 7.350% A3 6,129,362
2,700 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 68,445
5,200 Goldman Sachs Capital I (CORTS) 6.000% A1 126,308
15,000 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 368,100
100 Goldman Sachs Group Inc., Series 2003-06 (SATURNS) 6.000% AA- 2,447
13,200 Goldman Sachs Group Inc., Series 2004-04 (SATURNS) 6.000% A1 323,400
18,300 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 444,690
25,000 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 603,500
5,700 Goldman Sachs Group Inc., Series GSG-1 (PPLUS) 6.000% AA- 138,909
7,000 Goldman Sachs Group Inc. (SATURNS) 5.750% AA- 165,830
108,549 Lehman Brothers Holdings Capital Trust III, Series 6.375% A2 2,723,494
K
75,000 Lehman Brothers Holdings Capital Trust IV, Series 6.375% A2 1,895,250
L
25,700 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 637,360
105,920 Lehman Brothers Holdings Capital Trust VI, Series 6.240% A2 2,668,125
N
46,700 Merrill Lynch Capital Trust II 8.000% A1 1,183,845
135,800 Merrill Lynch Preferred Capital Trust III 7.000% A1 3,469,690
94,200 Merrill Lynch Preferred Capital Trust IV 7.120% A1 2,422,824
173,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 4,471,986
6,400 Morgan Stanley (PPLUS) 7.050% Aa3 163,136
194,600 Morgan Stanley Capital Trust II 7.250% A1 4,942,840
213,256 Morgan Stanley Capital Trust III 6.250% A1 5,354,858
218,201 Morgan Stanley Capital Trust IV 6.250% A1 5,465,935
515,305 Morgan Stanley Capital Trust VI 6.600% A1 13,191,808
63,494 Morgan Stanley Capital Trust VII 6.600% A2 1,602,589
- -----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 66,916,547
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 9.9%
1,200 Abbey National PLC, Series C 7.375% A2 30,552
134,500 ABN AMRO Capital Fund Trust V 5.900% A 3,261,625
39,500 ABN AMRO Capital Fund Trust VII 6.080% A 987,500
104,900 ASBC Capital I 7.625% Baa1 2,646,627
8,100 BAC Capital Trust V 6.000% Aa3 201,447
8,400 BAC Capital Trust X 6.250% Aa3 210,504
41,879 Banco Santander, 144A 6.800% A2 1,052,210
289,115 Banco Santander, (3) 6.410% A2 7,331,956
7,100 BancorpSouth Capital Trust I 8.150% Baa2 177,997
84,500 Banesto Holdings, Series A, 144A 10.500% A2 2,556,125
64,300 Bank One Capital Trust VI 7.200% A1 1,631,291
16,500 BankNorth Capital Trust II 8.000% A3 415,470
17,717 Barclays Bank PLC, (3) 6.625% Aa3 471,272
202,200 Chittenden Capital Trust I 8.000% Baa1 5,107,572
190,000 Citizens Funding Trust I 7.500% Baa2 4,963,750
116,800 Cobank ABC, 144A, (3) 7.000% N/R 5,945,237
142,700 Comerica Capital Trust I 7.600% A3 3,598,894
9,200 Fleet Capital Trust IX 6.000% Aa3 229,724
</Table>
12
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
12,000 Fleet Capital Trust VIII 7.200% Aa3 $ 301,440
4,400 HSBC Finance Corporation 6.875% AA- 113,080
55,433 KeyCorp Capital Trust V 5.875% A3 1,328,729
597,900 National City Capital Trust II 6.625% A3 15,115,689
200,000 PFGI Capital Corporation 7.750% A- 5,243,760
6,350 PNC Capital Trust 6.125% A3 158,052
27,918 Royal Bank of Scotland Group PLC, Series L 5.750% A1 674,220
26,300 Royal Bank of Scotland Group PLC, Series M 6.400% A1 670,650
224,762 Royal Bank of Scotland Group PLC, Series N 6.350% A1 5,733,679
23,600 USB Capital Trust XI 6.600% A1 598,968
37,200 VNB Capital Trust I 7.750% Baa1 940,788
25,500 Wells Fargo Capital Trust IV 7.000% Aa2 640,050
7,236 Wells Fargo Capital Trust IX 5.625% Aa2 172,000
238,800 Wells Fargo Capital Trust V 7.000% Aa2 6,015,372
55,500 Wells Fargo Capital Trust VI 6.950% Aa2 1,390,275
21,900 Wells Fargo Capital Trust VII 5.850% Aa2 537,864
382,250 Zions Capital Trust B 8.000% Baa1 9,743,553
- -----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 90,197,922
----------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
3,100 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 78,182
1,500 IBM Trust IV (CORTS) 7.000% A+ 37,740
- -----------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 115,922
----------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.0%
14,000 SLM Corporation 6.000% A 341,740
- -----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 9.7%
599,640 BAC Capital Trust XII 6.875% Aa3 15,767,534
43,976 CIT Group Incorporated (CORTS) 7.750% A3 1,169,762
350,130 Citigroup Capital Trust VIII 6.950% Aa2 8,816,273
15,900 Citigroup Capital XIV 6.875% Aa2 417,534
417,950 Citigroup Capital XV 6.500% Aa3 10,514,076
314,900 Deutsche Bank Capital Funding Trust VIII 6.375% A 8,148,038
8,300 General Electric Capital Corporation (CORTS) 6.000% AAA 205,591
10,800 General Electric Capital Corporation 6.450% AAA 279,828
6,200 General Electric Capital Corporation 4.500% AAA 141,794
1,015,058 ING Group N.V. 7.200% A 25,955,030
569,000 ING Group N.V. 7.050% A 14,446,910
7,200 JPMorgan Chase & Company (PCARS) 7.125% A2 179,784
20,400 JPMorgan Chase Trust, Series 2002-6, Class A 7.125% A1 528,156
(SATURNS)
59,200 Royal Bank of Scotland Public Limited Company, 6.750% A1 1,559,920
Series 2006Q
- -----------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 88,130,230
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8%
95,900 AT&T Inc. 7.000% A 2,415,721
13,300 BellSouth Capital Funding (CORTS) 7.100% A 342,475
74,035 BellSouth Corporation (CORTS) 7.000% Aa3 1,862,721
29,900 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 747,799
4,500 BellSouth Corporation 7.125% A 113,040
7,400 BellSouth Inc. (CORTS) 7.000% A 190,180
2,700 BellSouth Telecommunications (PPLUS) 7.300% A 67,851
2,200 Verizon Communications (CORTS) 7.625% A 56,540
9,700 Verizon Communications, Series 2004-1 (SATURNS) 6.125% A+ 239,493
2,300 Verizon Global Funding Corporation Trust III, 6.250% A 57,040
Series III (CORTS)
23,900 Verizon New England Inc., Series B 7.000% A3 604,909
19,900 Verizon South Inc., Series F 7.000% A 503,072
- -----------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 7,200,841
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 3.2%
77,740 DTE Energy Trust I 7.800% Baa3 1,970,709
109,205 Entergy Louisiana LLC 7.600% A- 2,742,138
2,000 Entergy Mississippi Inc. 7.250% A- 51,060
78,400 FPL Group Capital Inc. 6.600% A3 1,981,952
59,000 Georgia Power Capital Trust V 7.125% A3 1,483,260
3,600 Georgia Power Company 6.000% A 89,100
119,151 Georgia Power Company 5.900% A 2,883,454
2,000 Georgia Power Company 5.750% A 47,800
</Table>
13
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES (continued)
251,073 Interstate Power and Light Company, Series B, (3) 8.375% Baa2 $ 7,896,246
24,000 National Rural Utilities Cooperative Finance 7.400% A3 608,400
Corporation
36,500 National Rural Utilities Cooperative Finance 6.100% A3 895,710
Corporation
15,025 National Rural Utilities Cooperative Finance 5.950% A3 362,854
Corporation
110,300 PPL Energy Supply LLC 7.000% BBB 2,878,146
11,000 Southern Company Capital Trust VI 7.125% BBB+ 277,530
191,400 Virginia Power Capital Trust 7.375% Baa2 4,896,012
- -----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 29,064,371
----------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
46,200 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 4,562,250
- -----------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 1.1%
372,482 Pulte Homes Inc. 7.375% BBB 9,707,812
- -----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.1%
21,700 General Electric Company, Series GE (CORTS) 6.800% AAA 554,869
- -----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 17.0%
641,900 Ace Ltd., Series C 7.800% Baa2 16,625,210
17,540 Aegon N.V. 6.875% A- 458,496
1,161,650 Aegon N.V., (3) 6.375% A- 30,168,048
21,500 AMBAC Financial Group Inc. 5.950% AA 522,880
2,800 AMBAC Financial Group Inc. 5.875% AA 67,368
4,700 Arch Capital Group Limited, Series B 7.785% Baa3 122,012
523,512 Arch Capital Group Limited 8.000% Baa3 13,846,892
216,000 Delphi Financial Group, Inc. 8.000% BBB 5,568,480
466,600 EverestRe Capital Trust II 6.200% Baa1 11,142,408
89,800 EverestRe Group Limited 7.850% Baa1 2,293,492
6,600 Financial Security Assurance Holdings 6.875% AA 165,726
4,600 Financial Security Assurance Holdings 6.250% AA 115,644
34,500 Lincoln National Capital Trust VI 6.750% A- 879,750
265,320 Markel Corporation 7.500% BBB- 6,896,993
296,700 PartnerRe Limited, Series C 6.750% BBB+ 7,536,180
77,700 PartnerRe Limited, Series D 6.500% BBB+ 1,958,040
80,600 PLC Capital Trust III 7.500% BBB+ 2,041,598
413,100 PLC Capital Trust IV 7.250% BBB+ 10,472,085
5,300 PLC Capital Trust V 6.125% BBB+ 131,864
3,000 Protective Life Corporation 7.250% BBB 78,270
7,500 Prudential Financial Inc. (CORTS) 6.000% A 185,100
264,265 Prudential PLC 6.750% A 6,775,755
252,902 RenaissanceRe Holdings Limited 6.600% BBB 6,304,847
112,942 RenaissanceRe Holdings Limited, Series A 8.100% BBB+ 2,843,880
61,100 RenaissanceRe Holdings Limited, Series B 7.300% BBB 1,566,299
9,268 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 220,578
9,100 Safeco Capital Trust III (CORTS) 8.072% Baa2 236,054
11,200 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 280,448
3,300 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 83,193
382,300 W.R. Berkley Corporation 6.750% BBB- 9,614,845
445,854 XL Capital Ltd, Series A 8.000% Baa1 11,257,814
156,900 XL Capital Ltd, Series B 7.625% Baa1 4,016,640
- -----------------------------------------------------------------------------------------------------------------------------
Total Insurance 154,476,889
----------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.1%
31,500 Vertex Industries Inc. (PPLUS) 7.625% A 796,950
- -----------------------------------------------------------------------------------------------------------------------------
MEDIA - 4.5%
127,800 CBS Corporation 7.250% BBB 3,206,502
138,300 Comcast Corporation 7.000% BBB+ 3,608,773
735,519 Comcast Corporation 7.000% BBB+ 19,008,606
596,232 Viacom Inc. 6.850% BBB 14,868,536
- -----------------------------------------------------------------------------------------------------------------------------
Total Media 40,692,417
----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.2%
98,100 Dominion CNG Capital Trust I 7.800% Baa2 2,487,816
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
14
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.8%
532,332 Nexen Inc. 7.350% Baa3 $ 13,734,166
108,500 TransCanada Pipeline 8.250% A3 2,817,745
- -----------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 16,551,911
----------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
21,000 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 531,825
13,800 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 355,350
- -----------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 887,175
----------------------------------------------------------------------------------------------------------------
REAL ESTATE - 22.3%
50,458 AMB Property Corporation, Series M 6.750% Baa2 1,299,798
196,300 AMB Property Corporation, Series P 6.850% Baa2 5,054,725
13,400 AvalonBay Communities, Inc., Series H 8.700% BBB 360,058
128,788 BRE Properties, Series B 8.080% BBB- 3,287,314
56,900 Developers Diversified Realty Corporation, Series 8.600% BBB- 1,444,691
F
47,300 Developers Diversified Realty Corporation, Series 8.000% BBB- 1,209,461
G
406,400 Developers Diversified Realty Corporation, Series 7.375% BBB- 10,265,664
H
29,600 Developers Diversified Realty Corporation 7.500% BBB- 752,136
156,300 Duke Realty Corporation, Series L 6.600% BBB 3,940,323
50,600 Duke Realty Corporation, Series N 7.250% BBB 1,336,159
157,779 Duke-Weeks Realty Corporation, Series B 7.990% BBB 7,800,199
1,112,100 Equity Office Properties Trust, Series G 7.750% BBB- 27,980,433
25,800 Equity Residential Properties Trust, Series D 8.600% BBB 664,350
12,000 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 335,400
279,400 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 7,155,434
989,210 HRPT Properties Trust, Series B 8.750% BBB- 25,432,586
82,000 New Plan Excel Realty Trust, Series D 7.800% BBB- 4,387,000
419,000 New Plan Excel Realty Trust, Series E 7.625% BBB- 10,894,000
10,000 Prologis Trust, Series F 6.750% BBB 254,250
107,400 Prologis Trust, Series G 6.750% BBB 2,740,848
56,700 PS Business Parks, Inc., Series I 6.875% BBB- 1,423,170
240,000 PS Business Parks, Inc., Series L 7.600% BBB- 6,163,200
328,400 PS Business Parks, Inc. 7.000% BBB- 8,357,780
64,800 Public Storage, Inc., Series C 6.600% BBB+ 1,616,112
91,300 Public Storage, Inc., Series D 6.180% BBB+ 2,213,112
2,900 Public Storage, Inc., Series E 6.750% BBB+ 73,660
59,400 Public Storage, Inc., Series F 6.450% BBB+ 1,476,090
366,596 Public Storage, Inc., Series K 7.250% BBB+ 9,531,496
17,100 Public Storage, Inc., Series T 7.625% BBB+ 427,158
40,780 Public Storage, Inc., Series U 7.625% BBB+ 1,018,684
347,600 Public Storage, Inc., Series V 7.500% BBB+ 8,846,420
7,871 Public Storage, Inc., Series X 6.450% BBB+ 198,507
107,100 Public Storage, Inc., Series Y 6.850% BBB+ 2,644,031
4,100 Public Storage, Inc. 7.125% BBB+ 106,600
17,100 Public Storage, Inc. 6.750% BBB+ 432,310
90,300 Realty Income Corporation, Series E 6.750% BBB- 2,277,258
94,000 Realty Income Corporation 7.375% BBB- 2,444,000
47,500 Regency Centers Corporation 7.450% BBB- 1,215,050
22,600 Regency Centers Corporation 7.250% BBB- 577,430
176,600 Simon Property Group, Inc., Series G 7.890% BBB 9,006,600
13,900 United Dominion Realty Trust 8.600% BBB- 353,894
323,633 Vornado Realty Trust, Series G 6.625% BBB- 8,042,280
40,200 Vornado Realty Trust, Series H 6.750% BBB- 1,007,010
90,600 Vornado Realty Trust, Series I 6.625% BBB- 2,256,846
505,200 Wachovia Preferred Funding Corporation 7.250% A2 14,191,068
2,300 Weingarten Realty Trust, Series E 6.950% A- 59,375
- -----------------------------------------------------------------------------------------------------------------------------
Total Real Estate 202,553,970
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 3.2%
12,900 Countrywide Capital Trust III (PPLUS) 8.050% BBB+ 333,465
799,020 Countrywide Capital Trust IV 6.750% BBB+ 19,983,490
295,700 Countrywide Capital Trust V 7.000% BBB+ 7,457,199
60,800 Harris Preferred Capital Corporation, Series A 7.375% A1 1,538,848
- -----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 29,313,002
----------------------------------------------------------------------------------------------------------------
</Table>
15
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.1%
159,700 United States Cellular Corporation 8.750% A- $ 4,129,842
212,610 United States Cellular Corporation 7.500% BBB 5,474,708
- -----------------------------------------------------------------------------------------------------------------------------
Total Wireless Telecommunication Services 9,604,550
----------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES 754,290,744
(COST $740,397,508)
================================================================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 1.3% (0.8% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 1.3%
$ 2,600 Standard Chartered PLC, 144A 6.409% 1/30/57 BBB+ $ 2,584,096
8,600 Swedbank ForengingsSparbanken AB, 144A 7.500% 9/27/49 A1 9,219,914
- -----------------------------------------------------------------------------------------------------------------------------
11,200 Total Commercial Banks 11,804,010
- -----------------------------------------------------------------------------------------------------------------------------
$ 11,200 TOTAL CORPORATE BONDS (COST $11,985,799) 11,804,010
=============================================================================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 57.3% (39.0% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 7.2%
4,950 ABN AMRO North America Holding Capital, 144A 6.523% 12/31/49 A- $ 5,187,026
2,500 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 2,602,538
4,500 BankBoston Capital Trust III 6.103% 6/15/27 Aa3 4,463,528
2,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 2,070,580
7,900 BT Preferred Capital Trust II 7.875% 2/25/27 A2 8,214,223
2,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 2,310,260
11,250 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 11,535,694
7,900 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A- 9,543,010
1,900 MUFG Capital Finance 2 4.850% 7/25/56 BBB 2,453,010
5,500 UBS Preferred Funding Trust I 8.622% 10/29/49 AA- 6,080,437
10,250 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 10,755,171
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 65,215,477
--------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 28.7%
9,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 8,952,786
20,750 Abbey National Capital Trust I 8.963% 6/30/50 A 27,760,862
3,000 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 2,954,871
2,500 Bank One Capital III 8.750% 9/01/30 A1 3,289,110
1,500 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 1,564,373
7,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 8,064,655
1,200 BOI Capital Funding 3, 144A 6.107% 8/04/56 A2 1,180,709
3,000 Centura Capital Trust I, 144A 8.845% 6/01/27 A2 3,165,945
2,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 2,082,800
1,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 1,829,894
600 Den Norske Bank, 144A 7.729% 6/29/49 A2 647,979
1,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 1,040,770
1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 1,581,195
20,100 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 20,359,592
1,800 HBOS PLC, 144A 6.413% 9/29/49 A1 1,793,740
5,750 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 6,483,119
17,150 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 25,412,287
12,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A 13,359,396
2,000 KeyCorp Capital III 7.750% 7/15/29 A3 2,362,670
8,850 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 8,940,031
7,655 Nordbanken AB, 144A 8.950% 11/29/49 A 8,316,055
1,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 Baa1 1,045,810
8,000 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 8,380,096
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 2,000,764
16,000 RBS Capital Trust B 6.800% 12/31/49 A1 16,203,840
17,500 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 18,637,850
1,400 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 1,453,767
5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 4,943,015
23,000 Summit Capital Trust I, Capital Securities 8.400% 3/15/27 Aa3 24,067,361
6,100 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 6,691,487
4,700 Unicredito Italiano Capital Trust, 144A 9.200% 4/05/51 A- 5,278,147
</Table>
16
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
2,000 Union Planters Capital Trust A 8.200% 12/15/26 A2 $ 2,083,320
4,000 Wachovia Capital Trust I, Capital Securities, 7.640% 1/15/27 A1 4,155,820
144A 14,868,546
14,900 Washington Mutual Preferred Funding Cayman, 7.250% 3/15/49 BBB
Series A-1, 144A
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 260,952,662
--------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.1%
1,500 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A+ 1,678,100
4,250 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 4,282,287
3,500 Fulton Capital Trust I 6.290% 2/01/36 A3 3,458,364
19,500 JPM Capital Trust II 7.950% 2/01/27 A1 20,292,656
7,400 JPMorgan Chase Capital Trust XVIII 6.950% 8/17/36 A2 8,030,628
8,100 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 8,444,250
- ------------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 46,186,285
--------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.4%
11,250 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 13,155,469
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 8.4%
7,570 Ace Capital Trust II 9.700% 4/01/30 Baa1 10,406,388
2,000 American General Capital II 8.500% 7/01/30 Aa3 2,598,034
5,800 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A- 6,156,712
1,100 Lincoln National Corporation, Capital Securities 7.000% 5/17/66 A- 1,167,885
2,500 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 2,446,483
6,200 MetLife Inc. 6.400% 12/15/66 A3 6,249,321
4,000 MIC Financing Trust I 8.375% 2/01/27 A+ 4,005,608
1,400 Nationwide Financial Services Capital Trust 7.899% 3/01/37 Baa1 1,670,085
6,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 6,226,986
3,000 Prudential PLC 6.500% 6/29/49 A 3,026,223
8,000 Sun Life Canada Capital Trust, Capital 8.526% 5/06/47 AA- 8,403,216
Securities, 144A 23,848,211
22,750 Zurich Capital Trust I, 144A 8.376% 6/01/37 A-
- ------------------------------------------------------------------------------------------------------------------------------------
Total Insurance 76,205,152
--------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.0%
4,000 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 4,006,768
5,860 KN Capital Trust III 7.630% 4/15/28 Baa3 5,458,660
- ------------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 9,465,428
--------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 2.7%
19,000 Firstar Realty LLC, 144A 8.875% 12/31/50 Aa3 24,563,438
- ------------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.8%
7,600 Burlington Northern Santa Fe Funding Trust I 6.613% 12/15/55 BBB 7,577,094
- ------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.0%
4,000 Caisse Nationale Des Caisses d'Epargne et de 6.750% 1/27/49 A+ 4,013,048
Prevoyance
8,500 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 8,988,419
5,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 5,213,595
- ------------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 18,215,062
--------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST
$514,154,040) 521,536,067
====================================================================================================================
<Caption>
SHARES DESCRIPTION (1) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 3.1% (2.1% OF TOTAL INVESTMENTS)
102,970 Blackrock Preferred and Corporate Income
Strategies Fund $ 2,273,578
403,940 Blackrock Preferred Income Strategies Fund 8,171,706
308,754 Flaherty and Crumrine/Claymore Preferred 6,610,423
Securities Income Fund Inc. 3,718,639
173,121 Flaherty and Crumrine/Claymore Total Return Fund 7,042,522
Inc.
314,258 John Hancock Preferred Income Fund III
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $25,727,887) 27,816,868
====================================================================================================================
</Table>
17
Nuveen Quality Preferred Income Fund (JTP) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.2% (1.5% OF TOTAL INVESTMENTS)
$ 20,327 Repurchase Agreement with Fixed Income Clearing 4.580% 1/02/07 $ 20,326,839
Corporation, dated 12/29/06,
repurchase price $20,337,183, collateralized
by $17,700,000 U.S. Treasury Bonds, 6.250%,
due 8/15/23, value $20,733,408
========== --------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $20,326,839) 20,326,839
====================================================================================================================
TOTAL INVESTMENTS (COST $1,313,516,724) - 146.9% 1,336,660,653
====================================================================================================================
OTHER ASSETS LESS LIABILITIES - 1.5% 12,947,710
====================================================================================================================
PREFERRED SHARES, AT LIQUIDATION VALUE - (48.4)% (440,000,000)
====================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 909,608,363
====================================================================================================================
</Table>
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2006:
<Table>
<Caption>
FUND FIXED RATE UNREALIZED
NOTIONAL PAY/RECEIVE FLOATING RATE FIXED RATE PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION)
----------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $110,000,000 Receive 1-Month USD-LIBOR 3.860% Monthly 8/29/07 $ 1,029,914
Citigroup Inc. 110,000,000 Receive 1-Month USD-LIBOR 4.350 Monthly 8/29/09 1,765,375
----------------------------------------------------------------------------------------------------------------------
$ 2,795,289
======================================================================================================================
USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
</Table>
<Table>
(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 BBB by Standard &
Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be below
investment grade.
(3) Investment is eligible for the Dividends Received Deduction.
N/R Not rated.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CORTS Corporate Backed Trust Securities.
PCARS Public Credit and Repackaged Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
</Table>
18
Nuveen Quality Preferred Income Fund 2 (JPS)
Portfolio of
INVESTMENTS December 31, 2006
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 0.2% (0.1% OF TOTAL INVESTMENTS)
INSURANCE - 0.2%
88,500 XL Capital Ltd 6.500% A2 $ 2,091,255
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED SECURITIES (COST 2,091,255
$2,094,613)
===================================================================================================================
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 82.7% (57.5% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.0%
3,400 DaimlerChrysler AG (CORTS) 7.875% Baa1 $ 85,850
21,000 DaimlerChrysler Corp. (PPLUS) 7.250% A3 550,830
1,400 DaimlerChrysler, Series DCX (CORTS) 8.250% A3 35,630
4,300 DaimlerChrysler, Series DCX (CORTS) 7.500% A3 108,016
- --------------------------------------------------------------------------------------------------------------------------------
Total Automobiles 780,326
-------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 4.8%
68,324 Bear Stearns Capital Trust III 7.800% A2 1,738,846
19,200 BNY Capital Trust IV, Series E 6.875% A1 484,032
45,288 BNY Capital Trust V, Series F 5.950% A1 1,119,972
399,525 Compass Capital Trust III 7.350% A3 10,024,082
28,800 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 730,080
8,300 Goldman Sachs Capital I (CORTS) 6.000% A1 201,607
6,500 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 159,510
3,500 Goldman Sachs Group Inc., Series 2003-11 5.625% Aa3 81,375
(SATURNS)
15,700 Goldman Sachs Group Inc., Series 2004-04 6.000% A1 384,650
(SATURNS)
4,600 Goldman Sachs Group Inc., Series 2004-06 6.000% A1 111,780
(SATURNS)
16,500 Goldman Sachs Group Inc., Series GSC-3 6.000% A1 398,310
(PPLUS)
7,900 Goldman Sachs Group Inc., Series GSC-4 Class 6.000% A1 190,785
A (PPLUS)
7,100 Goldman Sachs Group Inc., Series GSG-2 5.750% AA- 165,856
(PPLUS)
4,300 Goldman Sachs Group Inc. (SATURNS) 5.750% AA- 101,867
224,900 Lehman Brothers Holdings Capital Trust III, 6.375% A2 5,642,741
Series K
103,500 Lehman Brothers Holdings Capital Trust IV, 6.375% A2 2,615,445
Series L
60,300 Lehman Brothers Holdings Capital Trust V, 6.000% A2 1,495,440
Series M
121,700 Merrill Lynch Capital Trust II 8.000% A1 3,085,095
219,500 Merrill Lynch Preferred Capital Trust III 7.000% A1 5,608,225
142,300 Merrill Lynch Preferred Capital Trust IV 7.120% A1 3,659,956
241,000 Merrill Lynch Preferred Capital Trust V 7.280% A1 6,215,390
53,600 Morgan Stanley (PPLUS) 7.050% Aa3 1,366,264
168,008 Morgan Stanley Capital Trust II 7.250% A1 4,267,403
430,350 Morgan Stanley Capital Trust III 6.250% A1 10,806,089
332,589 Morgan Stanley Capital Trust IV 6.250% A1 8,331,354
495,300 Morgan Stanley Capital Trust VI 6.600% A1 12,679,680
99,411 Morgan Stanley Capital Trust VII 6.600% A2 2,509,134
3,200 Washington Mutual Capital Trust I, Series 7.650% Baa1 80,544
2001-22, Class A-1 (CORTS)
- --------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 84,255,512
-------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 11.5%
119,000 ABN AMRO Capital Fund Trust V 5.900% A 2,885,750
7,000 ABN AMRO Capital Fund Trust VII 6.080% A 175,000
159,760 ASBC Capital I 7.625% Baa1 4,030,745
144,900 BAC Capital Trust X 6.250% Aa3 3,631,194
21,695 Banco Santander, 144A 6.800% A2 545,087
245,856 Banco Santander, (3) 6.410% A2 6,234,908
17,900 BancorpSouth Capital Trust I 8.150% Baa2 448,753
731,000 Banesto Holdings, Series A, 144A 10.500% A2 22,112,750
204,700 Bank One Capital Trust VI 7.200% A1 5,193,239
67,200 BankNorth Capital Trust II 8.000% A3 1,692,096
27,412 Barclays Bank PLC, (3) 6.625% Aa3 729,159
</Table>
19
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
605,600 Capital One Capital II Corporation 7.500% Baa1 $ 15,878,105
122,800 Chittenden Capital Trust I 8.000% Baa1 3,101,928
476,000 Citizens Funding Trust I 7.500% Baa2 12,435,500
225,500 Cobank ABC, 144A, (3) 7.000% N/R 11,478,176
268,700 Comerica Capital Trust I 7.600% A3 6,776,614
374,795 HSBC Finance Corporation 6.875% AA- 9,632,232
8,667 KeyCorp Capital Trust V 5.875% A3 207,748
55,862 Keycorp Capital VIII 7.000% A3 1,468,126
1,053,500 National City Capital Trust II 6.625% A3 26,633,850
5,000 National Westminster Bank PLC 7.760% Aa3 126,950
289,600 PFGI Capital Corporation 7.750% A- 7,592,964
4,100 PNC Capital Trust 6.125% A3 102,049
1,200 Royal Bank of Scotland Group PLC, Series L 5.750% A1 28,980
596,876 Royal Bank of Scotland Group PLC, Series N 6.350% A1 15,226,307
63,900 USB Capital Trust VI 5.750% Aa3 1,523,376
522,050 USB Capital Trust XI 6.600% A1 13,249,629
92,300 VNB Capital Trust I 7.750% Baa1 2,334,267
38,900 Wells Fargo Capital Trust IV 7.000% Aa2 976,390
55,900 Wells Fargo Capital Trust IX 5.625% Aa2 1,328,743
308,100 Wells Fargo Capital Trust V 7.000% Aa2 7,761,039
41,100 Wells Fargo Capital Trust VI 6.950% Aa2 1,029,555
45,975 Wells Fargo Capital Trust VII 5.850% Aa2 1,129,146
578,650 Zions Capital Trust B 8.000% Baa1 14,749,789
- --------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 202,450,144
-------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
4,200 IBM Corporation, Class A (CORTS) 5.625% A+ 98,364
11,700 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 295,074
- --------------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 393,438
-------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.7%
480,800 HSBC Finance Corporation, (3) 6.360% A 12,462,336
24,350 SLM Corporation 6.000% A 594,384
- --------------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance 13,056,720
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 9.7%
486,460 BAC Capital Trust XII 6.875% Aa3 12,791,466
40,900 CIT Group Incorporated (CORTS) 7.750% A3 1,087,940
586,725 Citigroup Capital Trust VIII 6.950% Aa2 14,773,736
177,275 Citigroup Capital XIV 6.875% Aa2 4,655,242
846,688 Citigroup Capital XV 6.500% Aa3 21,299,537
29,000 Citigroup Capital XVI 6.450% Aa3 730,800
12,000 Citigroup, Series CIT (CORTS) 6.750% A3 307,320
1,264,700 Deutsche Bank Capital Funding Trust VIII 6.375% A 32,724,113
4,900 General Electric Capital Corporation (CORTS) 6.000% AAA 121,373
145,762 General Electric Capital Corporation 6.450% AAA 3,776,693
1,523,600 ING Group N.V. 7.200% A 38,958,452
1,445,555 ING Group N.V. 7.050% A 36,702,641
2,700 ING Group N.V. 6.200% A 68,769
12,400 ING Group N.V. 6.125% A 315,580
11,600 JPMorgan Chase & Company (PCARS) 7.125% A2 289,652
52,900 JPMorgan Chase Trust, Series 2002-6, Class A 7.125% A1 1,369,581
(SATURNS)
- --------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 169,972,895
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.7%
116,999 AT&T Inc. 7.000% A 2,947,205
17,500 BellSouth Capital Funding (CORTS) 7.100% A 450,625
43,200 BellSouth Corporation (CORTS) 7.000% Aa3 1,086,912
18,200 BellSouth Corporation, Series 2001-3 7.125% A 455,182
(SATURNS)
16,200 BellSouth Corporation, Series BLS (CORTS) 7.000% A 405,972
42,800 BellSouth Corporation 7.125% A 1,075,136
38,100 BellSouth Inc. (CORTS) 7.000% A 979,170
31,300 BellSouth Telecommunications (PPLUS) 7.300% A 786,569
28,800 Verizon Communications (CORTS) 7.625% A 740,160
7,600 Verizon Communications (CORTS) 7.375% A 193,800
70,100 Verizon Global Funding Corporation (SATURNS) 7.500% A 1,774,231
</Table>
20
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES (continued)
22,100 Verizon New England Inc., Series B 7.000% A3 $ 559,351
13,000 Verizon South Inc., Series F 7.000% A 328,640
- --------------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 11,782,953
-------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 5.0%
2,800 Consolidated Edison, Inc. 7.250% A2 71,484
27,400 DTE Energy Trust I 7.800% Baa3 694,590
4,200 Entergy Arkansas Inc. 6.700% AAA 105,630
57,650 Entergy Louisiana LLC 7.600% A- 1,447,592
1,299,100 Entergy Mississippi Inc. 7.250% A- 33,166,023
108,392 FPL Group Capital Inc. 6.600% A3 2,740,150
12,700 Georgia Power Capital Trust V 7.125% A3 319,278
1,700 Georgia Power Capital Trust VII 5.875% A3 41,242
59,500 Georgia Power Company 5.900% A 1,439,900
940,400 Interstate Power and Light Company, Series 8.375% Baa2 29,575,580
B, (3)
30,200 National Rural Utilities Cooperative Finance 7.400% A3 765,570
Corporation
7,700 National Rural Utilities Cooperative Finance 6.100% A3 188,958
Corporation
22,600 National Rural Utilities Cooperative Finance 5.950% A3 545,790
Corporation
336,800 PPL Energy Supply LLC 7.000% BBB 8,788,392
2,600 Southern Company Capital Trust I (CORTS) 8.190% BBB+ 70,200
3,900 Southern Company Capital Trust I (CORTS) 7.375% BBB+ 100,874
265,500 Virginia Power Capital Trust 7.375% Baa2 6,791,490
- --------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 86,852,743
-------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.5%
88,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 8,690,000
- --------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.7%
489,240 Pulte Homes Inc. 7.375% BBB 12,750,818
- --------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.0%
9,200 General Electric Company, Series GE (CORTS) 6.800% AAA 235,244
- --------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 17.9%
1,214,900 Ace Ltd., Series C 7.800% Baa2 31,465,910
73,618 Aegon N.V. 6.875% A- 1,924,375
2,334,600 Aegon N.V., (3) 6.375% A- 60,629,561
62,800 AMBAC Financial Group Inc. 5.950% AA 1,527,296
9,100 AMBAC Financial Group Inc. 5.875% AA 218,946
8,400 Arch Capital Group Limited, Series B 7.785% Baa3 218,064
989,383 Arch Capital Group Limited 8.000% Baa3 26,169,180
479,357 Delphi Financial Group, Inc. 8.000% BBB 12,357,823
1,702,521 EverestRe Group Limited 7.850% Baa1 43,482,385
64,400 Financial Security Assurance Holdings 6.875% AA 1,617,084
709,500 Financial Security Assurance Holdings 6.250% AA 17,836,830
54,300 Lincoln National Capital Trust VI 6.750% A- 1,384,650
12,500 Lincoln National Corporation 6.750% A- 323,125
531,300 Markel Corporation 7.500% BBB- 13,811,144
646,620 PartnerRe Limited, Series C 6.750% BBB+ 16,424,148
27,400 PartnerRe Limited, Series D 6.500% BBB+ 690,480
108,700 PLC Capital Trust III 7.500% BBB+ 2,753,371
453,940 PLC Capital Trust IV 7.250% BBB+ 11,507,379
21,500 PLC Capital Trust V 6.125% BBB+ 534,920
122,600 Protective Life Corporation 7.250% BBB 3,198,634
6,900 Prudential Financial Inc. (CORTS) 6.000% A 170,292
223,000 Prudential PLC 6.750% A 5,717,720
900 Prudential PLC 6.500% A- 22,896
291,285 RenaissanceRe Holdings Limited, Series A 8.100% BBB+ 7,334,556
145,800 RenaissanceRe Holdings Limited, Series B 7.300% BBB 3,737,583
13,468 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 320,538
24,000 Safeco Capital Trust I (CORTS) 8.750% Baa2 705,240
6,600 Safeco Capital Trust III (CORTS) 8.072% Baa2 171,204
2,600 Safeco Capital Trust IV (CORTS) 8.375% Baa2 73,164
2,600 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 65,104
8,500 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 214,285
711,146 W.R. Berkley Corporation 6.750% BBB- 17,885,322
</Table>
21
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
572,200 XL Capital Ltd, Series A 8.000% Baa1 $ 14,448,050
607,617 XL Capital Ltd, Series B 7.625% Baa1 15,554,995
- --------------------------------------------------------------------------------------------------------------------------------
Total Insurance 314,496,254
-------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.0%
16,400 Vertex Industries Inc. (PPLUS) 7.625% A 414,920
- --------------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.5%
178,000 CBS Corporation 7.250% BBB 4,466,020
4,100 Comcast Corporation 7.000% BBB+ 106,985
1,364,614 Comcast Corporation 7.000% BBB+ 35,266,811
841,900 Viacom Inc. 6.850% BBB 20,994,881
1,800 Walt Disney Company (CORTS) 6.875% A- 46,260
- --------------------------------------------------------------------------------------------------------------------------------
Total Media 60,880,957
-------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.2%
119,400 Dominion CNG Capital Trust I 7.800% Baa2 3,027,984
- --------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.6%
908,811 Nexen Inc. 7.350% Baa3 23,447,324
147,400 TransCanada Pipeline 8.250% A3 3,827,978
- --------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 27,275,302
-------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.0%
8,500 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 215,263
7,500 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 193,125
- --------------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 408,388
-------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 22.2%
201,379 AMB Property Corporation, Series P 6.850% Baa2 5,185,509
95,400 AvalonBay Communities, Inc., Series H 8.700% BBB 2,563,398
16,400 BRE Properties, Series B 8.080% BBB- 418,610
105,805 BRE Properties, Series C 6.750% BBB- 2,666,286
30,335 BRE Properties, Series D 6.750% BBB- 759,892
135,925 Developers Diversified Realty Corporation, 8.600% BBB- 3,451,136
Series F
639,813 Developers Diversified Realty Corporation, 8.000% BBB- 16,360,018
Series G
187,823 Developers Diversified Realty Corporation, 7.375% BBB- 4,744,409
Series H
40,467 Developers Diversified Realty Corporation 7.500% BBB- 1,028,266
298,900 Duke Realty Corporation, Series L 6.600% BBB 7,535,269
1,400 Duke Realty Corporation, Series N 7.250% BBB 36,969
220,650 Duke-Weeks Realty Corporation, Series B 7.990% BBB 10,908,384
151,846 Duke-Weeks Realty Corporation 6.950% BBB 3,944,959
5,600 Duke-Weeks Realty Corporation 6.625% BBB 141,512
537,700 Equity Office Properties Trust, Series G 7.750% BBB- 13,528,532
66,850 Equity Residential Properties Trust, Series 8.600% BBB 1,721,388
D
446,000 First Industrial Realty Trust, Inc., Series 8.625% BBB- 12,465,700
C
279,000 First Industrial Realty Trust, Inc., Series 7.250% BBB- 7,145,190
J
1,808,525 HRPT Properties Trust, Series B 8.750% BBB- 46,497,177
71,980 HRPT Properties Trust, Series C 7.125% BBB- 1,881,557
199,550 New Plan Excel Realty Trust, Series D 7.800% BBB- 10,675,925
771,600 New Plan Excel Realty Trust, Series E 7.625% BBB- 20,061,600
1,700 Prologis Trust, Series F 6.750% BBB 43,223
97,728 Prologis Trust, Series G 6.750% BBB 2,494,019
108,300 PS Business Parks, Inc., Series I 6.875% BBB- 2,718,330
110,700 PS Business Parks, Inc., Series K 7.950% BBB- 2,933,550
401,000 PS Business Parks, Inc., Series L 7.600% BBB- 10,297,680
5,500 PS Business Parks, Inc., Series O 7.375% BBB- 140,422
736,270 PS Business Parks, Inc. 7.000% BBB- 18,738,072
234,300 Public Storage, Inc., Series C 6.600% BBB+ 5,843,442
36,000 Public Storage, Inc., Series D 6.180% BBB+ 872,640
38,600 Public Storage, Inc., Series E 6.750% BBB+ 980,440
72,566 Public Storage, Inc., Series F 6.450% BBB+ 1,803,265
128,300 Public Storage, Inc., Series H 6.950% BBB+ 3,312,706
401,300 Public Storage, Inc., Series I 7.250% BBB+ 10,453,865
381,020 Public Storage, Inc., Series K 7.250% BBB+ 9,906,520
137,065 Public Storage, Inc., Series T 7.625% BBB+ 3,423,884
114,900 Public Storage, Inc., Series U 7.625% BBB+ 2,870,202
</Table>
22
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
148,000 Public Storage, Inc., Series V 7.500% BBB+ $ 3,766,600
2,129 Public Storage, Inc., Series X 6.450% BBB+ 53,693
67,600 Public Storage, Inc., Series Y 6.850% BBB+ 1,668,875
41,400 Public Storage, Inc. 6.750% BBB+ 1,046,646
7,500 Public Storage, Inc. 7.125% BBB+ 195,000
204,997 Realty Income Corporation, Series E 6.750% BBB- 5,169,778
165,900 Realty Income Corporation 7.375% BBB- 4,313,400
325,223 Regency Centers Corporation 7.450% BBB- 8,319,204
245,800 Regency Centers Corporation 7.250% BBB- 6,280,190
326,041 Simon Property Group, Inc., Series G 7.890% BBB 16,628,091
82,000 United Dominion Realty Trust 8.600% BBB- 2,087,720
25,600 Vornado Realty Trust, Series F 6.750% BBB- 644,864
213,940 Vornado Realty Trust, Series G 6.625% BBB- 5,316,409
122,800 Vornado Realty Trust, Series H 6.750% BBB- 3,076,140
220,250 Vornado Realty Trust, Series I 6.625% BBB- 5,486,428
2,489,300 Wachovia Preferred Funding Corporation 7.250% A2 69,924,435
158,600 Weingarten Realty Trust, Series E 6.950% A- 4,094,259
- --------------------------------------------------------------------------------------------------------------------------------
Total Real Estate 388,625,678
-------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.3%
1,051,100 Countrywide Capital Trust IV 6.750% BBB+ 26,288,011
534,500 Countrywide Capital Trust V 7.000% BBB+ 13,479,449
17,700 Harris Preferred Capital Corporation, Series 7.375% A1 447,987
A
- --------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 40,215,447
-------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.4%
939,840 United States Cellular Corporation 8.750% A- 24,304,262
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED 1,450,869,985
SECURITIES (COST $1,413,112,611)
===================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 0.9% (0.6% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 0.6%
$ 10,000 Mizuho JGB Investment 9.870% 6/30/48 BBB+ $ 10,600,820
- ----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 0.3%
4,400 Swedbank ForengingsSparbanken AB, 144A 7.500% 9/27/49 A1 4,717,165
- ----------------------------------------------------------------------------------------------------------------------------------
$ 14,400 TOTAL CORPORATE BONDS (COST $15,480,334) 15,317,985
==================================================================================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT
(000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 56.8% (39.4% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 8.9%
9,100 ABN AMRO North America Holding Capital, 144A 6.523% 12/31/49 A- $ 9,535,744
1,465 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 1,525,087
8,100 BankBoston Capital Trust III 6.103% 6/15/27 Aa3 8,034,350
1,200 BankBoston Capital Trust IV 5.950% 6/08/28 Aa3 1,171,508
4,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 4,141,160
500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 519,888
5,000 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 5,133,910
18,600 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 19,072,347
19,990 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A- 24,147,440
5,050 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A- 5,308,222
17,095 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 20,723,311
20,000 Mellon Capital Trust I, Series A 7.720% 12/01/26 A2 20,824,400
3,600 MUFG Capital Finance 2 4.850% 7/25/56 BBB 4,647,808
3,240 State Street Institutional Capital Trust, 7.940% 12/30/26 A1 3,372,030
144A
19,800 UBS Preferred Funding Trust I 8.622% 10/29/49 AA- 21,889,573
5,000 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 5,246,425
- --------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 155,293,203
-------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 26.2%
19,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 18,900,326
37,250 Abbey National Capital Trust I 8.963% 6/30/50 A 49,835,768
</Table>
23
Nuveen Quality Preferred Income Fund 2 (JPS) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
7,100 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R $ 6,993,195
6,500 Bank One Capital III 8.750% 9/01/30 A1 8,551,686
5,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 5,214,575
36,000 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 40,323,276
2,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 2,082,800
3,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 3,982,710
1,700 Den Norske Bank, 144A 7.729% 6/29/49 A2 1,835,941
1,500 First Empire Capital Trust I 8.234% 2/01/27 Baa1 1,564,004
1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 1,581,195
32,010 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 32,423,409
6,500 HBOS PLC, 144A 6.413% 9/29/49 A1 6,477,393
2,400 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 2,705,998
6,250 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 9,261,038
32,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A 35,625,056
8,000 KeyCorp Capital III 7.750% 7/15/29 A3 9,450,680
4,000 KeyCorp Capital VII 5.700% 6/15/35 A3 3,749,228
13,500 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 13,637,336
25,000 M&I Capital Trust A 7.650% 12/01/26 A2 25,878,425
14,000 Nordbanken AB, 144A 8.950% 11/29/49 A 15,208,984
2,000 North Fork Capital Trust I, Capital 8.700% 12/15/26 Baa1 2,091,620
Securities
8,000 North Fork Capital Trust II 8.000% 12/15/27 Baa1 8,448,456
2,000 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 2,095,024
7,000 PNC Preferred Funding Trust 6.517% 3/15/49 A- 7,129,458
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 2,000,764
12,100 RBS Capital Trust B 6.800% 12/31/49 A1 12,254,154
8,000 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 8,520,160
500 Republic New York Capital II, Capital 7.530% 12/04/26 A1 519,203
Securities
17,500 Royal Bank of Scotland Group PLC 9.118% 3/31/49 A1 19,400,815
5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 4,943,015
9,000 St. George Funding Company LLC, 144A 8.485% 12/31/47 A3 9,456,345
13,600 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 14,918,724
9,000 Unicredito Italiano Capital Trust, 144A 9.200% 4/05/51 A- 10,107,090
7,500 Union Planters Capital Trust A 8.200% 12/15/26 A2 7,812,450
240 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 26,430,000
28,300 Washington Mutual Preferred Funding Cayman, 7.250% 3/15/49 BBB 28,240,259
Series A-1, 144A
- -----------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 459,650,560
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 4.0%
1,000 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A+ 1,118,733
2,750 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 2,770,892
6,800 Fulton Capital Trust I 6.290% 2/01/36 A3 6,719,107
22,085 JPM Capital Trust II 7.950% 2/01/27 A1 22,982,733
15,300 JPMorgan Chase Capital Trust XVIII 6.950% 8/17/36 A2 16,603,866
19,300 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 20,120,250
- -----------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 70,315,581
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.0%
30,250 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 35,373,594
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 10.8%
14,280 Ace Capital Trust II 9.700% 4/01/30 Baa1 19,630,545
28,000 American General Institutional Capital, 144A 8.125% 3/15/46 Aa3 35,946,176
9,600 Great West Life and Annuity Insurance 7.153% 5/16/46 A- 10,190,419
Company
1,400 Lincoln National Corporation, Capital 7.000% 5/17/66 A- 1,486,400
Securities
2,000 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 1,957,186
8,100 MetLife Inc. 6.400% 12/15/66 A3 8,164,436
6,000 MIC Financing Trust I 8.375% 2/01/27 A+ 6,008,412
1,200 Nationwide Financial Services Capital Trust 7.899% 3/01/37 Baa1 1,431,502
12,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 12,453,972
10,250 Prudential PLC 6.500% 6/29/49 A 10,339,595
37,000 Sun Life Canada Capital Trust, Capital 8.526% 5/06/47 AA- 38,864,874
Securities, 144A
40,500 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 42,455,057
- -----------------------------------------------------------------------------------------------------------------------------------
Total Insurance 188,928,574
-------------------------------------------------------------------------------------------------------------------
</Table>
24
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.8%
3,680 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 $ 3,686,227
10,750 KN Capital Trust III 7.630% 4/15/28 Baa3 10,013,754
- -----------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 13,699,981
-------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.8%
14,400 Burlington Northern Santa Fe Funding Trust I 6.613% 12/15/55 BBB 14,356,598
- -----------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 3.3%
1,000 Caisse Nationale Des Caisses d'Epargne et de 6.750% 1/27/49 A+ 1,003,262
Prevoyance
12,811 Countrywide Capital Trust III, Series B 8.050% 6/15/27 BBB+ 14,488,101
11,825 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 12,504,476
13,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 13,555,347
15,600 Washington Mutual Preferred Funding Trust II 6.665% 3/15/57 BBB 15,670,122
- -----------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 57,221,308
-------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST 994,839,399
$980,461,892)
===================================================================================================================
</Table>
<Table>
SHARES DESCRIPTION (1) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 2.7% (1.9% OF TOTAL INVESTMENTS)
195,849 Blackrock Preferred and Corporate Income $ 4,324,346
Strategies Fund
671,322 Blackrock Preferred Income Strategies Fund 13,580,844
553,060 Flaherty and Crumrine/Claymore Preferred 11,841,015
Securities Income Fund Inc.
293,280 Flaherty and Crumrine/Claymore Total Return 6,299,654
Fund Inc.
542,319 John Hancock Preferred Income Fund III 12,153,365
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST 48,199,224
$44,565,307)
===================================================================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT
(000) DESCRIPTION (1) COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.7% (0.5% OF TOTAL INVESTMENTS)
$ 13,051 Repurchase Agreement with Fixed Income 4.580% 1/02/07 $ 13,050,540
Clearing Corporation, dated 12/29/06,
repurchase price $13,057,181,
collateralized by $11,365,000 U.S. Treasury
Bonds, 6.250%, due 8/15/23, value
$13,312,722
========== -------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $13,050,540) 13,050,540
===================================================================================================================
TOTAL INVESTMENTS (COST $2,468,765,297) - 144.0% 2,524,368,388
===================================================================================================================
OTHER ASSETS LESS LIABILITIES - 1.6% 29,023,917
===================================================================================================================
PREFERRED SHARES, AT LIQUIDATION VALUE - (45.6)% (800,000,000)
===================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $1,753,392,305
===================================================================================================================
</Table>
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2006:
<Table>
<Caption>
FUND FIXED RATE UNREALIZED
NOTIONAL PAY/RECEIVE FLOATING FIXED RATE PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT FLOATING RATE RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $200,000,000 Receive 1-Month USD-LIBOR 3.375% Monthly 11/06/07 $ 3,401,228
Citigroup Inc. 200,000,000 Receive 1-Month USD-LIBOR 3.910 Monthly 11/06/09 5,922,798
-----------------------------------------------------------------------------------------------------------------------------
$ 9,324,026
=============================================================================================================================
USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
</Table>
<Table>
(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 BBB by Standard &
Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be below
investment grade.
(3) Investment is eligible for the Dividends Received Deduction.
N/R Not rated.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CORTS Corporate Backed Trust Securities.
PCARS Public Credit and Repackaged Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
</Table>
See accompanying notes to financial statements.
25
Nuveen Quality Preferred Income Fund 3 (JHP)
Portfolio of
INVESTMENTS December 31, 2006
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 91.2% (61.8% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.1%
8,000 DaimlerChrysler AG (CORTS) 7.875% Baa1 $ 202,000
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 8.2%
21,206 Bear Stearns Capital Trust III 7.800% A2 539,693
8,500 BNY Capital Trust V, Series F 5.950% A1 210,205
59,900 Compass Capital Trust III 7.350% A3 1,502,891
39,900 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 1,011,465
5,700 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 137,598
Goldman Sachs Group Inc., Series GSC-4 Class A
7,100 (PPLUS) 6.000% A1 171,465
5,300 Goldman Sachs Group Inc. (SATURNS) 5.750% AA- 125,557
Lehman Brothers Holdings Capital Trust III, Series
357,800 K 6.375% A2 8,977,202
200 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 4,960
11,700 Merrill Lynch Capital Trust II 8.000% A1 296,595
70,800 Merrill Lynch Preferred Capital Trust III 7.000% A1 1,808,940
20,400 Merrill Lynch Preferred Capital Trust IV 7.120% A1 524,688
84,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 2,176,676
41,900 Morgan Stanley (PPLUS) 7.050% Aa3 1,068,031
80,100 Morgan Stanley Capital Trust II 7.250% A1 2,034,540
187,741 Morgan Stanley Capital Trust III 6.250% A1 4,714,177
75,700 Morgan Stanley Capital Trust VI 6.600% A1 1,937,920
18,600 Morgan Stanley Capital Trust VII 6.600% A2 469,464
- -----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 27,712,067
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 15.1%
108,898 ABN AMRO Capital Fund Trust VII 6.080% A 2,722,450
38,300 ASBC Capital I 7.625% Baa1 966,309
55,900 BAC Capital Trust V 6.000% Aa3 1,390,233
10,200 BAC Capital Trust VIII 6.000% Aa3 253,266
3,800 BAC Capital Trust X 6.250% Aa3 95,228
188,983 Banco Santander, 144A 6.800% A2 4,748,198
28,135 Banco Santander, (3) 6.410% A2 713,504
3,800 BancorpSouth Capital Trust I 8.150% Baa2 95,266
244,100 Banesto Holdings, Series A, 144A 10.500% A2 7,384,025
33,200 Bank One Capital Trust VI 7.200% A1 842,284
6,300 BankNorth Capital Trust II 8.000% A3 158,634
32,400 Capital One Capital II Corporation 7.500% Baa1 849,489
24,800 Chittenden Capital Trust I 8.000% Baa1 626,448
40,500 Citizens Funding Trust I 7.500% Baa2 1,058,063
44,500 Cobank ABC, 144A, (3) 7.000% N/R 2,265,095
57,500 Comerica Capital Trust I 7.600% A3 1,450,150
35,816 Fleet Capital Trust VIII 7.200% Aa3 899,698
141,700 HSBC Finance Corporation 6.875% AA- 3,641,690
160,500 Keycorp Capital Trust IX 6.750% Baa1 4,037,586
5,733 KeyCorp Capital Trust V 5.875% A3 137,420
245,100 National City Capital Trust II 6.625% A3 6,196,447
16,500 National Westminster Bank PLC, Series B 7.875% Aa3 411,345
12,200 PNC Capital Trust 6.125% A3 303,658
22,200 Royal Bank of Scotland Group PLC, Series M 6.400% A1 566,100
104,465 Royal Bank of Scotland Group PLC, Series N 6.350% A1 2,664,902
16,100 USB Capital Trust XI 6.600% A1 408,618
19,700 VNB Capital Trust I 7.750% Baa1 498,213
16,000 Wells Fargo Capital Trust IX 5.625% Aa2 380,320
51,000 Wells Fargo Capital Trust V 7.000% Aa2 1,284,690
6,800 Wells Fargo Capital Trust VI 6.950% Aa2 170,340
65,925 Wells Fargo Capital Trust VII 5.850% Aa2 1,619,118
80,800 Zions Capital Trust B 8.000% Baa1 2,059,592
- -----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 50,898,379
----------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
3,900 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 98,358
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
26
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.6%
77,100 HSBC Finance Corporation, (3) 6.360% A $ 1,998,432
- -----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 9.1%
377,415 BAC Capital Trust XII 6.875% Aa3 9,924,126
45,900 CIT Group Incorporated (CORTS) 7.750% A3 1,220,940
13,800 Citigroup Capital XIV 6.875% Aa2 362,388
55,729 Citigroup Capital XV 6.500% Aa3 1,401,935
2,300 Citigroup, Series CIT (CORTS) 6.750% A3 58,903
4,300 General Electric Capital Corporation (CORTS) 6.000% AAA 106,511
12,550 General Electric Capital Corporation 6.450% AAA 325,171
504,300 ING Group N.V. 7.200% A 12,894,948
142,900 ING Group N.V. 7.050% A 3,628,231
JPMorgan Chase Trust, Series 2002-6, Class A
25,800 (SATURNS) 7.125% A1 667,962
Royal Bank of Scotland Public Limited Company,
6,300 Series 2006Q 6.750% A1 166,005
- -----------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 30,757,120
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8%
32,500 AT&T Inc. 7.000% A 818,675
3,200 BellSouth Capital Funding (CORTS) 7.100% A 82,400
4,600 BellSouth Corporation (CORTS) 7.000% Aa3 115,736
6,900 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 172,569
9,000 BellSouth Corporation, Series BLS (CORTS) 7.000% A 225,540
15,700 BellSouth Inc. (CORTS) 7.000% A 403,490
9,400 BellSouth Telecommunications (PPLUS) 7.300% A 236,222
25,600 Verizon Communications (CORTS) 7.625% A 657,920
- -----------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 2,712,552
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 2.5%
55,200 Entergy Louisiana LLC 7.600% A- 1,386,072
203,447 Entergy Mississippi Inc. 7.250% A- 5,194,002
23,800 FPL Group Capital Inc. 6.600% A3 601,664
National Rural Utilities Cooperative Finance
5,200 Corporation 7.400% A3 131,820
National Rural Utilities Cooperative Finance
2,300 Corporation 6.100% A3 56,442
National Rural Utilities Cooperative Finance
33,018 Corporation 5.950% A3 797,385
8,900 Virginia Power Capital Trust 7.375% Baa2 227,662
- -----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 8,395,047
----------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.5%
17,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 1,678,750
- -----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.0%
1,400 General Electric Company, Series GE (CORTS) 6.800% AAA 35,798
- -----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 20.9%
194,400 Ace Ltd., Series C 7.800% Baa2 5,034,960
15,686 Aegon N.V. 6.875% A- 410,032
406,738 Aegon N.V., (3) 6.375% A- 10,562,985
32,400 AMBAC Financial Group Inc. 5.950% AA 787,968
94,800 AMBAC Financial Group Inc. 5.875% AA 2,280,888
195,649 Arch Capital Group Limited 8.000% Baa3 5,174,916
138,700 Delphi Financial Group, Inc. 8.000% BBB 3,575,686
45,867 EverestRe Capital Trust II 6.200% Baa1 1,095,304
294,716 EverestRe Group Limited 7.850% Baa1 7,527,047
151,100 Financial Security Assurance Holdings 6.250% AA 3,798,654
174,900 PartnerRe Limited, Series C 6.750% BBB+ 4,442,460
3,000 PartnerRe Limited, Series D 6.500% BBB+ 75,600
57,100 PLC Capital Trust III 7.500% BBB+ 1,446,343
46,400 PLC Capital Trust IV 7.250% BBB+ 1,176,240
4,500 PLC Capital Trust V 6.125% BBB+ 111,960
324,300 Protective Life Corporation 7.250% BBB 8,460,987
53,244 Prudential PLC 6.750% A 1,365,176
37,303 RenaissanceRe Holdings Limited, Series A 8.100% BBB+ 939,290
60,401 RenaissanceRe Holdings Limited, Series B 7.300% BBB 1,548,380
6,500 Safeco Capital Trust IV (CORTS) 8.375% Baa2 182,910
33,000 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 826,320
7,000 W.R. Berkley Corporation 6.750% BBB- 176,050
65,100 XL Capital Ltd, Series A 8.000% Baa1 1,643,775
294,200 XL Capital Ltd, Series B 7.625% Baa1 7,531,520
- -----------------------------------------------------------------------------------------------------------------------------
Total Insurance 70,175,451
----------------------------------------------------------------------------------------------------------------
</Table>
27
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.8%
1,700 CBS Corporation 7.250% BBB $ 42,653
323,000 Comcast Corporation 7.000% BBB+ 8,428,297
15,400 Comcast Corporation 7.000% BBB+ 397,995
156,400 Viacom Inc. 6.850% BBB 3,900,225
- -----------------------------------------------------------------------------------------------------------------------------
Total Media 12,769,170
----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.1%
17,900 Dominion CNG Capital Trust I 7.800% Baa2 453,944
- -----------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.8%
195,200 Nexen Inc. 7.350% Baa3 5,036,160
34,700 TransCanada Pipeline 8.250% A3 901,159
- -----------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 5,937,319
----------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
8,600 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 217,795
4,300 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 110,725
- -----------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 328,520
----------------------------------------------------------------------------------------------------------------
REAL ESTATE - 23.7%
10,700 AvalonBay Communities, Inc., Series H 8.700% BBB 287,509
29,200 BRE Properties, Series C 6.750% BBB- 735,840
8,029 BRE Properties, Series D 6.750% BBB- 201,126
Developers Diversified Realty Corporation, Series
26,700 F 8.600% BBB- 677,913
Developers Diversified Realty Corporation, Series
171,200 G 8.000% BBB- 4,377,584
Developers Diversified Realty Corporation, Series
32,000 H 7.375% BBB- 808,320
112,900 Duke Realty Corporation, Series L 6.600% BBB 2,846,209
136,700 Duke Realty Corporation, Series N 7.250% BBB 3,609,741
149,000 Duke-Weeks Realty Corporation 6.950% BBB 3,871,020
61,444 Equity Office Properties Trust, Series G 7.750% BBB- 1,545,931
20,800 Equity Residential Properties Trust, Series D 8.600% BBB 535,600
223,471 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 6,246,014
145,900 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 3,736,499
247,207 HRPT Properties Trust, Series B 8.750% BBB- 6,355,692
129,611 HRPT Properties Trust, Series C 7.125% BBB- 3,388,032
21,000 New Plan Excel Realty Trust, Series D 7.800% BBB- 1,123,500
36,300 New Plan Excel Realty Trust, Series E 7.625% BBB- 943,800
20,000 Prologis Trust, Series G 6.750% BBB 510,400
8,300 PS Business Parks, Inc., Series F 8.750% BBB- 207,417
120,000 PS Business Parks, Inc., Series L 7.600% BBB- 3,081,600
136,000 PS Business Parks, Inc. 7.000% BBB- 3,461,200
16,500 Public Storage, Inc., Series F 6.450% BBB+ 410,025
2,100 Public Storage, Inc., Series H 6.950% BBB+ 54,222
194,262 Public Storage, Inc., Series K 7.250% BBB+ 5,050,812
31,100 Public Storage, Inc., Series T 7.625% BBB+ 776,878
15,200 Public Storage, Inc., Series U 7.625% BBB+ 379,696
17,000 Public Storage, Inc., Series V 7.500% BBB+ 432,650
3,700 Public Storage, Inc., Series X 6.450% BBB+ 93,314
77,300 Public Storage, Inc., Series Y 6.850% BBB+ 1,908,344
3,000 Public Storage, Inc. 7.125% BBB+ 78,000
115,500 Public Storage, Inc. 6.750% BBB+ 2,919,990
53,800 Realty Income Corporation, Series E 6.750% BBB- 1,356,771
5,900 Realty Income Corporation 7.375% BBB- 153,400
30,972 Regency Centers Corporation 7.450% BBB- 792,264
84,500 Regency Centers Corporation 7.250% BBB- 2,158,975
68,600 Simon Property Group, Inc., Series G 7.890% BBB 3,498,600
37,900 United Dominion Realty Trust 8.600% BBB- 964,934
61,800 Vornado Realty Trust, Series G 6.625% BBB- 1,535,730
7,500 Vornado Realty Trust, Series I 6.625% BBB- 186,825
262,800 Wachovia Preferred Funding Corporation 7.250% A2 7,382,052
39,900 Weingarten Realty Trust, Series E 6.950% A- 1,030,019
- -----------------------------------------------------------------------------------------------------------------------------
Total Real Estate 79,714,448
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.7%
241,430 Countrywide Capital Trust IV 6.750% BBB+ 6,038,164
117,700 Countrywide Capital Trust V 7.000% BBB+ 2,968,253
3,300 Harris Preferred Capital Corporation, Series A 7.375% A1 83,523
- -----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 9,089,940
----------------------------------------------------------------------------------------------------------------
</Table>
28
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.2%
157,500 United States Cellular Corporation 8.750% A- $ 4,072,950
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES
(COST $302,534,553) 307,030,245
================================================================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 1.0% (0.7% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 1.0%
$ 3,000 Mizuho JGB Investment 9.870% 6/30/48 BBB+ $ 3,180,246
- -----------------------------------------------------------------------------------------------------------------------------
$ 3,000 TOTAL CORPORATE BONDS (COST $3,191,356) 3,180,246
=============================================================================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT
(000)/ RATINGS
SHARES DESCRIPTION (1) COUPON MATURITY (2) VALUE
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 51.3% (34.7% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 8.7%
1,800 ABN AMRO North America Holding Capital, 144A 6.523% 12/31/49 A- $ 1,886,191
1,000 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 1,041,015
1,700 BankBoston Capital Trust III 6.103% 6/15/27 Aa3 1,686,222
1,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 1,035,290
500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 519,888
250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 256,696
3,750 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 3,845,231
2,900 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A- 3,503,130
2,000 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A- 2,102,266
8,485 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 10,285,889
700 MUFG Capital Finance 2 4.850% 7/25/56 BBB 903,740
2,000 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 2,098,570
- ----------------------------------------------------------------------------------------------------------------------
Total Capital Markets 29,164,128
---------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 21.7%
2,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 1,989,508
1,500 Abbey National Capital Trust I 8.963% 6/30/50 A 2,006,810
1,900 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 1,871,418
1,500 BankBoston Capital Trust II, Series B 7.750% 12/15/26 Aa3 1,559,867
500 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 521,458
6,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 6,944,564
900 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 968,767
400 Den Norske Bank, 144A 7.729% 6/29/49 A2 431,986
1,000 First Empire Capital Trust I 8.234% 2/01/27 Baa1 1,042,669
500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 527,065
6,200 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 6,280,073
300 HBOS PLC, 144A 6.413% 9/29/49 A1 298,957
1,430 HSBC USA Capital Trust II, 144A 8.380% 5/15/27 A 1,501,918
2,500 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A 2,783,208
2,500 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 2,525,433
4,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 Baa1 4,183,240
3,150 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 3,299,663
5,000 PNC Institutional Capital Trust B, 144A 8.315% 5/15/27 A3 5,245,025
1,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 1,000,382
4,500 RBS Capital Trust B 6.800% 12/31/49 A1 4,557,330
2,500 St. George Funding Company LLC, 144A 8.485% 12/31/47 A3 2,626,763
2,660 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 2,917,927
4,600 Union Planters Capital Trust A 8.200% 12/15/26 A2 4,791,636
70 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 7,708,750
Washington Mutual Preferred Funding Cayman, Series
5,600 A-1, 144A 7.250% 3/15/49 BBB 5,588,178
- ----------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 73,172,595
---------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 3.2%
1,000 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 1,007,597
1,300 Fulton Capital Trust I 6.290% 2/01/36 A3 1,284,535
6,000 JPMorgan Chase Capital Trust XVIII 6.950% 8/17/36 A2 6,511,320
1,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 1,876,500
- ----------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 10,679,952
---------------------------------------------------------------------------------------------------------
</Table>
29
Nuveen Quality Preferred Income Fund 3 (JHP) (continued)
Portfolio of INVESTMENTS December 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- ---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.8%
5,260 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB $ 6,150,913
- ---------------------------------------------------------------------------------------------------------------------------
INSURANCE - 12.1%
3,450 Ace Capital Trust II 9.700% 4/01/30 Baa1 4,742,674
2,600 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A- 2,759,905
1,500 Lincoln National Corporation, Capital Securities 7.000% 5/17/66 A- 1,592,571
750 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 733,945
1,200 MetLife Inc. 6.400% 12/15/66 A3 1,209,546
10,000 MIC Financing Trust I 8.375% 2/01/27 A+ 10,014,019
400 Nationwide Financial Services Capital Trust 7.899% 3/01/37 Baa1 477,167
2,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 2,075,662
1,500 Prudential PLC 6.500% 6/29/49 A 1,513,112
Sun Life Canada Capital Trust, Capital Securities,
7,000 144A 8.526% 5/06/47 AA- 7,352,814
8,000 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 8,386,184
- ---------------------------------------------------------------------------------------------------------------------------
Total Insurance 40,857,599
-----------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
3,000 KN Capital Trust III 7.630% 4/15/28 Baa3 2,794,536
- ---------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.8%
2,785 Burlington Northern Santa Fe Funding Trust I 6.613% 12/15/55 BBB 2,776,606
- ---------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.1%
4,225 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 4,467,773
2,600 Washington Mutual Preferred Funding Trust II 6.665% 3/15/57 BBB 2,611,687
- ---------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 7,079,460
-----------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST
$173,064,729) 172,675,789
===========================================================================================================
</Table>
<Table>
SHARES DESCRIPTION (1) VALUE
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 2.9% (2.0% OF TOTAL INVESTMENTS)
Blackrock Preferred and Corporate Income
40,981 Strategies Fund $ 904,860
141,978 Blackrock Preferred Income Strategies Fund 2,872,215
Flaherty and Crumrine/Claymore Preferred
110,083 Securities Income Fund Inc. 2,356,877
Flaherty and Crumrine/Claymore Total Return Fund
63,742 Inc. 1,369,178
107,629 John Hancock Preferred Income Fund III 2,411,966
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $9,196,819) 9,915,096
=========================================================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 1.2% (0.8% OF TOTAL INVESTMENTS)
$ 4,053 Repurchase Agreement with Fixed Income Clearing 4.580% 1/02/07 $ 4,052,634
Corporation, dated 12/29/06, repurchase price
$4,054,696, collateralized by $3,530,000 U.S.
Treasury Bonds, 6.250%, due 8/15/23, value
$4,134,968
========== --------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $4,052,634) 4,052,634
====================================================================================================================
TOTAL INVESTMENTS (COST $492,040,091) - 147.6% 496,854,010
====================================================================================================================
OTHER ASSETS LESS LIABILITIES - 1.7% 5,686,295
====================================================================================================================
PREFERRED SHARES, AT LIQUIDATION VALUE - (49.3)% (166,000,000)
====================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 336,540,305
====================================================================================================================
</Table>
30
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2006:
<Table>
<Caption>
FUND FIXED RATE UNREALIZED
NOTIONAL PAY/RECEIVE FIXED RATE PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION)
------------------------------------------------------------------------------------------------------------------
Citigroup
Inc. $42,000,000 Receive 1-Month USD-LIBOR 3.255% Monthly 2/06/08 $ 979,663
Citigroup
Inc. 42,000,000 Receive 1-Month USD-LIBOR 3.815 Monthly 2/06/10 1,481,925
JPMorgan 21,000,000 Receive 1-Month USD-LIBOR 5.318 Monthly 5/06/07 3,941
------------------------------------------------------------------------------------------------------------------
$ 2,465,529
==================================================================================================================
USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
</Table>
<Table>
(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 BBB by Standard &
Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be below
investment grade.
(3) Investment is eligible for the Dividends Received Deduction.
N/R Not rated.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CORTS Corporate Backed Trust Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
</Table>
See accompanying notes to financial statements.
31
Statement of
ASSETS AND LIABILITIES December 31, 2006
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $1,313,516,724, $2,468,765,297
and $492,040,091, respectively) $1,336,660,653 $2,524,368,388 $496,854,010
Cash 272,000 493,500 148,050
Unrealized appreciation on interest rate swaps 2,795,289 9,324,026 2,465,529
Receivables:
Dividends 2,213,476 3,448,271 992,738
Interest 8,845,489 14,971,036 2,390,803
Investments sold 5,115 2,827,893 135,337
Reclaims -- 41,338 7,211
Other assets 93,420 171,670 21,742
- -----------------------------------------------------------------------------------------------------------------
Total assets 1,350,885,442 2,555,646,122 503,015,420
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
Accrued expenses:
Management fees 622,490 1,115,733 241,192
Other 354,112 606,817 125,715
FundPreferred share dividends payable 300,477 531,267 108,208
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,277,079 2,253,817 475,115
- -----------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000
- -----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 909,608,363 $1,753,392,305 $336,540,305
- -----------------------------------------------------------------------------------------------------------------
Common shares outstanding 64,505,441 119,643,469 23,661,035
- -----------------------------------------------------------------------------------------------------------------
Net asset value per Common share outstanding (net assets
applicable to
Common shares, divided by Common shares outstanding) $ 14.10 $ 14.66 $ 14.22
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
- -----------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 645,054 $ 1,196,435 $ 236,610
Paid-in surplus 903,151,933 1,687,575,110 331,523,615
Undistributed (Over-distribution of) net investment income (1,329,743) (3,968,873) (881,169)
Accumulated net realized gain (loss) from investments and
derivative transactions (18,799,499) 3,659,864 (1,618,715)
Net unrealized appreciation (depreciation) of investments
and derivative transactions 25,940,618 64,929,769 7,279,964
- -----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 909,608,363 $1,753,392,305 $336,540,305
- -----------------------------------------------------------------------------------------------------------------
Authorized shares:
Common Unlimited Unlimited Unlimited
FundPreferred Unlimited Unlimited Unlimited
- -----------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
32
Statement of
OPERATIONS Year Ended December 31, 2006
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $0,
$712 and $0, respectively) $ 52,851,992 $103,603,604 $22,137,235
Interest 38,848,142 72,155,803 12,316,060
- ------------------------------------------------------------------------------------------------------------
Total investment income 91,700,134 175,759,407 34,453,295
- ------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 11,584,235 21,193,520 4,420,593
FundPreferred shares - auction fees 1,100,000 2,000,000 415,000
FundPreferred shares - dividend disbursing agent fees 28,500 39,977 13,500
Shareholders' servicing agent fees and expenses 11,644 15,728 2,712
Custodian's fees and expenses 285,735 491,198 125,009
Trustees' fees and expenses 28,737 53,370 10,580
Professional fees 59,625 100,089 30,566
Shareholders' reports - printing and mailing expenses 190,198 347,825 71,118
Stock exchange listing fees 23,557 43,686 9,823
Investor relations expense 143,086 264,356 54,369
Other expenses 44,073 54,420 24,504
- ------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 13,499,390 24,604,169 5,177,774
Custodian fee credit (17,272) (7,934) (2,264)
Expense reimbursement (4,283,386) (8,104,950) (1,594,196)
- ------------------------------------------------------------------------------------------------------------
Net expenses 9,198,732 16,491,285 3,581,314
- ------------------------------------------------------------------------------------------------------------
Net investment income 82,501,402 159,268,122 30,871,981
- ------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments 132,407 (990,466) (2,688,895)
Foreign currencies 563 1,066 208
Interest rate swaps 2,298,167 5,781,508 1,379,809
Change in net unrealized appreciation (depreciation) of:
Investments (940,681) (5,130,313) 3,328,270
Foreign currencies 1,400 2,652 516
Interest rate swaps (215,813) (1,630,640) (567,278)
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1,276,043 (1,966,193) 1,452,630
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (20,743,697) (37,501,376) (7,912,599)
From accumulated net realized gains -- -- --
- ------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (20,743,697) (37,501,376) (7,912,599)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $ 63,033,748 $119,800,553 $24,412,012
- ------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
33
Statement of
CHANGES IN NET ASSETS
<Table>
<Caption>
QUALITY PREFERRED INCOME (JTP) QUALITY PREFERRED INCOME 2 (JPS)
------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/06 12/31/05 12/31/06 12/31/05
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 82,501,402 $ 83,656,560 $ 159,268,122 $ 160,397,786
Net realized gain (loss) from:
Investments 132,407 10,256,942 (990,466) 29,542,155
Foreign currencies 563 -- 1,066 --
Futures -- -- -- 626,810
Interest rate swaps 2,298,167 (1,997,325) 5,781,508 (1,219,301)
Change in net unrealized appreciation (depreciation) of:
Investments (940,681) (58,087,700) (5,130,313) (120,450,106)
Foreign currencies 1,400 -- 2,652 --
Futures -- -- -- 313,500
Interest rate swaps (215,813) 6,484,892 (1,630,640) 9,852,715
Distributions to FundPreferred shareholders:
From net investment income (20,743,697) (13,746,475) (37,501,376) (21,967,419)
From accumulated net realized gains -- -- -- (2,969,505)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations 63,033,748 26,566,894 119,800,553 54,126,635
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (69,630,812) (72,552,099) (133,434,611) (138,788,080)
From accumulated net realized gains -- -- -- (22,079,378)
Tax return of capital -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (69,630,812) (72,552,099) (133,434,611) (160,867,458)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares issued to shareholders due
to reinvestment of distributions 607,703 -- 1,483,854 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from capital share transactions 607,703 -- 1,483,854 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares (5,989,361) (45,985,205) (12,150,204) (106,740,823)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the beginning of
year 915,597,724 961,582,929 1,765,542,509 1,872,283,332
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of year $909,608,363 $915,597,724 $1,753,392,305 $1,765,542,509
- ---------------------------------------------------------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment income
at the end of year $ (1,329,743) $ 8,725,182 $ (3,968,873) $ 12,953,839
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
34
<Table>
<Caption>
QUALITY PREFERRED INCOME 3 (JHP)
---------------------------------
YEAR ENDED YEAR ENDED
12/31/06 12/31/05
- -----------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 30,871,981 $ 31,177,398
Net realized gain (loss) from:
Investments (2,688,895) 2,801,561
Foreign currencies 208 --
Futures -- --
Interest rate swaps 1,379,809 (22,484)
Change in net unrealized appreciation (depreciation) of:
Investments 3,328,270 (21,236,219)
Foreign currencies 516 --
Futures -- --
Interest rate swaps (567,278) 2,007,568
Distributions to FundPreferred shareholders:
From net investment income (7,912,599) (4,959,898)
From accumulated net realized gains -- (324,959)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations 24,412,012 9,442,967
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (25,661,097) (27,602,875)
From accumulated net realized gains -- (2,179,859)
Tax return of capital (327,326) --
- -----------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to
Common shareholders (25,988,423) (29,782,734)
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares issued to shareholders due
to reinvestment of
distributions 259,052 --
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from capital share
transactions 259,052 --
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares (1,317,359) (20,339,767)
- -----------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the beginning of
year 337,857,664 358,197,431
- -----------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of year $336,540,305 $337,857,664
- -----------------------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment income
at the end of year $ (881,169) $ 1,949,002
- -----------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
35
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The funds (the "Funds") covered in this report and their corresponding Common
share New York Stock Exchange symbols are Nuveen Quality Preferred Income Fund
(JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred
Income Fund 3 (JHP). The Funds are registered under the Investment Company Act
of 1940, as amended, as non-diversified, closed-end management investment
companies.
Each Fund seeks to provide high current income consistent with capital
preservation by investing primarily in a portfolio of preferred securities, debt
securities including convertible debt securities and convertible preferred
securities.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities 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 the other derivative instruments and fixed-income securities are
generally provided by an independent pricing service approved by the Funds'
Board of Trustees. When price quotes are not readily available, the pricing
service or, in the absence of a pricing service for a particular investment, the
Board of Trustees of the Funds, or its designee, may establish fair market value
using a wide variety of market data including yields or prices of investments of
comparable quality, type of issue, coupon, maturity and rating, market quotes or
indications of value from security dealers, evaluations of anticipated cash
flows or collateral, general market conditions and other information and
analysis, including the obligor's credit characteristics considered relevant by
the pricing service or the Board of Trustee's designee. If the pricing service
is unable to supply a price for a derivative investment the Fund may use a
market quote provided by a major broker/dealer in such investments. If it is
determined that the market price for an investment is unavailable or
inappropriate, the Board of Trustees of the Funds, or its designee, may
establish fair value in accordance with procedures established in good faith by
the Board of Trustees. Short-term investments are valued at amortized cost,
which approximates market value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. Investments purchased on a when-issued/delayed delivery
basis may have extended settlement periods. Any investments so purchased are
subject to market fluctuation during this period. The Funds have instructed the
custodian to segregate assets with a current value at least equal to the amount
of the when issued/delayed delivery purchase commitments. At December 31, 2006,
there were no such outstanding purchase commitments in any of the Funds.
Investment Income
Dividend income is recorded on the ex-dividend date or, for foreign securities,
when information is available. Interest income, which includes the amortization
of premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis.
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.
36
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. Real Estate
Investment Trust ("REIT") 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 are not known until after the fiscal year-end.
For the fiscal year ended December 31, 2006, the character of distributions to
the Funds from the REITs was as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ------------------------------------------------------------------------------------------------------------
Ordinary income 79.98% 79.26% 77.67%
Long-term and short-term capital gains 19.92 20.62 22.24
Return of REIT capital 0.10 0.12 0.09
- ------------------------------------------------------------------------------------------------------------
</Table>
For the fiscal year ended December 31, 2005, the character of distributions to
the Funds from the REITs was as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ------------------------------------------------------------------------------------------------------------
Ordinary income 77.28% 74.67% 78.86%
Long-term and short-term capital gains 22.72 25.33 21.14
Return of REIT capital -- -- --
- ------------------------------------------------------------------------------------------------------------
</Table>
For the fiscal years ended December 31, 2006 and December 31, 2005, the Funds
applied the actual character of distributions reported by the REITs in which the
Funds invest to their 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.
The actual character of distributions made by the Funds during the fiscal years
ended December 31, 2006 and December 31, 2005, are reflected in the accompanying
financial statements.
37
Notes to
FINANCIAL STATEMENTS (continued)
FundPreferred Shares
The Funds have issued and outstanding FundPreferred shares, $25,000 stated value
per share, as a means of effecting financial leverage. Each Fund's FundPreferred
shares are issued in more than one Series. The dividend rate paid by the Funds
on each Series is determined every seven days, pursuant to a dutch auction
process overseen by the auction agent, and is payable at the end of each rate
period. The number of FundPreferred shares outstanding, by Series and in total,
for each Fund is as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- --------------------------------------------------------------------------------------------------------------------
Number of shares:
Series M 3,520 4,800 3,320
Series T 3,520 4,800 --
Series T2 -- 4,000 --
Series W 3,520 4,800 --
Series TH 3,520 4,800 3,320
Series TH2 -- 4,000 --
Series F 3,520 4,800 --
- --------------------------------------------------------------------------------------------------------------------
Total 17,600 32,000 6,640
- --------------------------------------------------------------------------------------------------------------------
</Table>
Interest Rate Swap Transactions
The Funds are authorized to 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 or
receive a fixed rate payment in exchange for the counterparty paying or
receiving a variable rate payment that is intended to approximate each Fund's
variable rate payment obligation on FundPreferred shares or any variable rate
borrowing. The payment obligation is based on the notional amount of the
interest rate swap contract. Interest rate swaps do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to the swap counterparty on such transactions is limited to
the net amount of interest payments that each Fund is to receive. Interest rate
swap positions are valued daily. Although there are economic advantages of
entering into interest rate swap transactions, there are also additional risks.
The Funds help manage the credit risks associated with interest rate swap
transactions by entering into agreements only with counterparties 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
The Funds are authorized to invest in futures contracts. Upon entering into a
futures contract, a Fund is required to deposit with the broker an amount of
cash or liquid securities equal to a specified percentage of the contract
amount. This is known as the "initial margin." Subsequent payments ("variation
margin") are made or received by a Fund each day, depending on the daily
fluctuation of the value of the contract.
During the period the futures contract is open, changes in the value of the
contract are recognized as an unrealized gain or loss by "marking-to-market" on
a daily basis to reflect the changes in market value of the contract. When the
contract is closed or expired, a Fund records a realized gain or loss equal to
the difference between the value of the contract on the closing date and the
value of the contract when originally entered into. Cash held by the broker to
cover initial margin requirements on open futures contracts is noted in the
Statement of Assets and Liabilities. Additionally, the Statement of Assets and
Liabilities reflects a receivable or payable for the variation margin when
applicable. As of December 31, 2006, there were no outstanding futures contracts
in any of the funds.
Risks of investments in futures contracts include the possible adverse movement
of the securities or indices underlying the contracts, the possibility that
there may not be a liquid secondary market for the contracts and/or that a
change in the value of the contract may not correlate with a change in the value
of the underlying securities or indices.
38
Foreign Currency Translation
To the extent that a Fund invests in securities that are denominated in a
currency other than U.S. dollars, the Fund will be subject to currency risk,
which is the risk that an increase in the U.S. dollar relative to the foreign
currency will reduce returns or portfolio value. Generally, when the U.S. dollar
rises in value against a foreign currency, the Fund's investments in securities
denominated in that currency will lose value because its currency is worth fewer
U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative
value. Investments and other assets and liabilities denominated in foreign
currencies are converted into U.S. dollars on a spot (i.e. cash) basis at the
spot rate prevailing in the foreign currency exchange market at the time of
valuation. Purchases and sales of investments and dividend income denominated in
foreign currencies are translated into U.S. dollars on the respective dates of
such transactions. The gains or losses resulting from changes in foreign
exchange rates on investments and derivative transactions, if any, are included
with Net realized gain (loss) from foreign currencies and Change in net
unrealized appreciation (depreciation) of foreign currencies in the Statement of
Operations.
Foreign Currency Transactions
The Funds are authorized to engage in foreign currency exchange transactions.
The Funds may engage in foreign currency forward, options and futures contracts.
To the extent that the Funds invest in contracts that are denominated in a
currency other than U.S. dollars, the Funds will be subject to currency risk,
which is the risk that an increase in the U.S. dollar relative to the foreign
currency will reduce returns or portfolio value. Generally, when the U.S. dollar
rises in value against a foreign currency, the Funds' investments denominated in
that currency will lose value because its currency is worth fewer U.S. dollars;
the opposite effect occurs if the U.S. dollar falls in relative value.
Investments and other assets and liabilities denominated in foreign currencies
are converted into U.S. dollars on a spot (i.e. cash) basis at the spot rate
prevailing in the foreign currency exchange market at the time of valuation.
Purchases and sales of investments and dividend income denominated in foreign
currencies are translated into U.S. dollars on the respective dates of such
transactions.
The books and records of the Funds are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at 4:00 p.m. Eastern time. Investments and income and expenses are
translated on the respective dates of such transactions. Net realized foreign
currency gains and losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date of the
transactions, foreign currency transactions, and the difference between the
amounts of interest and dividends recorded on the books of a Fund and the
amounts actually received.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Funds'
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on each Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Funds' organizational documents, their Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Funds. In addition, in the normal course of business, the Funds
enter into contracts that provide general indemnifications to other parties. The
Funds' maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Funds that have not yet
occurred. However, the Funds have not had prior claims or losses pursuant to
these contracts and expect the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
Transactions in Common shares were as follows:
<Table>
<Caption>
QUALITY PREFERRED QUALITY PREFERRED QUALITY PREFERRED
INCOME (JTP) INCOME 2 (JPS) INCOME 3 (JHP)
------------------------ ------------------------ ------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05
- --------------------------------------------------------------------------------------------------------------------------
Shares issued to shareholders due to
reinvestment of distributions 43,337 -- 101,627 -- 18,314 --
- --------------------------------------------------------------------------------------------------------------------------
</Table>
39
Notes to
FINANCIAL STATEMENTS (continued)
3. INVESTMENT TRANSACTIONS
Purchases and sales (including maturities but excluding short-term investments
and derivative transactions) during the fiscal year ended December 31, 2006,
were as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- --------------------------------------------------------------------------------------------------------------------
Purchases $461,711,543 $871,839,318 $195,635,351
Sales and maturities 450,972,246 831,402,132 188,830,416
- --------------------------------------------------------------------------------------------------------------------
</Table>
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis based on the
information currently available to the Funds. Differences between amounts for
financial statement and federal income tax purposes are primarily due to
recognition of premium amortization, timing differences in the recognition of
income and timing differences in recognizing certain gains and losses on
investment transactions. To the extent that differences arise that are permanent
in nature, such amounts are reclassified within the capital accounts on the
Statement of Assets and Liabilities presented in the annual report, based on
their Federal tax basis treatment; temporary differences do not require
reclassification. Temporary and permanent differences do not impact the net
asset values of the Funds.
At December 31, 2006, the cost of investments was as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- --------------------------------------------------------------------------------------------------------------------
Cost of investments $1,315,110,584 $2,474,342,201 $492,730,977
- --------------------------------------------------------------------------------------------------------------------
</Table>
Gross unrealized appreciation and gross unrealized depreciation of investments
at December 31, 2006, were as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- --------------------------------------------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 36,415,452 $ 84,993,974 $11,224,835
Depreciation (14,865,383) (34,967,787) (7,101,802)
- --------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments $ 21,550,069 $ 50,026,187 $ 4,123,033
- --------------------------------------------------------------------------------------------------------------------
</Table>
The tax components of undistributed net ordinary income and net long-term
capital gains at July 31, 2006, the Funds' last tax year end, were as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- --------------------------------------------------------------------------------------------------------------------
Undistributed net ordinary income * -- 2,296,771 --
Undistributed net long-term capital gains -- 6,399,647 --
- --------------------------------------------------------------------------------------------------------------------
</Table>
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
40
The tax character of distributions paid during the tax years ended July 31, 2006
and July 31, 2005, was designated for purposes of the dividends paid deduction
as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
JULY 31, 2006 (JTP) (JPS) (JHP)
- --------------------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $88,059,972 $166,262,070 $33,448,703
Distributions from net long-term capital gains ** -- 22,350,529 1,834,281
Tax return of capital -- -- 327,326
- --------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
JULY 31, 2005 (JTP) (JPS) (JHP)
- --------------------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $86,458,729 $168,985,896 $32,675,994
Distributions from net long-term capital gains -- 19,485,262 1,415,750
- --------------------------------------------------------------------------------------------------------------------
</Table>
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
** The Funds designated as a long-term capital gain dividend, pursuant to the
Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the
earnings and profits of the Funds related to net capital gain to zero for the
tax year ended December 31, 2006.
At July 31, 2006, the Funds' last tax year end, Quality Preferred Income 3 (JHP)
had unused capital loss carryforwards of $16,197,047 available for federal
income tax purposes to be applied against future capital gains, if any. If not
applied, the carryforwards will expire in the year 2012.
Quality Preferred Income 3 (JHP) elected to defer net realized losses from
investments incurred from November 1, 2005 through July 31, 2006 ("post-October
losses") in accordance with Federal income tax regulations. Post-October losses
of $931,735 were treated as having arisen on the first day of the current fiscal
year.
Calculation of certain of the amounts presented above (namely, undistributed net
ordinary income for tax purposes) involves the application of complex aspects of
the Internal Revenue Code to certain securities held by the Funds. In
calculating the amount of taxable income derived from these securities,
management made assumptions as to the correct tax treatment of 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 Nuveen
Asset Management (the "Adviser"), a wholly owned subsidiary of Nuveen
Investments, Inc. ("Nuveen"), 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:
<Table>
<Caption>
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
- ---------------------------------------------------------------------------------------------
</Table>
41
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, 2006, the complex-level fee rate was .1845%.
<Table>
<Caption>
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
- --------------------------------------------------------------------------------
</Table>
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
preferred stock issued by or borrowings by the Nuveen funds) of
Nuveen-sponsored funds in the U.S.
(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 has entered
into Sub-Advisory Agreements with Spectrum Asset Management, Inc. ("Spectrum"),
under which Spectrum manages the investment portfolios of the Funds. Spectrum is
compensated for its services to the Funds from the management fees paid to the
Adviser. Spectrum also receives compensation on certain portfolio transactions
for providing brokerage services to the Funds.
The Funds pay no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its Officers, all of whom receive remuneration
for their services to the Funds from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised funds.
For the first eight years of Quality Preferred Income's (JTP) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
<Table>
<Caption>
YEAR ENDING YEAR ENDING
JUNE 30, JUNE 30,
- --------------------------------------------------------------------------------
2002 * .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
- --------------------------------------------------------------------------------
</Table>
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income (JTP) for any
portion of its fees and expenses beyond June 30, 2010.
42
For the first eight years of Quality Preferred Income 2's (JPS) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
<Table>
<Caption>
YEAR ENDING YEAR ENDING
SEPTEMBER 30, SEPTEMBER 30,
- --------------------------------------------------------------------------------
2002 * .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
- --------------------------------------------------------------------------------
</Table>
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income 2 (JPS) for any
portion of its fees and expenses beyond September 30, 2010.
For the first eight years of Quality Preferred Income 3's (JHP) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
<Table>
<Caption>
YEAR ENDING YEAR ENDING
DECEMBER 31, DECEMBER 31,
- --------------------------------------------------------------------------------
2002 * .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
- --------------------------------------------------------------------------------
</Table>
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income 3 (JHP) for any
portion of its fees and expenses beyond December 31, 2010.
6. NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 48
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Recent SEC guidance allows funds
to delay implementing FIN 48 into NAV calculations until the fund's last NAV
calculation in the first required financial statement reporting period. As a
result, the Funds must begin to incorporate FIN 48 into their NAV calculations
on June 29, 2007. At this time, management is continuing to evaluate the
implications of FIN 48 and does not expect the adoption of FIN 48 will have a
significant impact on the net assets or results of operations of the Funds.
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The changes to current generally accepted accounting principles from the
application of this standard relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. As of December 31, 2006, the Funds do not believe the adoption of
SFAS No. 157 will impact the financial statement amounts; however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements included within the Statement of
Operations for the period.
7. SUBSEQUENT EVENT
Distributions to Common Shareholders
The Funds declared Common share distributions which were paid on February 1,
2007, to shareholders of record on January 15, 2007, as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- --------------------------------------------------------------------------------
Distributions per share $.0900 $.0930 $.0910
- --------------------------------------------------------------------------------
</Table>
43
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
<Table>
<Caption>
Investment Operations
-----------------------------------------------------------------
Distributions
from Net Distributions
Beginning Investment from Capital
Common Net Income to Gains to
Share Net Realized/ FundPreferred FundPreferred
Net Asset Investment Unrealized Share- Share-
Value Income(a) Gain (Loss) holders+ holders+ Total
- -----------------------------------------------------------------------------------------------------
QUALITY PREFERRED INCOME (JTP)
- -----------------------------------------------------------------------------------------------------
Year ended 12/31:
2006 $ 14.20 $ 1.28 $ .02 $ (.32) $ -- $ .98
2005 14.92 1.30 (.68) (.21) -- .41
8/1/04-12/31/04 14.40 .60 .47 (.05) -- 1.02
Year Ended 7/31:
2004(b) 14.10 1.37 .26 (.08) -- 1.55
2003 14.12 1.31 .16 (.09) -- 1.38
2002(c) 14.33 .06 (.25) -- -- (.19)
QUALITY PREFERRED INCOME 2 (JPS)
- -----------------------------------------------------------------------------------------------------
Year ended 12/31:
2006 14.77 1.33 (.01) (.31) -- 1.01
2005 15.66 1.34 (.69) (.18) (.02) .45
8/1/04-12/31/04 15.32 .60 .50 (.04) (.01) 1.05
Year Ended 7/31:
2004(b) 14.97 1.42 .37 (.08) -- 1.71
2003(d) 14.33 1.02 .79 (.07) -- 1.74
QUALITY PREFERRED INCOME 3 (JHP)
- -----------------------------------------------------------------------------------------------------
Year ended 12/31:
2006 14.29 1.31 .05 (.33) -- 1.03
2005 15.15 1.32 (.70) (.21) (.01) .40
8/1/04-12/31/04 14.71 .60 .46 (.05) -- 1.01
Year Ended 7/31:
2004(b) 14.38 1.38 .40 (.08) (.01) 1.69
2003(e) 14.33 .67 .22 (.04) -- .85
- -----------------------------------------------------------------------------------------------------
<Caption>
Less Distributions
------------------------------------------
Tax
Net Return of Offering
Investment Capital Capital Costs and Ending
Income to Gains to to FundPreferred Common
Common Common Common Share Share Ending
Share- Share- Share- Underwriting Net Asset Market
holders holders holders Total Discounts Value Value
- --------------------- --------------------------------------------------------------------------------
QUALITY PREFERRED INCOME (JTP)
- ---------------------
Year ended 12/31:
2006 $ (1.08) $ -- $ -- $(1.08) $ -- $ 14.10 $ 14.84
2005 (1.13) -- -- (1.13) -- 14.20 12.40
8/1/04-12/31/04 (.50) -- -- (.50) -- 14.92 14.00
Year Ended 7/31: --
2004(b) (1.25) -- -- (1.25) -- 14.40 13.96
2003 (1.25) -- -- (1.25) (.15) 14.10 14.59
2002(c) -- -- -- -- (.02) 14.12 15.15
QUALITY PREFERRED INCOME 2 (JPS)
- --------------------- --------------------------------------------------------------------------------
Year ended 12/31:
2006 (1.12) -- -- (1.12) -- 14.66 $ 15.12
2005 (1.16) (.18) -- (1.34) -- 14.77 12.80
8/1/04-12/31/04 (.53) (.18) -- (.71) -- 15.66 14.40
Year Ended 7/31:
2004(b) (1.32) (.04) -- (1.36) -- 15.32 14.61
2003(d) (.95) -- -- (.95) (.15) 14.97 14.65
QUALITY PREFERRED INCOME 3 (JHP)
- --------------------- --------------------------------------------------------------------------------
Year ended 12/31:
2006 (1.09) -- (.01) (1.10) -- 14.22 $ 14.92
2005 (1.17) (.09) -- (1.26) -- 14.29 12.92
8/1/04-12/31/04 (.51) (.06) -- (.57) -- 15.15 14.44
Year Ended 7/31:
2004(b) (1.24) (.12) -- (1.36) -- 14.71 14.34
2003(e) (.62) -- -- (.62) (.18) 14.38 14.36
- --------------------- --------------------------------------------------------------------------------
</Table>
* 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.
++ - Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders.
- Income ratios reflect income earned on assets attributable to
FundPreferred shares.
- For the periods presented below each ratio includes the effect of the
interest expense paid on interest rate swap transactions as follows:
<Table>
<Caption>
Ratio of Net Interest Expense to Average
Net Assets Applicable to Common Shares
----------------------------------------
QUALITY PREFERRED INCOME (JTP)
Year Ended 7/31:
2003 .80%
2002(c) --
QUALITY PREFERRED INCOME 2 (JPS)
Year Ended 7/31:
2003(d) .58*
QUALITY PREFERRED INCOME 3 (JHP)
Year Ended 7/31:
2003(e) .51*
</Table>
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) The Funds changed their method of presentation for net interest expense on
interest rate swap transactions. The effect of this reclassification for
the fiscal year ended July 31, 2004, was as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------
Increase of Net Investment Income per share with a
corresponding
decrease in Net Realized/Unrealized Investment Gain
(Loss) $.14 $.11 $.11
Decrease in each of the Ratios of Expenses to Average Net
Assets Applicable to Common Shares with a corresponding
increase in
each of the Ratios of Net Investment Income to Average
Net Assets
Applicable to Common Shares .94% .71% .73%
</Table>
(c) For the period June 25, 2002 (commencement of operations) through July 31,
2002.
(d) For the period September 24, 2002 (commencement of operations) through
July 31, 2003.
(e) For the period December 18, 2002 (commencement of operations) through July
31, 2003.
44
<Table>
<Caption>
Ratios/Supplemental Data
----------------------------------------------------------------------------------------
Ratios to Average Net Assets Ratios to Average Net Assets
Applicable to Common Shares Applicable to Common Shares
Total Returns Before Credit/Reimbursement After Credit/Reimbursement***
----------------- ----------------------------- -----------------------------
Based
on
Common Ending Net
Based Share Assets
on Net Applicable Net Net Portfolio
Market Asset to Common Investment Investment Turnover
Value** Value** Shares (000) Expenses++ Income++ Expenses++ Income++ Rate
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
29.51% 7.26% $ 909,608 1.50% 8.70% 1.02% 9.18% 34%
(3.69) 2.89 915,598 1.49 8.47 1.02 8.94 19
3.79 7.10 961,583 1.49* 9.15* 1.02* 9.62* 8
4.20 11.17 927,892 1.51 8.87 1.04 9.33 18
4.95 9.15 907,746 2.38 8.84 1.91 9.31 45
1.00 (1.47) 880,006 .96* 4.51* .64* 4.83* 1
- -----------------------------------------------------------------------------------------------------------------
27.75 7.09 1,753,392 1.42 8.72 .95 9.19 34
(2.06) 3.01 1,765,543 1.40 8.32 .94 8.78 17
3.34 6.94 1,872,283 1.40* 8.69* .94* 9.14* 6
8.98 11.60 1,830,878 1.41 8.64 .95 9.10 19
4.02 11.22 1,789,809 1.99* 7.59* 1.54* 8.04* 35
- -----------------------------------------------------------------------------------------------------------------
25.00 7.49 336,540 1.56 8.81 1.08 9.29 39
(2.16) 2.88 337,858 1.54 8.48 1.07 8.96 16
4.64 6.81 358,197 1.54* 9.03* 1.07* 9.50* 7
9.36 11.93 347,900 1.55 8.75 1.08 9.22 17
(.19) 4.62 339,499 1.97* 7.14* 1.53* 7.58* 57
- -----------------------------------------------------------------------------------------------------------------
<Caption>
FundPreferred Shares at End of Period
---------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Per Coverage
(000) Share Per Share
- --- ---------------------------------------
- --- ---------------------------------------
$ 440,000 $ 25,000 $ 76,682
440,000 25,000 77,023
440,000 25,000 79,635
440,000 25,000 77,721
440,000 25,000 76,577
-- -- --
- --- ---------------------------------------
800,000 25,000 79,794
800,000 25,000 80,173
800,000 25,000 83,509
800,000 25,000 82,215
800,000 25,000 80,932
- --- ---------------------------------------
166,000 25,000 75,684
166,000 25,000 75,882
166,000 25,000 78,945
166,000 25,000 77,395
166,000 25,000 76,129
- ---
</Table>
See accompanying notes to financial statements.
45
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 ten. 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.
<Table>
<Caption>
NUMBER OF PORTFOLIOS
PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS WITH THE FUNDS OR APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
- -------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS:
- -------------------------------------------------------------------------------------------------------------------------------
Timothy R. Chairman of the 1994 Chairman (since 1996) and Director 172
Schwertfeger(1) Board and Board of Nuveen Investments, Inc., Nuveen
3/28/49 Member Investments, LLC; Chairman and
333 W. Wacker Drive Director (since 1997) of Nuveen
Chicago, IL 60606 Asset Management; Chairman and
Director of Rittenhouse Asset
Management, Inc. (since 1999);
Chairman of Nuveen Investments
Advisers Inc. (since 2002);
formerly, Chairman and Director
(1996-2004) Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.(3); formerly, Director
(1996-2006) of Institutional
Capital Corporation.
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
- -------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Lead Independent 1997 Private Investor and Management 172
8/22/40 Board member Consultant.
333 W. Wacker Drive
Chicago, IL 60606
- -------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Board member 1993 Retired (since 1989) as Senior Vice 172
7/29/34 President of The Northern Trust
333 W. Wacker Drive Company; Director (since 2002)
Chicago, IL 60606 Community Advisory Board for
Highland Park and Highwood, United
Way of the North Shore; Director
(since 2006) of the Michael Rolfe
Pancreatic Cancer Foundation.
- -------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Board member 1999 President, The Hall-Perrine 172
10/22/48 Foundation, a private philanthropic
333 W. Wacker Drive corporation (since 1996); Director
Chicago, IL 60606 and Vice Chairman, United Fire
Group, a publicly held company;
Adjunct Faculty Member, 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, Tippie College of Business, 172
3/6/48 University of Iowa (since July
333 W. Wacker Drive 2006); formerly, Dean and
Chicago, IL 60606 Distinguished Professor of Finance,
School of Business at the
University of Connecticut
(2003-2006); previously, Senior
Vice President and Director of
Research at the Federal 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 Director, Northwestern Mutual 170
10/28/42 Wealth Management Company; Retired
333 W. Wacker Drive (since 2004) as Chairman, JPMorgan
Chicago, IL 60606 Fleming Asset Management, President
and CEO, Banc One Investment
Advisors Corporation, and
President, One Group Mutual Funds;
prior thereto, Executive Vice
President, Banc One Corporation and
Chairman and CEO, Banc One
Investment Management Group; Board
of Regents, Luther College; member
of the Wisconsin Bar Association;
member of Board of Directors,
Friends of Boerner Botanical
Gardens; member of Board of
Directors, Milwaukee Repertory
Theater.
</Table>
46
<Table>
<Caption>
NUMBER OF PORTFOLIOS
PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS WITH THE FUNDS OR APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
- -------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
- -------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Chairman of Miller-Valentine 172
9/24/44 Partners Ltd., a real estate
333 W. Wacker Drive investment company; formerly,
Chicago, IL 60606 Senior Partner and Chief Operating
Officer (retired, 2004) of
Miller-Valentine 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 172
12/29/47 Dorothy Donnelley Foundation (since
333 W. Wacker Drive 1994); prior thereto, Executive
Chicago, IL 60606 Director, Great Lakes Protection
Fund (from 1990 to 1994).
- -------------------------------------------------------------------------------------------------------------------------------
Carole E. Stone Board Member 2007 Director, Chicago Board Options 172
6/28/47 Exchange (since 2006); Chair New
333 West Wacker Drive York Racing Association Oversight
Chicago, IL 60606 Board (since 2005); Commissioner,
New York State Commission on Public
Authority Reform (since 2005);
formerly Director, New York State
Division of the Budget (2000-2004),
Chair, Public Authorities Control
Board (2000-2004) and Director,
Local Government Assistance
Corporation (2000-2004).
- -------------------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine Board member 2005 Senior Vice President for Business 172
1/22/50 and Finance, Northwestern
333 W. Wacker Drive University (since 1997); Director
Chicago, IL 60606 (since 2003), Chicago Board Options
Exchange; 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;
Director (since 2006), Pathways, a
provider of therapy and related
information for physically disabled
infants and young children;
formerly, Director (2003-2006),
National Mentor Holdings, a
privately-held, national provider
of home and community-based
services.
</Table>
47
Board Members
AND OFFICERS (CONTINUED)
<Table>
<Caption>
NUMBER OF PORTFOLIOS
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER
- -------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND:
- -------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), 172
9/9/56 Administrative Assistant Secretary and Associate
333 W. Wacker Drive Officer General Counsel, formerly, Vice
Chicago, IL 60606 President and Assistant General
Counsel, of Nuveen Investments,
LLC; 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.; Assistant
Secretary of Symphony Asset
Management LLC (since 2003),
Tradewinds NWQ Global Investors,
LLC and Santa Barbara Asset
Management, LLC; (since 2006);
Chartered Financial Analyst.
- -------------------------------------------------------------------------------------------------------------------------------
Julia L. Antonatos Vice President 2004 Managing Director (since 2005), 172
9/22/63 formerly, Vice President (since
333 W. Wacker Drive 2002); formerly, Assistant Vice
Chicago, IL 60606 President (since 2000) of Nuveen
Investments, LLC; Chartered
Financial Analyst.
- -------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), 172
2/3/66 and Assistant formerly, Assistant Vice President
333 W. Wacker Drive Secretary (since 2000) of Nuveen Investments,
Chicago, IL 60606 LLC.
- -------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President and Treasurer of 172
11/28/67 Nuveen Investments, LLC and of
333 W. Wacker Drive Nuveen Investments, Inc. (since
Chicago, IL 60606 1999); 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); Treasurer of Symphony Asset
Management LLC (since 2003) and
Santa Barbara Asset Management, LLC
(since 2006); Assistant Treasurer,
Tradewinds NWQ Global Investors,
LLC (since 2006); formerly, Vice
President and Treasurer (1999-2004)
of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.(3);
Chartered Financial Analyst.
- -------------------------------------------------------------------------------------------------------------------------------
John N. Desmond Vice President 2005 Vice President, Director of 172
8/24/61 Investment Operations, Nuveen
333 W. Wacker Drive Investments, LLC (since January
Chicago, IL 60606 2005); formerly, Director, Business
Manager, Deutsche Asset Management
(2003- 2004), 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).
</Table>
48
<Table>
<Caption>
NUMBER OF PORTFOLIOS
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER
- -------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 1998 Vice President (since 2002), 172
9/24/64 and Secretary Assistant Secretary and Assistant
333 W. Wacker Drive General Counsel (since 1998)
Chicago, IL 60606 formerly, Assistant Vice President
(since 1998) of Nuveen Investments,
LLC; 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), 172
10/24/45 formerly, Vice President of Nuveen
333 W. Wacker Drive Investments, LLC, Managing Director
Chicago, IL 60606 (2004) formerly, Vice President
(1998-2004) of Nuveen Advisory
Corp. and Nuveen Institutional
Advisory Corp.(3); Managing
Director (since 2005) of Nuveen
Asset Management.
- -------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002), 172
3/2/64 formerly, Vice President of Nuveen
333 W. Wacker Drive Investments, LLC; Managing Director
Chicago, IL 60606 (1997-2004) of Nuveen Advisory
Corp. and Nuveen Institutional
Advisory Corp.(3); Managing
Director (since 2001) of Nuveen
Asset Management; Vice President
(since 2002) of Nuveen Investments
Advisers Inc.; Chartered Financial
Analyst.
- -------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and 172
5/31/54 and Controller Funds Controller (since 1998) of
333 W. Wacker Drive Nuveen Investments, LLC; formerly,
Chicago, IL 60606 Vice President and Funds Controller
(1998-2004) of Nuveen Investments,
Inc.; Certified Public Accountant.
- -------------------------------------------------------------------------------------------------------------------------------
Walter M. Kelly Chief Compliance 2003 Vice President and Assistant 172
2/24/70 Officer and Vice Secretary (since 2006) formerly,
333 West Wacker Drive President Assistant Vice President and
Chicago, IL 60606 Assistant General Counsel (since
2003) of Nuveen Investments, LLC;
Vice President (since 2006) and
Assistant Secretary (since 2003)
formerly, Assistant Vice President
of Nuveen Asset Management;
previously, Associate (2001-2003)
at the law firm of Vedder, Price,
Kaufman & Kammholz.
- -------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of 172
3/22/63 Nuveen Investments, LLC; Certified
333 W. Wacker Drive Public Accountant.
Chicago, IL 60606
- -------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President of Nuveen 172
8/27/61 Investments, LLC (since 1999).
333 W. Wacker Drive
Chicago, IL 60606
</Table>
49
Board Members
AND OFFICERS (CONTINUED)
<Table>
<Caption>
NUMBER OF PORTFOLIOS
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER
- -------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary 172
7/27/51 and Assistant and Assistant General Counsel of
333 W. Wacker Drive Secretary Nuveen Investments, LLC; formerly,
Chicago, IL 60606 Vice President and Assistant
Secretary of Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.(3); Vice President (since
2005) and Assistant Secretary of
Nuveen Investments, Inc.; Vice
President (since 2005) and
Assistant Secretary (since 1997) of
Nuveen Asset Management; Vice
President (since 2000), Assistant
Secretary and 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), Symphony
Asset Management LLC (since 2003)
and Tradewinds NWQ Global
Investors, LLC and Santa Barbara
Asset Management, LLC (since 2006).
</Table>
(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 a three year 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.
50
Reinvest Automatically
EASILY AND CONVENIENTLY
NUVEEN CLOSED-END FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Fund allows you to conveniently reinvest dividends and/or
capital gains distributions in additional fund shares
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of 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
NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO
SET UP YOUR REINVESTMENT ACCOUNT.
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.
51
AUTOMATIC DIVIDEND
REINVESTMENT PLAN
NOTICE OF AMENDMENT TO THE TERMS AND CONDITIONS
Each of the Funds amended the terms and conditions of its Automatic Dividend
Reinvestment Plan (the "Plan") as further described below effective the close of
business on December 1, 2006. THESE CHANGES ARE INTENDED TO ENABLE PLAN
PARTICIPANTS UNDER CERTAIN CIRCUMSTANCES TO REINVEST FUND DISTRIBUTIONS AT A
LOWER AGGREGATE COST THAN WAS POSSIBLE UNDER THE TERMS OF THE PLAN PRIOR TO
AMENDMENT. Shareholders who do not wish to continue as participants under the
amended Plan may withdraw from the Plan by notifying the Plan Agent.
Participants should refer to their Plan document for notification instructions,
or may simply call Nuveen at (800) 257-8787.
Fund shareholders who elect to participate in the Plan are able to have Fund
distributions consisting of income dividends, realized capital gains and returns
of capital automatically reinvested in additional Fund shares. Under the Plan's
terms prior to amendment, the Plan Agent purchased Fund shares in the open
market if the Fund's shares were trading at a discount to their net asset value
on the payable date for the distribution. If the Fund's shares were trading at
or above their net asset value on the payable date for the distribution, the
Plan Agent purchased newly-issued Fund shares directly from the Fund at a price
equal to the greater of the shares' net asset value or 95% of the shares' market
value.
Under the Plan's amended terms, if the Plan Agent begins purchasing Fund shares
on the open market while shares are trading below net asset value, but the
Fund's shares subsequently trade at or above their net asset value before the
Plan Agent is able to complete its purchases, the Plan Agent may cease
open-market purchases and may invest the uninvested portion of the distribution
in newly-issued Fund shares at a price equal to the greater of the shares' net
asset value or 95% of the shares' market value. This change permits Plan
participants under these circumstances to reinvest Fund distributions at a lower
aggregate cost than was possible under the terms of the Plan prior to amendment.
52
Notes
53
Notes
54
OTHER USEFUL
INFORMATION
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, 2006, 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.
DISTRIBUTION INFORMATION
Nuveen Quality Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund
2 (JPS) and Nuveen Quality Preferred Income Fund 3 (JHP) designate 29.94%,
29.61% and 25.31%, respectively, of dividends declared from net investment
income as dividends qualifying for the 70% dividends received deduction for
corporations and 39.52%, 38.59% and 35.69%, respectively, as qualified dividend
income for individuals under the Jobs and Growth Tax Relief Reconciliation Act
of 2003.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
MARKET YIELD: Market yield is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Funds'
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any Preferred shares issued
in order to leverage the Fund) from its total assets and then dividing the
remainder by the number of shares outstanding. Fund NAVs are calculated at the
end of each business day.
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
Carole E. Stone
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
55
(BACK COVER PHOTO)
NUVEEN INVESTMENTS:
SERVING INVESTORS
FOR GENERATIONS
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past
century, Nuveen Investments has adhered to the belief that the best
approach to investing is to apply conservative risk-management principles
to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity
and fixed-income solutions that are integral to a well-diversified core
portfolio. Our clients have come to appreciate this diversity, as well as
our continued adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT
NEEDS.
Managing $162 billion in assets, as of December 31, 2006, Nuveen
Investments offers access to a number of different asset classes and
investing solutions through a variety of products. Nuveen Investments
markets its capabilities under six distinct brands: Nuveen, a leader in
fixed-income investments; NWQ, a leader in value-style equities;
Rittenhouse, a leader in growth-style equities; Symphony, a leading
institutional manager of market-neutral alternative investment
portfolios; Santa Barbara, a leader in growth equities; and Tradewinds
NWQ, a leader in global equities.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers,
talk to your financial advisor, or call us at (800) 257-8787. Please read
the information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should
consider the investment objective and policies, risk considerations,
charges and expenses of the Fund carefully before investing. The
prospectus contains this and other information relevant to an investment
in the Fund. For a prospectus, please contact your securities
representative or Nuveen Investments, 333 W. Wacker Dr., Chicago, IL
60606. Please read the prospectus carefully before you invest or send
money.
LEARN MORE
ABOUT NUVEEN FUNDS AT
WWW.NUVEEN.COM/CEF
- Share prices
- Fund details
- Daily financial news
- Investor education
- Interactive planning tools
EAN-E-1206D
NUVEEN LOGO
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 Quality Preferred Income Fund 2
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP the Audit Committee approved in advance all
audit services and non-audit services that Ernst & Young LLP provided to the
Fund, except for those non-audit services that were subject to the pre-approval
exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The
pre-approval exception for services provided directly to the Fund waives the
pre-approval requirement for services other than audit, review or attest
services if: (A) the aggregate amount of all such services provided constitutes
no more than 5% of the total amount of revenues paid by the Fund to its
accountant during the fiscal year in which the services are provided; (B) the
Fund did not recognize the services as non-audit services at the time of the
engagement; and (C) the services are promptly brought to the Audit Committee's
attention, and the Committee (or its delegate) approves the services before the
audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND (1) BILLED TO FUND (2) BILLED TO FUND (3) BILLED TO FUND (4)
- --------------------------------------------------------------------------------------------------------------------
December 31, 2006 $ 30,313 $ 0 $ 800 $ 3,950
- --------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
- --------------------------------------------------------------------------------------------------------------------
December 31, 2005 $ 28,211 $ 0 $ 3,823 $ 3,750
- --------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
- --------------------------------------------------------------------------------------------------------------------
(1) "Audit Fees" are the aggregate fees billed for professional services for the
audit of the Fund's annual financial statements and services provided in
connection with statutory and regulatory filings or engagements.
(2) "Audit Related Fees" are the aggregate fees billed for assurance and related
services reasonably related to the performance of the audit or review of
financial statements and are not reported under "Audit Fees".
(3) "Tax Fees" are the aggregate fees billed for professional services for tax
advice, tax compliance, and tax planning.
(4) "All Other Fees" are the aggregate fees billed for products and services
other than "Audit Fees", "Audit Related Fees", and "Tax Fees".
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 (1) SERVICE PROVIDERS
- ----------------------------------------------------------------------------------------------------------------
December 31, 2006 $ 0 $ 5,400 $ 0
- ----------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
- ----------------------------------------------------------------------------------------------------------------
December 31, 2005 $ 0 $ 4,950 $ 0
- ----------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
- ----------------------------------------------------------------------------------------------------------------
(1) The amounts reported for the Fund under the column heading "Tax Fees"
represents amounts billed to the Adviser exclusively for the preparation for the
Fund's tax return, the cost of which is borne by the Adviser. In the aggregate,
for all Nuveen funds for which Ernst & Young LLP serves as independent
registered public accounting firm, these fees amounted to $288,000 in 2006 and
$282,575 in 2005.
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, 2006 $ 4,750 $ 5,400 $ 0 $ 10,150
December 31, 2005 $ 7,573 $ 4,950 $ 0 $ 12,523
"Non-Audit Fees billed to Adviser" for both fiscal year ends represent "Tax
Fees" billed to Adviser in their respective amounts from the previous table.
Audit Committee Pre-Approval Policies and Procedures. Generally, the Audit
Committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the Audit Committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the Audit Committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the Audit Committee at
the next Audit Committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant's Board 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" or
"Sub-Adviser") as Sub-Adviser to provide discretionary investment advisory
services. As part of these services, the Adviser has also delegated to the
Sub-Adviser the full responsibility for proxy voting and related duties in
accordance with the Sub-Adviser's policy and procedures. The Adviser
periodically will monitor the Sub-Adviser's voting to ensure that they are
carrying out their duties. The Sub-Adviser's proxy voting policies and
procedures are summarized as follows:
Spectrum has adopted a Policy on Proxy Voting for Investment Advisory
Clients (the "Voting Policy"), which provides that Spectrum aims to ensure that,
when delegated proxy voting authority by a client, Spectrum act (1) solely in
the interest of the client in providing for ultimate long-term stockholder
value, and (2) without undue influence from individuals or groups who may have
an economic interest in the outcome of a proxy vote. Spectrum relies on the
custodian bank to deliver proxies to Spectrum for voting.
Spectrum has selected Institutional Shareholder Services, Inc. ("ISS") to
assist with Spectrum's proxy voting responsibilities. Spectrum generally follows
ISS standard proxy voting guidelines which embody the positions and factors
Spectrum considers important in casting proxy votes. In connection with each
proxy vote, ISS prepares a written analysis and recommendation based on its
guidelines. In order to avoid any conflict of interest for ISS, the CCO will
require ISS to deliver additional information or certify that ISS has adopted
policies and procedures to detect and mitigate such conflicts of interest in
issuing voting recommendations. Spectrum also may obtain voting recommendations
from two proxy voting services as an additional check on the independence of
ISS' voting recommendations.
Spectrum may, on any particular proxy vote, diverge from ISS' guidelines
or recommendations. In such a case, Spectrum's Voting Policy requires that: (i)
the requesting party document the reason for the request; (ii) the approval of
the Chief Investment Officer; (iii) notification to appropriate compliance
personnel; (iv) a determination that the decision is not influenced by any
conflict of interest; and (v) a written record of the process.
When Spectrum determines not to follow ISS' guidelines or recommendations,
Spectrum classifies proxy voting issues into three broad categories: (1) Routine
Administrative Items; (2) Special Interest Issues; and (3) Issues having the
Potential for Significant Economic Impact, and casts proxy votes in accordance
with the philosophy and decision guidelines developed for that category in the
Voting Policy.
- Routine Administrative Items. Spectrum is willing to defer to
management on matters a routine administrative nature. Examples of
issues on which Spectrum will normally defer to management's
recommendation include selection of auditors, increasing the authorized
number of common shares and the election of unopposed directors.
- Special Interest Issues. In general, Spectrum will abstain from
voting on shareholder social, political, environmental
proposals because their long-term impact on share value cannot
be calculated with any reasonable degree of confidence.
- Issues Having the Potential for Significant Economic Impact. Spectrum
is not willing to defer to management on proposals which have the
potential for major economic impact on the corporation and value of its
shares and believes such issues should be carefully analyzed and
decided by shareholders. Examples of such issues are classification of
board of directors' cumulative voting and supermajority provisions,
defensive strategies (e.g., greenmail prevention), business
combinations and restructurings and executive and director
compensation.
Conflicts of Interest. There may be a material conflict of interest when
Spectrum votes, on behalf of a client, a proxy that is solicited by an
affiliated person of Spectrum or another Spectrum client. To avoid such
conflicts, Spectrum has established procedures under its Voting Policy to seek
to ensure that voting decisions are based on a client's best interests and are
not the product of a material conflict. In addition to employee monitoring for
potential conflicts, the CCO reviews Spectrum's and its affiliates' material
business relationships and personal and financial relationships of senior
personnel of Spectrum and its affiliates to monitor for conflicts of interest.
If a conflict of interest is identified, Spectrum considers both financial
and non-financial materiality to determine if a conflict of interest is
material. If a material conflict of interest is found to exist, the CCO
discloses the conflict to affected clients and obtains consent from each client
in the manner in which Spectrum proposed to vote.
Spectrum clients can obtain a copy of the Voting Policy or information on
how Spectrum voted their proxies by calling Spectrum's Compliance Department at
(203) 322-0189.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The Adviser has engaged Spectrum Asset Management, Inc. (the "Sub-Adviser") as
sub-adviser to provide discretionary investment advisory services. The following
section provides information on the portfolio managers at the Sub-Adviser.
A. PORTFOLIO MANAGER BIOGRAPHIES:
MARK A. LIEB - Mr. Lieb is Chief Financial Officer and is responsible for
business development. Prior to founding Spectrum in 1987, Mr. Lieb was a
Founder, Director and Partner of DBL Preferred Management, Inc., a wholly owned
corporate cash management subsidiary of Drexel Burnham Lambert, Inc. Mr. Lieb
was instrumental in the formation and development of all aspects of DBL
Preferred Management, Inc., including the daily management of preferred stock
portfolios for institutional clients, hedging strategies, and marketing
strategies. Mr. Lieb's prior employment included the development of the
preferred stock trading desk at Mosley Hallgarten & Estabrook. BA Economics,
Central Connecticut State College; MBA Finance, University of Hartford.
L. PHILLIP JACOBY, IV - Managing Director and Senior Portfolio Manager. Mr.
Jacoby joined Spectrum in 1995 as Portfolio Manager. Previously, Mr. Jacoby was
a Senior Investment Officer at USL Capital Corporation (a subsidiary of Ford
Motor Corporation) and was a co-manager of a the preferred stock portfolio of
its US Corporate Financing Division for six years. Mr. Jacoby began his career
in 1981 with The Northern Trust Company, Chicago and then moved to Los Angeles
to join E.F. Hutton & Co. as a Vice President and Institutional Salesman,
Generalist Fixed Income Sales through most of the 1980s. BSBA (Finance), Boston
University School of Management.
BERNARD M. SUSSMAN - Mr. Sussman is Chief Investment Officer and Chairman of
Spectrum's Investment Committee. Prior to joining Spectrum in 1995, Mr. Sussman
was with Goldman Sachs & Co. for nearly 18 years. A General Partner and head of
the Preferred Stock Department, he was in charge of sales, trading and
underwriting for all preferred products and was instrumental in the development
of the hybrid (MIPS) market. He was a Limited Partner at Goldman Sachs from
December 1994 through November 1996. BS Industrial Relations and MBA Finance,
Cornell University. NASD Series 55 "Equity Trader Limited Representative".
B. OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
TYPE OF ACCOUNT NUMBER OF
PORTFOLIO MANAGER MANAGED ACCOUNTS ASSETS*
- ----------------- ------------------------------ --------- --------------
Phillip Jacoby Separately Managed accounts 32 $2,482,964,695
Pooled Accounts 16 $2,254,008,805
Registered Investment Vehicles 10 $7,981,784,022
Mark Lieb Separately Managed accounts 41 $2,491,238,774
Pooled Accounts 16 $2,254,008,805
Registered Investment Vehicles 10 $7,981,784,022
Bernard Sussman Separately Managed accounts 37 $2,488,012,550
Pooled Accounts 16 $2,254,008,805
Registered Investment Vehicles 10 $7,981,784,022
C. POTENTIAL MATERIAL CONFLICTS OF INTEREST
There are no material conflicts of interest to report.
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:
- Changes in overall firm assets under management (employees have no
direct incentive to increase assets)
- Portfolio performance relative to benchmarks
- Contribution to client servicing
- Compliance with firm and/or regulatory policies and procedures
- Work ethic
- Seniority and length of service
- Contribution to overall functioning of organization
E. OWNERSHIP OF JPS SECURITIES AS OF DECEMBER 31, 2006
DOLLAR RANGE OF EQUITY
SECURITIES BENEFICIALLY
NAME OF PORTFOLIO MANAGER OWNED IN FUND
- ------------------------- -----------------------
Phillip Jacoby $ 0
Mark Lieb $ 100,001-$500,000
Bernard Sussman $$100,001-$500,000
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board implemented after the registrant
last provided disclosure in response to this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of this report that
includes the disclosure required by this paragraph, based on their
evaluation of the controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because the code is posted on registrant's website at www.nuveen.com/etf and
there were no amendments during the period covered by this report. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then Code of Conduct.)
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
Attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Quality Preferred Income Fund 2
By (Signature and Title)* /s/ Jessica R. Droeger
------------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: March 9, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: March 9, 2007
By (Signature and Title)* /s/ Stephen D. Foy
------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: March 9, 2007
* Print the name and title of each signing officer under his or her signature.