UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21137
-----------------------
Nuveen Quality Preferred Income Fund 2
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Kevin J. McCarthy
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
---------------------
Date of fiscal year end: December 31
-------------------
Date of reporting period: December 31, 2007
-----------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO SHAREHOLDERS
Annual Report
DECEMBER 31, 2007
Nuveen Investments
CLOSED-END FUNDS
NUVEEN QUALITY
PREFERRED INCOME
FUND
JTP
NUVEEN QUALITY
PREFERRED INCOME
FUND 2
JPS
NUVEEN QUALITY
PREFERRED INCOME
FUND 3
JHP
High Current Income from a Portfolio of
Investment-Grade Preferred Securities
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<Table>
www.investordelivery.com OR www.nuveen.com/accountaccess
If you received your Nuveen Fund If you received your Nuveen Fund
dividends and statements from your dividends and statements directly from
financial advisor or brokerage Nuveen.
account.
</Table>
NUVEEN INVESTMENTS LOGO
Chairman's
LETTER TO SHAREHOLDERS
<Table>
(TIMOTHY
SCHWERTFEGER
PHOTO) Timothy R. Schwertfeger Chairman of the Board
</Table>
Dear Shareholder:
Once again, I am pleased to report that over the twelve-month period covered by
this report your Fund continued to provide you with attractive income. For more
details about the management strategy and performance of your Fund, please read
the Portfolio Managers' Comments, the Distribution and Share Price Information,
and the Performance Overview sections of this report.
With the recent volatility in the stock market, many have begun to wonder which
way the market is headed, and whether they need to adjust their holdings of
investments. No one knows what the future will bring, which is why we think a
well-balanced portfolio that is structured and carefully monitored with the help
of an investment professional is an important component in achieving your
long-term financial goals. A well-diversified portfolio may actually help to
reduce your overall investment risk, and we believe that investments like your
Nuveen Investments Fund can be important building blocks in a portfolio crafted
to perform well through a variety of market conditions.
We are grateful that you have chosen us as a partner as you pursue your
financial goals and we look forward to continuing to earn your trust in the
months and years ahead. At Nuveen Investments, our mission continues to be to
assist you and your financial advisor by offering investment services and
products that can help you to secure your financial objectives.
Sincerely,
(TIMOTHY SCHWERTFEGER SIG)
Timothy R. Schwertfeger
Chairman of the Board
February 15, 2008
Portfolio Managers' COMMENTS
NUVEEN INVESTMENTS CLOSED-END FUNDS JTP, JPS, JHP
The Nuveen Quality Preferred Income Funds are sub-advised by a team of
specialists at Spectrum Asset Management, an affiliate of Principal Capital(SM).
Mark Lieb, Bernie Sussman and Phil Jacoby, who have more than 50 years of
combined experience in the preferred securities markets, lead the team and have
managed the Funds since their inceptions in 2002. Here Mark, Bernie and Phil
talk about market conditions, their management strategy and the performance of
each Fund for the twelve-month period ended December 31, 2007.
WHAT WERE THE GENERAL ECONOMIC CONDITIONS AND MARKET TRENDS DURING THE ANNUAL
REPORTING PERIOD ENDED DECEMBER 31, 2007?
During the first part of the period, equities generally performed well as
favorable corporate earnings and export-driven economic growth were sufficient
to offset some growing anxiety over the deteriorating housing and mortgage
markets. The second half of the period was dominated by concerns about the
impact of sub-prime mortgage defaults and fears of a recession, especially as
the sub-prime market's impact began to spread beyond mortgage lenders to
international and domestic money center banks and other financial institutions.
When August data began to show the potential for a severely weakening economy,
the Federal Reserve cut the widely followed short-term fed funds rate by a half
a percentage point in September, by another quarter of a point in October and
yet another quarter point in December. (On January 22 and 29, 2008, after the
close of this reporting period, the Federal Reserve cut the fed funds rate by a
combined 1.25%, bringing the rate to 3.00%.)
- --------------------------------------------------------------------------------
Discussions of specific investments are for illustrative purposes only and are
not intended as recommendations of individual investments. The views expressed
in this commentary represent those of the portfolio managers as of the date of
this report and are subject to change at any time, based on market conditions
and other factors. The Funds disclaim any obligation to advise shareholders of
such changes.
- --------------------------------------------------------------------------------
The financial services sector volatility caused by the sub-prime mortgage crisis
severely impacted the preferred securities market, especially in the second half
of the year. With over 70% of preferred securities coming from issuers in the
financial service sector, the fourth quarter of 2007 was the worst quarter on
record for the $25 par market. These securities, as well as $1000 par capital
market preferreds, experienced heavy selling (exacerbated by year-end tax loss
selling) late in 2007, as the Merrill Lynch Preferred Stock Hybrid Securities
Index fell by more than 9% in the fourth quarter alone. Fannie Mae sold $7
billion of a $25 par issue, Freddie Mac offered $6 billion of a similar
structure, and Citigroup issued $3.5 billion of $1000 par preferred securities.
Given the total size and number of all the transactions and the negative market
environment in which they were offered, new issues needed to be "priced to
sell." While this ensured that most of the issuance was well received, it caused
large price declines among existing securities in the secondary market as yields
needed to adjust to reflect the new reality created by the most recent
offerings. Overall there was about
4
$40 billion of new supply in the fourth quarter. Preferred issuance reached
$120.6 billion in 2007, a new record.
WHAT KEY STRATEGIES WERE USED TO MANAGE THE FUNDS DURING THIS REPORTING PERIOD?
Although all the Funds had to contend with a relatively heavy number of calls
during this period, we strove to maintain an approximate 60/40 portfolio mix
between the $25 par (retail driven) sector and the $1000 par capital securities
(institutionally driven) sector. We started 2007 buying mainly $25 par
securities, but six months later we were purchasing more capital securities as
the relative attractiveness between the two sectors had shifted.
Beginning in August, the sub-prime mortgage crisis began to take its toll on the
preferred market. In particular, the $25 par market experienced an unusually
high sell-off. With approximately 55% of the each Fund allocated to $25 par
securities, our management options were constrained by the near breakdown of the
market. In addition, with over 70% of all preferreds issued by firms in the
financial service sector, securities that seemed to present attractive buying
opportunities saw their immediate-term prospects overwhelmed by the massive
selling pressure affecting the entire market.
While we did have some opportunities to buy attractively priced preferred stock
issued by certain U.S. government agencies, we were disappointed by what we
considered to be their relatively weak call protection. We felt that too many
non-traditional preferred securities buyers were willing to give up call
protection at the very time that the issuers had no choice but to provide it if
buyers insisted. As a result, when the new issues were announced the secondary
markets experienced large price declines. We were able to buy some agency issues
at discounts, which we believed would benefit the Funds' earnings and returns in
the future. We also had one of our busiest days on the last trading day of 2007
when the availability of some deep discounts allowed the Funds to buy at bargain
prices.
HOW DID THE FUNDS PERFORM OVER THIS TWELVE-MONTH PERIOD?
The performance of JTP, JPS and JHP, as well as their comparative indices and
benchmarks, are presented in the accompanying table.
Average Annual Total Returns on Net Asset Value
For the periods ended 12/31/07
<Table>
<Caption>
1-Year 5-Year
------ ------
JTP -15.32% 3.80%
JPS -14.32% 4.02%
JHP -16.01% 3.04%
Lehman Brothers
Aggregate Bond Index(1) 6.97% 4.42%
Comparative Benchmark(2) -8.6% 3.12%
</Table>
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Past performance does not guarantee future results. Current performance may be
higher or lower than the data shown.
Returns do not reflect the deduction of taxes that shareholders may have to pay
on Fund distributions or upon the sale of Fund shares. For additional
information, see the individual Performance Overview for your Fund in this
report.
- --------------------------------------------------------------------------------
5
For the twelve months ended December 31, 2007, the total returns on net asset
value for all three Funds underperformed the unleveraged, unmanaged Lehman
Brothers Aggregate Bond Index and their comparative benchmark. The comparative
benchmark's negative return shows clearly that 2007 presented a very challenging
and unforgiving market environment. The Fund's underperformance relative to the
benchmark was primarily due to their use of financial leverage. Over the past
year, leverage tended to exacerbate the price declines suffered by the Funds'
holdings. However, leverage is a strategy the Funds have used since their
inceptions and, as the five-year returns show, has made a positive contribution
to net performance over time. We believe this strategy will continue to provide
opportunities for enhanced distributions and total returns in the future.
In addition to leverage, the Funds were all negatively affected by the heavy
selling of financial services sector securities in the third and fourth quarters
of 2007. As noted, the fourth quarter was the worst quarter on record for $25
par securities, and the Funds' exposure to this retail-oriented market hurt
their absolute and relative performance as the $25 par market significantly
underperformed the institutionally oriented $1000 par market.
- --------------------------------------------------------------------------------
1 The Lehman Brothers Aggregate Bond Index is an unmanaged index that includes
all investment-grade, publicly issued, fixed-rate, dollar denominated,
nonconvertible debt issues and commercial mortgage backed securities with
maturities of at least one year and outstanding par values of $150 million or
more. Index returns do not include the effects of any sales charges or
management fees. It is not possible to invest directly in an index.
2 Comparative benchmark performance is a blended return consisting of: 1) 55% of
the Merrill Lynch Preferred Stock Hybrid Securities Index, an unmanaged index of
investment-grade, exchange traded preferred stocks with outstanding market
values of at least $30 million and at least one year to maturity; and 2) 45% of
the Lehman Tier 1 Capital Securities Index, an unmanaged index that includes
securities that can generally be viewed as hybrid fixed-income securities that
either receive regulatory capital treatment or a degree of "equity credit" from
a rating agency.
- --------------------------------------------------------------------------------
RECENT DEVELOPMENTS IN THE AUCTION RATE PREFERRED MARKETS
During February 2008, after the close of this reporting period, regularly
scheduled auctions for the FundPreferred(R) shares issued by your Fund began
attracting more shares for sale than offers to buy. This meant that these
auctions "failed to clear," and that many FundPreferred shareholders who wanted
to sell their shares in these auctions were unable to do so. It is important to
note this decline in liquidity did not lower the credit quality of these shares,
and that FundPreferred shareholders unable to sell their shares received
distributions at the "maximum rate" calculated in accordance with the
pre-established terms of the FundPreferred stock. At the time this report was
prepared, the Funds' managers could not predict when future auctions might
succeed in attracting sufficient buyers for the shares offered. The Funds'
managers are working diligently to develop mechanisms designed to improve the
liquidity of the FundPreferred shares, but at present there is no assurance that
those efforts will succeed.
These developments do not affect the management or investment policies of the
Funds. However, one implication of these auction failures for common
shareholders is that the Funds' cost of leverage will be higher than it
otherwise would have been had the auctions been successful. As a result, the
Funds' future common share earnings may be marginally lower than they otherwise
might have been.
6
Common Share
Distribution and Share Price
INFORMATION
The Funds employ financial leverage through the issuance of FundPreferred
shares. Financial leverage provides the potential for higher earnings (net
investment income), total returns and distributions over time, but -as noted
earlier- also increases the variability of common shareholders' net asset value
per share in response to changing market conditions. Financial leverage
contributed positively to the Funds' common share net earnings over the
reporting period, but detracted from the Funds' overall common share net total
return.
All three Funds declared monthly common share distributions over the course of
the period, including two common share distribution decreases in March and
September. In addition, JPS declared a long-term capital gains distribution in
April of $0.0437 per share.
During certain periods, the Funds may pay dividends at a rate that may be more
or less than the amount of net investment income actually earned by the Funds
during the period. If a Fund has cumulatively earned more than it has paid in
dividends, it holds excess in reserve as undistributed net investment income
(UNII) as part of the Fund's NAV. Conversely, if a Fund has cumulatively paid
dividends in excess of earnings, the excess constitutes negative UNII that is
likewise reflected in a Funds's NAV. As of December 31, 2007, JPS had a negative
UNII balance for financial statement purposes and a zero balance for tax
purposes, while JTP and JHP had positive UNII balances for financial statement
purposes and zero balances for tax purposes.
7
The following table provides information regarding each Fund's common share
distributions and total return performance for the fiscal year ended December
31, 2007. The distribution information is presented on a tax basis rather than
on a generally accepted accounting principles (GAAP) basis. This information is
intended to help you better understand whether the Funds' returns for the
specified time period were sufficient to meet each Funds' distributions.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------
As of 12/31/07 (Common Shares) JTP JPS JHP
- --------------------------------------------------------------------------------------------------
Inception date 6/25/02 9/24/02 12/18/02
Calendar year:
Per share distribution:
From net investment income $0.93 $1.04 $0.95
From short-term capital gains -- -- --
From long-term capital gains -- 0.04 --
From return of capital 0.09 0.04 0.10
------- ------- -------
Total per share distribution $1.02 $1.12 $1.05
======= ======= =======
Distribution rate on NAV 9.22% 9.68% 9.53%
Annualized total returns:
1-year on NAV -15.32% -14.32% -16.01%
5-year on NAV 3.80% 4.02% 3.04%
Since inception on NAV 3.30% 4.39% 3.02%
- --------------------------------------------------------------------------------------------------
</Table>
As of December 31, 2007, the Funds' shares were trading relative to their NAVs
as shown in the accompanying table:
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------
12/31/07 12-Month Average
Discount Discount
- ------------------------------------------------------------------------------------------------
JTP -6.60% -2.16%
JPS -6.57% -2.08%
JHP -4.63% -0.80%
- ------------------------------------------------------------------------------------------------
</Table>
8
<Table>
JTP Nuveen Quality
PERFORMANCE Preferred Income
OVERVIEW Fund
as of December 31, 2007
</Table>
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS)(2)
(PIE CHART)
<Table>
U.S. Government and Agency Obligations 0.10
Corporate Bonds 0.80
Short-Term Investments 1.60
Investment Companies 3.50
Capital Preferred Securities 41.40
$25 Par (or similar) Preferred Securities 52.60
</Table>
2007 MONTHLY DISTRIBUTIONS PER COMMON SHARE
(GRAPH)
<Table>
Jan 0.090
Feb 0.090
Mar 0.086
Apr 0.086
May 0.086
Jun 0.086
Jul 0.086
Aug 0.086
Sep 0.081
Oct 0.081
Nov 0.081
Dec 0.081
</Table>
COMMON SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE
(GRAPH)
<Table>
1/01/07 14.80
14.69
14.23
14.05
13.93
14.08
14.42
14.16
14.31
14.22
14.06
13.85
14.14
14.08
14.18
14.14
14.08
14.03
14.04
14.05
13.98
13.94
14.16
13.48
13.35
13.11
13.12
13.05
12.86
12.60
12.33
12.40
12.06
11.29
12.13
12.28
12.45
12.07
12.07
11.97
12.11
11.79
11.53
11.66
11.46
10.70
10.32
10.60
11.16
11.18
10.58
10.17
10.32
12/31/07 10.33
</Table>
FUND SNAPSHOT
<Table>
- -------------------------------------------------------------------------------------
Common Share Price $10.33
- -------------------------------------------------------------------------------------
Common Share
Net Asset Value $11.06
- -------------------------------------------------------------------------------------
Premium/(Discount) to NAV -6.60%
- -------------------------------------------------------------------------------------
Current Distribution Rate(1) 9.41%
- -------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $713,945
- -------------------------------------------------------------------------------------
</Table>
AVERAGE ANNUAL TOTAL RETURN
(INCEPTION 6/25/02)
<Table>
<Caption>
- --------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
- --------------------------------------------------------------------------------------
1-Year -24.60% -15.32%
- --------------------------------------------------------------------------------------
5-Year 0.79% 3.80%
- --------------------------------------------------------------------------------------
Since Inception 1.38% 3.30%
- --------------------------------------------------------------------------------------
</Table>
INDUSTRIES
(AS A % OF TOTAL INVESTMENTS)(2)
<Table>
- -------------------------------------------------------------------------------------
Commercial Banks 31.2%
- -------------------------------------------------------------------------------------
Insurance 19.1%
- -------------------------------------------------------------------------------------
Real Estate/Mortgage 12.8%
- -------------------------------------------------------------------------------------
Diversified Financial Services 9.8%
- -------------------------------------------------------------------------------------
Capital Markets 9.1%
- -------------------------------------------------------------------------------------
Media 3.7%
- -------------------------------------------------------------------------------------
Investment Companies 3.5%
- -------------------------------------------------------------------------------------
Short-Term Investments 1.6%
- -------------------------------------------------------------------------------------
Other 9.2%
- -------------------------------------------------------------------------------------
</Table>
TOP FIVE ISSUERS(3)
(AS A % OF TOTAL INVESTMENTS)
<Table>
- ------------------------------------------------------------------------------------
ING Groep N.V. 3.1%
- ------------------------------------------------------------------------------------
Banco Santander Finance 2.9%
- ------------------------------------------------------------------------------------
Deutsche Bank AG 2.9%
- ------------------------------------------------------------------------------------
HSBC Holdings Public Limited Company 2.4%
- ------------------------------------------------------------------------------------
AgFirst Farm Credit Bank 2.4%
- ------------------------------------------------------------------------------------
</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.
2 Excluding derivative transactions.
3 Excluding short-term investments and derivative transactions.
9
<Table>
JPS Nuveen Quality
PERFORMANCE Preferred Income
OVERVIEW Fund 2
as of December 31, 2007
</Table>
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS)(2)
(PIE CHART)
<Table>
U.S. Government and Agency Obligations 0.00
Corporate Bonds 0.40
Short-Term Investments 1.60
Investment Companies 3.30
Capital Preferred Securities 41.10
$25 Par (or similar) Preferred Securities 53.60
</Table>
2007 MONTHLY DISTRIBUTIONS PER COMMON SHARE
(BAR CHART)
<Table>
Jan 0.093
Feb 0.093
Mar 0.091
Apr 0.091
May 0.091
Jun 0.091
Jul 0.091
Aug 0.091
Sep 0.086
Oct 0.086
Nov 0.086
Dec 0.086
</Table>
COMMON SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE
(LINE GRAPH)
<Table>
1/01/07 15.12
14.89
14.55
14.57
14.45
14.47
14.83
14.67
14.95
14.66
14.52
14.52
14.86
14.78
14.82
14.81
14.70
14.72
14.62
14.60
14.60
14.49
14.71
13.94
13.90
13.65
13.79
13.58
13.41
13.10
12.78
12.95
12.55
11.90
12.69
12.76
12.91
12.52
12.63
12.50
12.68
12.37
12.09
12.14
11.97
11.05
10.76
10.90
11.59
11.70
11.22
10.70
10.91
12/31/07 10.81
</Table>
FUND SNAPSHOT
<Table>
- --------------------------------------------------------------------------------------
Common Share Price $10.81
- --------------------------------------------------------------------------------------
Common Share
Net Asset Value $11.57
- --------------------------------------------------------------------------------------
Premium/(Discount) to NAV -6.57%
- --------------------------------------------------------------------------------------
Current Distribution Rate(1) 9.55%
- --------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $1,386,125
- --------------------------------------------------------------------------------------
</Table>
AVERAGE ANNUAL TOTAL RETURN
(INCEPTION 9/24/02)
<Table>
<Caption>
- --------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
- --------------------------------------------------------------------------------------
1-Year -22.24% -14.32%
- --------------------------------------------------------------------------------------
5-Year 2.35% 4.02%
- --------------------------------------------------------------------------------------
Since
Inception 2.51% 4.39%
- --------------------------------------------------------------------------------------
</Table>
INDUSTRIES
(AS A % OF TOTAL INVESTMENTS)(2)
<Table>
- -------------------------------------------------------------------------------------
Commercial Banks 31.7%
- -------------------------------------------------------------------------------------
Insurance 18.9%
- -------------------------------------------------------------------------------------
Real Estate/Mortgage 12.4%
- -------------------------------------------------------------------------------------
Diversified Financial Services 9.6%
- -------------------------------------------------------------------------------------
Capital Markets 8.1%
- -------------------------------------------------------------------------------------
Media 3.4%
- -------------------------------------------------------------------------------------
Investment Companies 3.3%
- -------------------------------------------------------------------------------------
Short-Term Investments 1.6%
- -------------------------------------------------------------------------------------
Other 11.0%
- -------------------------------------------------------------------------------------
</Table>
TOP FIVE ISSUERS(3)
(AS A % OF TOTAL INVESTMENTS)
<Table>
- ------------------------------------------------------------------------------------
Wachovia Corporation 3.5%
- ------------------------------------------------------------------------------------
ING Groep N.V. 3.0%
- ------------------------------------------------------------------------------------
Deutsche Bank AG 2.5%
- ------------------------------------------------------------------------------------
Banco Santander Finance 2.4%
- ------------------------------------------------------------------------------------
Aegon N.V. 2.3%
- ------------------------------------------------------------------------------------
</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.
2 Excluding derivative transactions.
3 Excluding short-term investments and derivative transactions.
10
<Table>
JHP Nuveen Quality
PERFORMANCE Preferred Income
OVERVIEW Fund 3
as of December 31, 2007
</Table>
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS)
(PIE CHART)
<Table>
Corporate Bonds 0.40
Short-Term Investments 1.60
Investment Companies 4.00
Capital Preferred Securities 32.30
$25 Par (or similar) Preferred Securities 61.70
</Table>
2007 MONTHLY DISTRIBUTIONS PER COMMON SHARE
(GRAPH)
<Table>
Jan 0.0910
Feb 0.0910
Mar 0.0885
Apr 0.0885
May 0.0885
Jun 0.0885
Jul 0.0885
Aug 0.0885
Sep 0.0835
Oct 0.0835
Nov 0.0835
Dec 0.0835
</Table>
COMMON SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE
(GRAPH)
<Table>
1/01/07 14.9200
15.0000
14.6700
14.6500
14.6000
14.6600
14.7100
14.4300
14.5300
14.5400
14.2800
14.0200
14.2600
14.5100
14.4200
14.1700
14.3400
14.4300
14.2900
14.1600
14.1200
14.0600
14.3900
13.5900
13.7400
13.3300
13.3500
13.5100
13.1600
13.0800
12.4100
12.6499
12.4000
11.7700
12.2600
12.4300
12.7100
12.4500
12.1500
12.4000
12.3000
12.0500
11.6500
11.7100
11.5300
10.8400
10.3200
10.6600
11.6800
12.0400
10.8400
10.7500
10.6600
12/31/07 10.5100
</Table>
FUND SNAPSHOT
<Table>
- -------------------------------------------------------------------------------------
Common Share Price $10.51
- -------------------------------------------------------------------------------------
Common Share Net Asset Value $11.02
- -------------------------------------------------------------------------------------
Premium/(Discount) to NAV -4.63%
- -------------------------------------------------------------------------------------
Current Distribution Rate(1) 9.53%
- -------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $261,081
- -------------------------------------------------------------------------------------
</Table>
AVERAGE ANNUAL TOTAL RETURN
(INCEPTION 12/18/02)
<Table>
<Caption>
- --------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
- --------------------------------------------------------------------------------------
1-Year -23.61% -16.01%
- --------------------------------------------------------------------------------------
5-Year 1.31% 3.04%
- --------------------------------------------------------------------------------------
Since
Inception 1.30% 3.02%
- --------------------------------------------------------------------------------------
</Table>
INDUSTRIES
(AS A % OF TOTAL INVESTMENTS)(2)
<Table>
- -------------------------------------------------------------------------------------
Commercial Banks 26.2%
- -------------------------------------------------------------------------------------
Insurance 18.3%
- -------------------------------------------------------------------------------------
Real Estate/Mortgage 12.8%
- -------------------------------------------------------------------------------------
Capital Markets 12.2%
- -------------------------------------------------------------------------------------
Diversified Financial Services 10.6%
- -------------------------------------------------------------------------------------
Investment Companies 4.0%
- -------------------------------------------------------------------------------------
Media 3.4%
- -------------------------------------------------------------------------------------
Short-Term Investments 1.6%
- -------------------------------------------------------------------------------------
Other 10.9%
- -------------------------------------------------------------------------------------
</Table>
TOP FIVE ISSUERS(3)
(AS A % OF TOTAL INVESTMENTS)
<Table>
- ------------------------------------------------------------------------------------
Wachovia Corporation 3.5%
- ------------------------------------------------------------------------------------
ING Groep N.V. 3.4%
- ------------------------------------------------------------------------------------
Deutsche Bank AG 2.9%
- ------------------------------------------------------------------------------------
Protective Life Corporation 2.3%
- ------------------------------------------------------------------------------------
Public Storage Inc. 2.2%
- ------------------------------------------------------------------------------------
</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.
2 Excluding derivative transactions.
3 Excluding short-term investments and derivative transactions.
11
SHAREHOLDER MEETING REPORT
The special meeting of shareholders was held in the offices of Nuveen
Investments on October 12, 2007; the meeting for Nuveen Quality
Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund 2
(JPS) and Nuveen Quality Preferred Income Fund 3 was subsequently
adjourned to October 22, 2007.
<Table>
<Caption>
JTP JPS JHP
- -----------------------------------------------------------------------------------------------------------------
Common and Common and Common and
Preferred Preferred Preferred
shares voting shares voting shares voting
together together together
as a class as a class as a class
- -----------------------------------------------------------------------------------------------------------------
TO APPROVE A NEW INVESTMENT MANAGEMENT AGREEMENT:
For 32,722,345 59,354,289 12,010,979
Against 1,589,151 3,549,189 572,961
Abstain 1,363,047 2,339,856 517,554
Broker Non-Votes 11,219,988 21,097,586 4,192,919
- -----------------------------------------------------------------------------------------------------------------
Total 46,894,531 86,340,920 17,294,413
- -----------------------------------------------------------------------------------------------------------------
TO APPROVE A NEW SUB-ADVISORY AGREEMENT BETWEEN
NUVEEN ASSET MANAGEMENT AND SPECTRUM ASSET MANAGEMENT, INC.:
For 32,521,263 58,987,728 11,973,422
Against 1,733,887 3,773,081 572,140
Abstain 1,419,393 2,482,525 555,932
Broker Non-Votes 11,219,988 21,097,586 4,192,919
- -----------------------------------------------------------------------------------------------------------------
Total 46,894,531 86,340,920 17,294,413
- -----------------------------------------------------------------------------------------------------------------
TO RATIFY THE SELECTION OF ERNST & YOUNG LLP AS THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE CURRENT FISCAL YEAR:
For 45,171,196 83,084,829 16,655,732
Against 803,757 1,531,120 296,749
Abstain 919,578 1,724,971 341,932
- -----------------------------------------------------------------------------------------------------------------
Total 46,894,531 86,340,920 17,294,413
- -----------------------------------------------------------------------------------------------------------------
</Table>
12
Report of INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN QUALITY PREFERRED INCOME FUND
NUVEEN QUALITY PREFERRED INCOME FUND 2
NUVEEN QUALITY PREFERRED INCOME FUND 3
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Nuveen Quality Preferred Income Fund, Nuveen
Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 (the
"Funds") as of December 31, 2007, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2007, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and
Nuveen Quality Preferred Income Fund 3 at December 31, 2007, the results of
their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and the financial highlights for
the periods indicated therein in conformity with U.S. generally accepted
accounting principles.
(ERNST & YOUNG LLP LOGO)
Chicago, Illinois
February 26, 2008
13
JTP
Nuveen Quality Preferred Income Fund
Portfolio of INVESTMENTS
as of December 31, 2007
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 84.7% (52.7% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 9.7%
40,358 Bear Stearns Capital 7.800% A2 $ 975,049
Trust III
252,247 BNY Capital Trust V, 5.950% Aa3 5,236,648
Series F
1,258,400 Deutsche Bank Capital 6.550% Aa3 27,194,020
Funding Trust II
5,000 Goldman Sachs Capital I 6.000% A1 100,550
(CORTS)
15,700 Goldman Sachs Capital I, 6.000% A1 311,174
Series A (CORTS)
7,400 Goldman Sachs Group Inc. 5.750% AA- 150,590
(SATURNS)
1,200 Goldman Sachs Group 6.000% AA- 24,300
Inc., Series 2003-06
(SATURNS)
14,000 Goldman Sachs Group 6.000% A1 279,160
Inc., Series 2004-04
(SATURNS)
19,200 Goldman Sachs Group 6.000% A1 383,232
Inc., Series 2004-06
(SATURNS)
26,500 Goldman Sachs Group 6.000% A1 524,170
Inc., Series GSC-3
(PPLUS)
4,600 Goldman Sachs Group 6.000% A1 90,942
Inc., Series GSC-4
Class A (PPLUS)
6,500 Goldman Sachs Group 6.000% AA- 135,850
Inc., Series GSG-1
(PPLUS)
108,649 Lehman Brothers Holdings 6.375% A2 2,162,115
Capital Trust III,
Series K
85,700 Lehman Brothers Holdings 6.375% A2 1,765,420
Capital Trust IV,
Series L
10,900 Lehman Brothers Holdings 6.000% A2 208,190
Capital Trust V, Series
M
84,920 Lehman Brothers Holdings 6.240% A2 1,732,368
Capital Trust VI,
Series N
122,413 Merrill Lynch Preferred 7.000% A2 2,546,190
Capital Trust III
94,500 Merrill Lynch Preferred 7.120% A2 2,069,550
Capital Trust IV
178,400 Merrill Lynch Preferred 7.280% A2 3,924,800
Capital Trust V
169,526 Morgan Stanley Capital 6.250% A1 3,239,642
Trust III
167,669 Morgan Stanley Capital 6.250% A1 3,194,094
Trust IV
515,305 Morgan Stanley Capital 6.600% A1 10,331,865
Trust VI
144,324 Morgan Stanley Capital 6.600% A2 2,830,194
Trust VII
- --------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 69,410,113
-------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 12.5%
121,050 ABN AMRO Capital Fund 5.900% A1 2,203,110
Trust V
105,400 ASBC Capital I 7.625% A3 2,529,600
18,900 BAC Capital Trust VIII 6.000% Aa2 371,385
8,400 BAC Capital Trust X 6.250% Aa2 172,284
83,021 Banco Santander Finance 6.410% Aa3 1,830,613
190,081 Banco Santander Finance, 6.500% A 3,967,941
144A
206,386 Banco Santander Finance, 6.800% Aa3 4,550,811
144A
7,700 BancorpSouth Capital 8.150% Baa1 192,500
Trust I
84,500 Banesto Holdings, Series 10.500% A1 2,603,656
A, 144A
64,300 Bank One Capital Trust 7.200% Aa3 1,498,190
VI
178,900 Barclays Bank PLC 7.750% Aa3 4,508,280
57,600 Barclays Bank PLC 7.100% Aa3 1,368,000
5,817 Barclays Bank PLC 6.625% Aa3 126,345
189,400 Citizens Funding Trust I 7.500% Baa2 2,935,700
116,800 Cobank ABC, 144A 7.000% A 5,902,722
252,500 Fifth Third Capital 7.250% A1 5,252,000
Trust VI
13,000 Fleet Capital Trust VIII 7.200% Aa2 305,500
4,400 HSBC Finance Corporation 6.875% AA- 103,268
91,915 KeyCorp Capital Trust IX 6.750% Baa1 1,741,789
859,900 National City Capital 6.625% A3 14,231,345
Trust II
12,300 National City Capital 6.625% A3 205,410
Trust III
200,000 PFCI Capital Corporation 7.750% A- 5,168,760
6,750 PNC Capital Trust 6.125% A2 141,750
80,633 Royal Bank of Scotland 5.750% A1 1,447,362
Group PLC, Series L
224,762 Royal Bank of Scotland 6.350% A1 4,382,859
Group PLC, Series N
88,739 Royal Bank of Scotland 7.250% Aa3 2,048,984
Group PLC, Series T
10,000 Royal Bank of Scotland 6.600% Aa3 202,600
Group PLC
23,600 USB Capital Trust XI 6.600% A1 499,140
29,760 VNB Capital Trust I 7.750% A3 736,262
85,000 Wachovia Capital Trust 6.375% A1 1,695,750
IX
20,000 Wachovia Corporation 8.000% A 506,000
238,800 Wells Fargo Capital 7.000% Aa2 5,516,280
Trust V
</Table>
14
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
18,925 Wells Fargo Capital 5.850% Aa2 $ 381,717
Trust VII
382,750 Zions Capital Trust B 8.000% BBB- 9,469,235
- --------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 88,797,148
-------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
2,996 IBM Inc., Trust 7.100% A+ 74,001
Certificates, Series
2001-2
1,500 IBM Trust IV (CORTS) 7.000% A+ 37,170
- --------------------------------------------------------------------------------------------------------------------------------
Total Computers & 111,171
Peripherals
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 11.7%
42,600 Allied Capital 6.875% BBB+ 724,200
Corporation
599,640 BAC Capital Trust XII 6.875% Aa3 13,551,864
321,730 Citigroup Capital Trust 6.950% A+ 6,772,417
VIII
4,000 Citigroup Capital Trust 6.000% A+ 74,200
IX
11,500 Citigroup Capital XIV 6.875% A+ 232,875
418,650 Citigroup Capital XV 6.500% Aa3 8,142,743
30,900 Citigroup Capital XVI 6.450% A+ 586,791
370,100 Citigroup Capital XIX 7.250% A+ 8,142,200
295,700 Deutsche Bank Capital 6.375% A 6,271,797
Funding Trust VIII
4,100 General Electric Capital 6.450% AAA 105,575
Corporation
5,100 General Electric Capital 6.100% AAA 121,788
Corporation
100 General Electric Capital 5.875% AAA 2,321
Corporation
1,006,258 ING Groep N.V. 7.200% A1 22,560,304
569,000 ING Groep N.V. 7.050% A 12,461,100
8,741 ING Groep N.V. 6.375% A1 175,956
8,800 JPMorgan Chase Capital 5.875% Aa3 173,184
Trust XI
127,185 Royal Bank of Scotland 6.125% A1 2,429,234
Group PLC, Series R
31,815 Royal Bank of Scotland 6.750% A1 662,388
Public Limited Company,
Series 2006Q
- --------------------------------------------------------------------------------------------------------------------------------
Total Diversified 83,190,937
Financial Services
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.6%
99,000 AT&T Inc. 6.375% A 2,387,880
13,300 BellSouth Capital 7.100% A 296,756
Funding (CORTS)
74,635 BellSouth Corporation 7.000% A 1,538,414
(CORTS)
2,200 Verizon Communications 7.625% A 55,308
(CORTS)
12,200 Verizon Communications, 6.125% A+ 267,058
Series 2004-1 (SATURNS)
1,100 Verizon Global Funding 6.250% A 25,410
Corporation Trust III,
Series III (CORTS)
- --------------------------------------------------------------------------------------------------------------------------------
Total Diversified 4,570,826
Telecommunication
Services
-------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 2.1%
77,740 DTE Energy Trust I 7.800% Baa3 1,939,613
109,205 Entergy Louisiana LLC 7.600% A- 2,674,430
2,000 Entergy Mississippi 7.250% A- 50,660
Inc.
78,400 FPL Group Capital Inc. 6.600% A3 1,881,600
400 Georgia Power Company 5.750% A 8,760
36,500 National Rural Utilities 6.100% A3 774,165
Cooperative Finance
Corporation
15,125 National Rural Utilities 5.950% A3 319,743
Cooperative Finance
Corporation
111,500 PPL Energy Supply LLC 7.000% BBB 2,770,775
191,400 Virginia Power Capital 7.375% BBB 4,668,246
Trust
- --------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 15,087,992
-------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
29,900 Dairy Farmers of America 7.875% BBB- 2,956,363
Inc., 144A,
- --------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.5%
173,624 Pulte Homes Inc. 7.375% BB+ 3,326,636
- --------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 17.8%
642,200 Ace Ltd., Series C 7.800% BBB 15,348,580
14,840 Aegon N.V. 6.875% A- 314,608
1,161,650 Aegon N.V. 6.375% A- 22,942,587
75,053 AMBAC Financial Group 5.950% AA 1,354,707
Inc.
44,000 AMBAC Financial Group 5.875% AA 784,520
Inc.
354,600 American International 7.700% Aa3 8,882,730
Group
15,500 Arch Capital Group 7.785% BBB- 359,600
Limited, Series B
513,512 Arch Capital Group 8.000% BBB- 12,832,665
Limited
</Table>
15
JTP
Nuveen Quality Preferred Income Fund (continued)
Portfolio of INVESTMENTS as of December 31, 2007
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
382,400 Berkley WR Corporation, 6.750% BBB- $ 8,018,928
Capital Trust II
216,600 Delphi Financial Group, 8.000% BBB+ 5,135,586
Inc.
229,900 Delphi Financial Group, 7.376% BBB- 4,240,506
Inc.
466,600 EverestRe Capital Trust 6.200% Baa1 8,781,412
II
4,000 Financial Security 6.875% AA 78,920
Assurance Holdings
4,600 Financial Security 6.250% AA 83,950
Assurance Holdings
34,500 Lincoln National Capital 6.750% A- 777,975
Trust VI
265,920 Markel Corporation 7.500% BBB- 6,411,331
296,700 PartnerRe Limited, 6.750% BBB+ 5,714,442
Series C
77,700 PartnerRe Limited, 6.500% BBB+ 1,459,983
Series D
80,700 PLC Capital Trust III 7.500% BBB+ 1,834,311
414,700 PLC Capital Trust IV 7.250% BBB+ 9,123,400
7,900 PLC Capital Trust V 6.125% BBB+ 150,653
20,200 Protective Life 7.250% BBB 441,370
Corporation
8,300 Prudential Financial 6.000% A+ 170,648
Inc. (CORTS)
264,265 Prudential PLC 6.750% A 5,375,150
284,502 RenaissanceRe Holdings 6.600% BBB 5,274,667
Limited
65,100 RenaissanceRe Holdings 7.300% BBB 1,415,925
Limited, Series B
- --------------------------------------------------------------------------------------------------------------------------------
Total Insurance 127,309,154
-------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.1%
31,500 Vertex Industries Inc. 7.625% A 794,430
(PPLUS)
- --------------------------------------------------------------------------------------------------------------------------------
MEDIA - 6.0%
110,600 CBS Corporation 7.250% BBB 2,392,278
167,800 CBS Corporation 6.750% BBB 3,230,150
96,609 Comcast Corporation 7.000% BBB+ 2,197,855
735,519 Comcast Corporation 7.000% BBB+ 16,505,046
16,400 Comcast Corporation 6.625% BBB+ 337,676
828,932 Viacom Inc. 6.850% BBB 18,253,083
- --------------------------------------------------------------------------------------------------------------------------------
Total Media 42,916,088
-------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.7%
532,932 Nexen Inc. 7.350% Baa3 12,358,693
- --------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
20,500 Bristol-Myers Squibb 6.250% A+ 430,500
Company (CORTS)
14,300 Bristol-Myers Squibb 6.800% A+ 327,184
Company Trust (CORTS)
- --------------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 757,684
-------------------------------------------------------------------------------------------------------------------
REAL ESTATE/MORTGAGE - 17.0%
41,158 AMB Property 6.750% Baa2 868,434
Corporation, Series M
196,300 AMB Property 6.850% Baa2 4,210,635
Corporation, Series P
12,500 AvalonBay Communities, 8.700% BBB 316,625
Inc., Series H
30,100 Developers Diversified 7.500% BBB- 624,274
Realty Corporation
47,300 Developers Diversified 8.000% BBB- 1,061,885
Realty Corporation,
Series G
406,800 Developers Diversified 7.375% BBB- 8,339,400
Realty Corporation,
Series H
155,700 Duke Realty Corporation, 6.600% BBB 3,059,505
Series L
51,700 Duke Realty Corporation, 7.250% BBB 1,066,054
Series N
279,400 First Industrial Realty 7.250% BBB- 5,657,850
Trust, Inc., Series J
577,039 HRPT Properties Trust, 8.750% BBB- 14,402,893
Series B
600,300 Kimco Realty 7.750% BBB+ 13,917,956
Corporation, Series G
3,600 Prologis Trust, Series F 6.750% BBB 76,464
107,400 Prologis Trust, Series G 6.750% BBB 2,257,548
455,900 PS Business Parks, Inc. 7.000% BBB- 8,935,640
57,970 PS Business Parks, Inc., 6.875% BBB- 1,113,024
Series I
240,000 PS Business Parks, Inc., 7.600% BBB- 5,049,600
Series L
1,700 PS Business Parks, Inc., 7.375% BBB- 34,595
Series O
4,000 Public Storage, Inc. 7.125% BBB+ 84,960
17,100 Public Storage, Inc. 6.750% BBB+ 336,015
64,800 Public Storage, Inc., 6.600% BBB+ 1,224,720
Series C
5,200 Public Storage, Inc., 6.750% BBB+ 101,972
Series E
59,400 Public Storage, Inc., 6.450% BBB+ 1,119,690
Series F
367,196 Public Storage, Inc., 7.250% BBB+ 7,729,476
Series K
95,200 Public Storage, Inc., 6.625% BBB+ 1,808,800
Series M
347,600 Public Storage, Inc., 7.500% BBB+ 7,751,480
Series V
</Table>
16
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE/MORTGAGE (continued)
3,371 Public Storage, Inc., 6.450% BBB+ $ 63,375
Series X
107,100 Public Storage, Inc., 6.850% BBB+ 2,289,263
Series Y
83,500 Realty Income 7.375% BBB- 1,974,775
Corporation
110,400 Realty Income 6.750% BBB- 2,336,064
Corporation, Series E
47,500 Regency Centers 7.450% BBB- 1,047,375
Corporation
22,600 Regency Centers 7.250% BBB- 465,560
Corporation
323,633 Vornado Realty Trust, 6.625% BBB- 6,365,861
Series G
40,200 Vornado Realty Trust, 6.750% BBB- 829,326
Series H
91,500 Vornado Realty Trust, 6.625% BBB- 1,808,955
Series I
579,400 Wachovia Preferred 7.250% A2 13,146,586
Funding Corporation
2,300 Weingarten Realty Trust, 6.950% A- 47,610
Series E
- --------------------------------------------------------------------------------------------------------------------------------
Total Real 121,524,245
Estate/Mortgage
-------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.7%
13,400 Countrywide Capital 8.050% BBB- 162,140
Trust III (PPLUS)
717,384 Countrywide Capital 6.750% BBB- 8,457,957
Trust IV
792,505 Countrywide Capital 7.000% BBB- 9,074,182
Trust V
60,800 Harris Preferred Capital 7.375% A1 1,372,864
Corporation, Series A
- --------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage 19,067,143
Finance
-------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 1.2%
19,300 Federal Home Loan 6.550% AA- 448,725
Mortgage Corporation
77,000 Federal Home Loan 8.375% AA- 2,013,550
Mortgage Corporation
125,000 Federal National 7.000% AA- 5,792,975
Mortgage Association
- --------------------------------------------------------------------------------------------------------------------------------
Total U.S. Agency 8,255,250
-------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.6%
159,700 United States Cellular 8.750% A- 3,982,922
Corporation
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED 604,416,795
SECURITIES (COST $715,539,654)
===================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 1.3% (0.8% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 1.3%
$ 8,600 Swedbank 7.500% 9/27/49 Aa2 $ 9,116,138
ForeningsSparbanken AB,
144A
- ----------------------------------------------------------------------------------------------------------------------------------
$ 8,600 TOTAL CORPORATE BONDS 9,116,138
(COST $9,387,889)
==================================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 66.4% (41.3% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 4.9%
2,500 Bank of New York Capital 7.970% 12/31/26 Aa3 $ 2,589,675
I, Series B
2,250 C.A. Preferred Fund 7.000% 10/30/49 A1 2,191,093
Trust II
8,250 C.A. Preferred Funding 7.000% 1/30/49 A1 8,044,880
Trust
11,400 Dresdner Funding Trust 8.151% 6/30/31 A1 11,657,788
I, 144A
1,900 MUFG Capital Finance 2 4.850% 7/25/56 BBB+ 2,357,586
2,000 Schwab Capital Trust I 7.500% 11/15/37 A3 2,016,068
5,500 UBS Preferred Funding 8.622% 10/29/49 Aa2 5,930,287
Trust I
- -----------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 34,787,377
-------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 36.6%
4,000 AB Svensk Exportkredit, 6.375% 10/27/49 AA- 3,978,848
144A
19,850 Abbey National Capital 8.963% 6/30/50 A+ 23,378,495
Trust I
23,000 AgFirst Farm Credit Bank 8.393% 12/15/16 A- 24,485,799
3,000 AgFirst Farm Credit Bank 7.300% 12/15/53 A- 2,830,005
2,500 Bank One Capital III 8.750% 9/01/30 Aa3 2,902,340
1,500 BanPonce Trust I, Series 8.327% 2/01/27 Baa1 1,566,515
A
7,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 7,589,354
2,000 Barclays Bank PLC 7.434% 12/15/57 Aa3 2,081,952
6,000 BBVA International 5.919% 10/18/49 A1 5,260,974
Preferred S.A.,
Unipersonal
2,000 BNP Paribas 7.195% 12/25/57 AA- 1,977,780
</Table>
17
JTP
Nuveen Quality Preferred Income Fund (continued)
Portfolio of INVESTMENTS as of December 31, 2007
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
7,500 Capital One Capital IV 6.745% 2/17/37 Baa1 $ 5,591,168
Corporation
2,000 CBG Florida REIT 7.114% 11/15/49 Baa3 1,861,446
Corporation
3,000 Centura Capital Trust I, 8.845% 6/01/27 A2 3,132,600
144A
2,000 Corestates Capital Trust 8.000% 12/15/26 A+ 2,070,654
I, 144A
1,700 DBS Capital Funding 7.657% 3/15/49 Aa3 1,817,830
Corporation, 144A
11,500 Den Norske Bank, 144A 7.729% 6/29/49 Aa3 12,262,186
1,500 First Midwest Bancorp 6.950% 12/01/33 Baa1 1,376,414
Inc.
4,700 HBOS Capital Funding LP, 6.850% 3/23/49 A1 4,121,933
Notes
15,400 HBOS PLC, Series, 144A 6.413% 4/01/49 A1 12,566,123
5,750 HSBC Capital Funding LP, 9.547% 12/31/49 A1 6,288,143
144A
17,150 HSBC Capital Funding LP, 10.176% 6/30/50 A1 21,706,378
Debt
3,000 HT1 Funding, GmbH 6.352% 6/30/57 A- 4,032,114
13,000 KBC Bank Fund Trust III, 9.860% 5/02/50 A1 13,971,906
144A
2,000 KeyCorp Capital III 7.750% 7/15/29 A3 2,192,214
3,390 Lloyds TSB Bank PLC, 6.900% 11/22/49 Aa2 3,295,470
Subordinated Note
12,000 Mizuho Financial Group 8.375% 4/27/49 Aa3 12,128,280
7,755 Nordbanken AB, 144A 8.950% 11/29/49 Aa3 8,351,895
700 Northgroup Preferred 6.378% 10/15/57 A1 620,556
Capital Corporation,
144A
2,000 Popular North American 6.564% 9/15/34 Baa1 1,787,800
Capital Trust I
17,500 Reliance Capital Trust 8.170% 5/01/28 N/R 18,400,533
I, Series B
1,500 Royal Bank of Scotland 7.640% 3/31/49 A1 1,544,777
Group PLC, Series U
9,400 Shinsei Finance II 7.160% 7/25/49 Baa2 7,957,692
Cayman Limited,
Perpetual Maturity,
144A
5,000 Sparebanken Rogaland, 6.443% 5/01/49 A2 4,940,135
Notes, 144A
2,600 Standard Chartered PLC, 6.409% 1/30/57 BBB+ 2,358,738
144A
3,600 Standard Chartered PLC, 7.014% 1/30/58 BBB+ 3,418,844
144A
6,100 Swedbank 9.000% 9/17/50 Aa3 6,518,076
ForeningsSparbanken AB,
144A
4,700 Unicredito Italiano 9.200% 4/05/51 A1 5,125,030
Capital Trust, 144A
800 Union Bank of Norway 7.068% 11/19/49 A2 1,206,472
4,000 Wachovia Capital Trust 7.640% 1/15/27 A1 4,156,252
I, Capital Securities,
144A
14,900 Washington Mutual 7.250% 3/15/49 BBB 9,801,727
Preferred Funding
Cayman, Series A-1,
144A
- -----------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 260,655,448
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 4.1%
1,500 BNP Paribas Capital 9.003% 12/29/49 AA- 1,606,253
Trust, 144A
3,500 Fulton Capital Trust I 6.290% 2/01/36 A3 2,637,177
7,400 JPMorgan Chase Capital 6.950% 8/17/36 Aa3 7,050,002
Trust XVIII
8,000 MBNA Corporation, 8.278% 12/01/26 Aa2 8,318,912
Capital Trust A
1,809 MM Community Funding 8.030% 6/15/31 Aaa 1,876,950
Trust I Limited
8,100 Old Mutual Capital 8.000% 6/22/53 Baa2 8,122,680
Funding, Notes
- -----------------------------------------------------------------------------------------------------------------------------------
Total Diversified 29,611,974
Financial Services
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.8%
11 Centaur Funding 9.080% 4/21/20 BBB 13,057,031
Corporation, Series B,
144A
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 12.8%
7,570 Ace Capital Trust II 9.700% 4/01/30 Baa1 9,614,672
2,000 American General Capital 8.500% 7/01/30 Aa3 2,345,738
II
19,000 AXA S.A., 144A 6.463% 12/14/49 BBB+ 17,141,249
5,800 Great West Life and 7.153% 5/16/46 A- 5,818,079
Annuity Insurance
Company
5,000 MetLife Capital Trust IV 7.880% 12/15/67 BBB+ 5,109,160
3,500 MetLife Inc. 6.400% 12/15/66 BBB+ 3,217,736
1,400 Nationwide Financial 7.899% 3/01/37 Baa1 1,442,405
Services Capital Trust
4,100 Nationwide Financial 6.750% 5/15/67 Baa1 3,787,965
Services Inc.
6,500 Oil Insurance Limited, 7.558% 12/30/49 Baa1 6,643,832
144A
6,100 Progressive Corporation 6.700% 6/15/37 A2 5,672,665
2,000 Prudential PLC 6.500% 6/29/49 A 1,796,050
10,200 QBE Capital Funding 6.797% 6/01/49 BBB 9,783,809
Trust II, 144A
22,000 XL Capital, Limited 6.500% 10/15/57 BBB 19,267,974
- -----------------------------------------------------------------------------------------------------------------------------------
Total Insurance 91,641,334
-------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.7%
5,860 KN Capital Trust III 7.630% 4/15/28 B1 5,315,020
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
18
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 3.6%
19 Firstar Realty LLC, 144A 8.875% 12/31/50 Aa3 $ 25,828,124
- -----------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 1.0%
7,600 Burlington Northern 6.613% 12/15/55 BBB 7,114,672
Santa Fe Funding Trust
I
- -----------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.9%
3,000 Caisse Nationale Des 6.750% 1/27/49 A+ 2,899,791
Caisses d'Epargne et de
Prevoyance
800 Onbank Capital Trust I 9.250% 2/01/27 A3 839,236
4,600 Washington Mutual 6.665% 3/15/57 BBB 2,717,954
Preferred Funding Trust
II
- -----------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage 6,456,981
Finance
-------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED 474,467,961
SECURITIES (COST
$503,417,626)
===================================================================================================================
<Caption>
SHARES DESCRIPTION (1) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 5.6% (3.5% OF TOTAL INVESTMENTS)
251,398 Blackrock Preferred and $ 4,034,938
Corporate Income
Strategies Fund
601,789 Blackrock Preferred 9,586,499
Income Strategies Fund
100,221 Blackrock Preferred 1,734,826
Opportunity Trust
643,692 Flaherty and 10,402,063
Crumrine/Claymore
Preferred Securities
Income Fund Inc.
216,228 Flaherty and 3,649,929
Crumrine/Claymore Total
Return Fund Inc.
48,147 John Hancock Preferred 913,347
Income Fund
52,729 John Hancock Preferred 987,087
Income Fund II
497,219 John Hancock Preferred 8,969,831
Income Fund III
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT 40,278,520
COMPANIES (COST
$49,277,335)
===================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 0.1% (0.1% OF TOTAL INVESTMENTS)
$ 1,000 United States of America 3.625% 10/31/09 $ 1,010,157
Treasury Notes
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,000 TOTAL U.S. GOVERNMENT 1,010,157
AND AGENCY OBLIGATIONS
(COST $1,010,765)
===================================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.6% (1.6% OF TOTAL INVESTMENTS)
$ 18,321 Repurchase Agreement 1.000% 1/02/08 $ 18,321,137
with Fixed Income
Clearing Corporation,
dated 12/31/07,
repurchase price
$18,322,155,
collateralized by
$13,400,000 U.S.
Treasury Bonds, 7.625%,
due 2/15/25, value
$18,693,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM 18,321,137
INVESTMENTS (COST
$18,321,137)
===================================================================================================================
TOTAL INVESTMENTS (COST 1,147,610,708
$1,296,954,406) -- 160.7%
-------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS 6,333,861
LIABILITIES - 0.9%
===================================================================================================================
FUNDPREFERRED SHARES, AT (440,000,000)
LIQUIDATION
VALUE -- (61.6)% (3)
-------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO $ 713,944,569
COMMON SHARES -- 100%
===================================================================================================================
</Table>
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2007:
<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 4.350% Monthly 8/29/09 $ (987,076)
============================================================================================================================
</Table>
<Table>
USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
</Table>
19
JTP
Nuveen Quality Preferred Income Fund (continued)
Portfolio of INVESTMENTS as of December 31, 2007
<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 Group ("Standard & Poor's") or Moody's Investor
Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's
are considered to be below investment grade.
(3) FundPreferred Shares, at Liquidation Value as a percentage of total investments is
(38.3)%.
N/R Not rated.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CORTS Corporate Backed Trust Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
</Table>
See accompanying notes to financial statements.
20
JPS
Nuveen Quality Preferred Income Fund 2
Portfolio of INVESTMENTS
as of December 31, 2007
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 83.8% (53.6% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 5.8%
51,724 Bear Stearns Capital 7.800% A2 $ 1,249,652
Trust III
18,700 BNY Capital Trust IV, 6.875% Aa3 430,100
Series E
31,993 BNY Capital Trust V, 5.950% Aa3 664,175
Series F
1,306,900 Deutsche Bank Capital 6.550% Aa3 28,242,109
Funding Trust II
10,700 Goldman Sachs Capital I 6.000% A1 215,177
(CORTS)
14,000 Goldman Sachs Capital I, 6.000% A1 277,480
Series A (CORTS)
4,800 Goldman Sachs Group Inc. 5.750% AA- 97,680
(SATURNS)
1,900 Goldman Sachs Group Inc., 6.000% AA- 38,475
Series 2003-06 (SATURNS)
6,600 Goldman Sachs Group Inc., 5.625% Aa3 127,182
Series 2003-11 (SATURNS)
35,900 Goldman Sachs Group Inc., 6.000% A1 715,846
Series 2004-04 (SATURNS)
7,000 Goldman Sachs Group Inc., 6.000% A1 139,720
Series 2004-06 (SATURNS)
10,200 Goldman Sachs Group Inc., 6.000% A1 200,430
Series 2004-4 (CORTS)
16,800 Goldman Sachs Group Inc., 6.000% A1 332,304
Series GSC-3 (PPLUS)
12,700 Goldman Sachs Group Inc., 6.000% A1 251,079
Series GSC-4 Class A
(PPLUS)
14,800 Goldman Sachs Group Inc., 6.000% AA- 309,320
Series GSG-1 (PPLUS)
7,400 Goldman Sachs Group Inc., 5.750% AA- 147,038
Series GSG-2 (PPLUS)
3,200 JPMorgan Chase Capital 6.625% Aa3 70,080
Trust XIX, Series S
228,000 Lehman Brothers Holdings 6.375% A2 4,537,200
Capital Trust III,
Series K
103,600 Lehman Brothers Holdings 6.375% A2 2,134,160
Capital Trust IV, Series
L
56,200 Lehman Brothers Holdings 6.000% A2 1,073,420
Capital Trust V, Series
M
5,400 Lehman Brothers Holdings 6.240% A2 110,160
Capital Trust VI, Series
N
197,781 Merrill Lynch Preferred 7.000% A2 4,113,845
Capital Trust III
144,200 Merrill Lynch Preferred 7.120% A2 3,157,980
Capital Trust IV
253,200 Merrill Lynch Preferred 7.280% A2 5,570,400
Capital Trust V
417,664 Morgan Stanley Capital 6.250% A1 7,981,559
Trust III
268,757 Morgan Stanley Capital 6.250% A1 5,119,821
Trust IV
36,579 Morgan Stanley Capital 5.750% A+ 640,133
Trust V
500,400 Morgan Stanley Capital 6.600% A1 10,033,020
Trust VI
126,797 Morgan Stanley Capital 6.600% A2 2,486,489
Trust VII
- -----------------------------------------------------------------------------------------------------------------
Total Capital Markets 80,466,034
----------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 14.1%
47,100 ABN AMRO Capital Fund 5.900% A1 857,220
Trust V
1,600 ABN AMRO Capital Trust 6.080% A1 29,728
Fund VII
162,960 ASBC Capital I 7.625% A3 3,911,040
5,200 BAC Capital Trust IV 5.875% Aa2 102,700
3,800 BAC Capital Trust V 6.000% Aa3 75,544
3,000 BAC Capital Trust VIII 6.000% Aa2 58,950
141,100 BAC Capital Trust X 6.250% Aa2 2,893,961
82,334 Banco Santander Finance 6.410% Aa3 1,815,465
77,879 Banco Santander Finance, 6.500% A 1,625,724
144A
202,057 Banco Santander Finance, 6.800% Aa3 4,455,357
144A
18,600 BancorpSouth Capital 8.150% Baa1 465,000
Trust I
731,000 Banesto Holdings, Series 10.500% A1 22,523,938
A, 144A
100,000 Bank of America 6.625% Aa3 2,367,000
Corporation
206,700 Bank One Capital Trust VI 7.200% Aa3 4,816,110
100,000 Barclays Bank PLC 7.750% Aa3 2,520,000
100,000 Barclays Bank PLC 7.100% Aa3 2,375,000
22,412 Barclays Bank PLC 6.625% Aa3 486,789
408,300 Capital One Capital II 7.500% Baa1 7,757,700
Corporation
481,100 Citizens Funding Trust I 7.500% Baa2 7,457,050
225,500 Cobank ABC, 144A 7.000% A 11,396,094
659,300 Fifth Third Capital Trust 7.250% A1 13,713,440
VI
3,000 Fleet Capital Trust IX 6.000% Aa2 59,250
374,795 HSBC Finance Corporation 6.875% AA- 8,796,439
150,300 HSBC Finance Corporation 6.000% Aa3 3,163,815
51,398 KeyCorp Capital Trust IX 6.750% Baa1 973,992
4,500 KeyCorp Capital Trust V 5.875% A3 79,650
5,300 KeyCorp Capital VI 6.125% A3 98,951
58,962 KeyCorp Capital VIII 7.000% A3 1,185,136
1,162,900 National City Capital 6.625% A3 19,245,995
Trust II
</Table>
21
JPS
Nuveen Quality Preferred Income Fund 2 (continued)
Portfolio of INVESTMENTS as of December 31, 2007
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
92,100 National City Capital 8.000% A2 $ 1,941,008
Trust IV
1,800 National Westminster Bank 7.760% Aa3 44,910
PLC
289,600 PFCI Capital Corporation 7.750% A- 7,484,364
4,600 PNC Capital Trust 6.125% A2 96,600
97,900 Royal Bank of Scotland 6.600% Aa3 1,983,454
Group PLC
50,000 Royal Bank of Scotland 5.750% A1 897,500
Group PLC, Series L
598,076 Royal Bank of Scotland 6.350% A1 11,662,482
Group PLC, Series N
8,900 Royal Bank of Scotland 6.250% A1 170,969
Group PLC, Series P
229,400 Royal Bank of Scotland 7.250% Aa3 5,296,846
Group PLC, Series T
3,500 SunAmerica (CORTS) 6.700% AA 74,165
7,600 USB Capital Trust VI 5.750% Aa3 146,604
21,900 USB Capital Trust VII 5.875% Aa3 427,926
2,000 USB Capital Trust VIII 6.350% Aa3 40,160
2,000 USB Capital Trust X 6.500% Aa3 42,000
530,050 USB Capital Trust XI 6.600% A1 11,210,558
74,740 VNB Capital Trust I 7.750% A3 1,849,068
9,715 Wachovia Capital Trust IX 6.375% A1 193,814
179,416 Wachovia Trust IV 6.375% A1 3,593,702
2,800 Wells Fargo Capital Trust 5.625% Aa2 53,760
IX
301,700 Wells Fargo Capital Trust 7.000% Aa2 6,969,270
V
34,481 Wells Fargo Capital Trust 5.850% Aa2 695,482
VII
3,100 Wells Fargo Capital Trust 5.625% Aa2 61,039
VIII
590,350 Zions Capital Trust B 8.000% BBB- 14,605,259
- -----------------------------------------------------------------------------------------------------------------
Total Commercial Banks 194,847,978
----------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
7,200 IBM Corporation, Class A 5.625% A+ 145,800
(CORTS)
11,310 IBM Inc., Trust 7.100% A+ 279,357
Certificates, Series
2001-2
1,500 IBM Trust VI (CORTS) 6.375% A+ 35,610
- -----------------------------------------------------------------------------------------------------------------
Total Computers & 460,767
Peripherals
----------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 11.1%
6,300 Allied Capital 6.875% BBB+ 107,100
Corporation
3,900 American International 6.125% Aa3 77,103
Group, (CORTS)
393,960 BAC Capital Trust XII 6.875% Aa3 8,903,496
558,725 Citigroup Capital Trust 6.950% A+ 11,761,161
VIII
95,990 Citigroup Capital Trust 6.000% A+ 1,780,615
IX
17,700 Citigroup Capital X 6.100% A+ 326,565
32,300 Citigroup Capital Trust 6.000% A+ 595,935
XI
163,075 Citigroup Capital XIV 6.875% A+ 3,302,269
851,188 Citigroup Capital XV 6.500% Aa3 16,555,607
35,900 Citigroup Capital XVI 6.450% A+ 681,741
118,600 Citigroup Capital XVII 6.350% A+ 2,253,400
71,900 Citigroup Capital XIX 7.250% A+ 1,581,800
241,800 Citigroup Capital XX 7.875% Aa3 6,037,456
1,246,000 Deutsche Bank Capital 6.375% A 26,427,660
Funding Trust VIII
127,912 General Electric Capital 6.450% AAA 3,293,734
Corporation
19,228 General Electric Capital 6.100% AAA 459,165
Corporation
5,000 General Electric Capital 6.050% AAA 125,000
Corporation
3,200 General Electric Capital 5.875% AAA 74,272
Corporation
1,509,600 ING Groep N.V. 7.200% A1 33,845,232
1,432,255 ING Groep N.V. 7.050% A 31,366,385
25,800 ING Groep N.V. 6.375% A1 519,354
2,700 ING Groep N.V. 6.200% A1 52,650
3,200 JPMorgan Chase Capital 5.875% Aa3 62,976
Trust XI
11,900 JPMorgan Chase Capital 6.200% Aa3 241,689
Trust XIV
158,000 Merrill Lynch Capital 6.450% A 3,069,940
Trust I
- -----------------------------------------------------------------------------------------------------------------
Total Diversified 153,502,305
Financial Services
----------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.3%
87,100 AT&T Inc. 6.375% A 2,100,852
17,500 BellSouth Capital Funding 7.100% A 390,469
(CORTS)
43,200 BellSouth Corporation 7.000% A 890,460
(CORTS)
28,800 Verizon Communications 7.625% A 724,032
(CORTS)
- -----------------------------------------------------------------------------------------------------------------
Total Diversified 4,105,813
Telecommunication
Services
----------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 3.9%
27,400 DTE Energy Trust I 7.800% Baa3 683,630
4,200 Entergy Arkansas Inc. 6.700% AAA 103,950
</Table>
22
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES (continued)
4,900 Entergy Arkansas Inc. 6.000% AAA $ 119,266
57,650 Entergy Louisiana LLC 7.600% A- 1,411,849
1,299,100 Entergy Mississippi Inc. 7.250% A- 32,906,203
1,400 Entergy Mississippi Inc. 6.000% AAA 34,328
110,392 FPL Group Capital Inc. 6.600% A3 2,649,408
6,500 FPL Group Capital Trust I 5.875% A3 139,880
4,600 Georgia Power Company 6.375% AAA 117,760
1,600 National Rural Utilities 6.750% A3 38,160
Cooperative Finance
Corporation
9,000 National Rural Utilities 6.100% A3 190,890
Cooperative Finance
Corporation
25,600 National Rural Utilities 5.950% A3 541,184
Cooperative Finance
Corporation
13,600 PPL Capital Funding, 6.850% Baa2 319,736
Inc.
356,600 PPL Energy Supply LLC 7.000% BBB 8,861,510
265,500 Virginia Power Capital 7.375% BBB 6,475,545
Trust
- -----------------------------------------------------------------------------------------------------------------
Total Electric Utilities 54,593,299
----------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
56,900 Dairy Farmers of America 7.875% BBB- 5,625,988
Inc., 144A
- -----------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.4%
255,156 Pulte Homes Inc. 7.375% BB+ 4,888,789
- -----------------------------------------------------------------------------------------------------------------
INSURANCE - 16.7%
1,214,900 Ace Ltd., Series C 7.800% BBB 29,036,110
1,000 Aegon N.V., Series 1 5.915% A- 17,750
77,018 Aegon N.V. 6.875% A- 1,632,782
6,000 Aegon N.V. 7.250% A- 133,140
2,463,950 Aegon N.V. 6.375% A- 48,663,011
2,100 AIG Capital Securities, 6.000% Aa3 40,509
Series 2002-11 (SATURNS)
67,190 AMBAC Financial Group 5.950% AA 1,212,780
Inc.
11,000 American International 6.450% Aa3 229,900
Group, Inc.
315,000 American International 7.700% Aa3 7,890,750
Group, Inc.
989,983 Arch Capital Group 8.000% BBB- 24,739,675
Limited
10,500 Arch Capital Group 7.785% BBB- 243,600
Limited, Series B
711,246 Berkley WR Corporation, 6.750% BBB- 14,914,829
Capital Trust II
659,307 Delphi Financial Group, 8.000% BBB+ 15,632,169
Inc.
425,300 Delphi Financial Group, 7.376% BBB- 7,844,659
Inc.
149,150 EverestRe Capital Trust 6.200% Baa1 2,807,003
II
63,800 Financial Security 6.875% AA 1,258,774
Assurance Holdings
714,000 Financial Security 6.250% AA 13,030,500
Assurance Holdings
2,800 Financial Security 5.600% AA 45,080
Assurance Holdings
54,300 Lincoln National Capital 6.750% A- 1,224,465
Trust VI
14,900 Lincoln National 6.750% A- 335,250
Corporation
531,600 Markel Corporation 7.500% BBB- 12,816,876
651,620 PartnerRe Limited, Series 6.750% BBB+ 12,550,201
C
27,400 PartnerRe Limited, Series 6.500% BBB+ 514,846
D
109,000 PLC Capital Trust III 7.500% BBB+ 2,477,570
462,240 PLC Capital Trust IV 7.250% BBB+ 10,169,280
26,100 PLC Capital Trust V 6.125% BBB+ 497,727
122,700 Protective Life 7.250% BBB 2,680,995
Corporation
9,400 Prudential Financial Inc. 6.000% A+ 193,264
(CORTS)
380,900 Prudential PLC 6.750% A 7,747,506
32,000 Prudential PLC 6.500% A- 645,760
358,200 RenaissanceRe Holdings 6.600% BBB 6,641,028
Limited
156,100 RenaissanceRe Holdings 7.300% BBB 3,395,175
Limited, Series B
12,300 RenaissanceRe Holdings 6.080% BBB+ 211,806
Limited, Series C
10,400 Torchmark Capital Trust 7.100% BBB+ 238,160
III
- -----------------------------------------------------------------------------------------------------------------
Total Insurance 231,712,930
----------------------------------------------------------------------------------------------------
IT SERVICES - 0.0%
16,500 Vertex Industries Inc. 7.625% A 416,130
(PPLUS)
- -----------------------------------------------------------------------------------------------------------------
MEDIA - 5.3%
171,400 CBS Corporation 7.250% BBB 3,707,382
864,700 CBS Corporation 6.750% BBB 16,645,475
5,500 Comcast Corporation 7.000% BBB+ 125,125
1,372,514 Comcast Corporation 7.000% BBB+ 30,799,214
3,700 Comcast Corporation 6.625% BBB+ 76,183
1,000,840 Viacom Inc. 6.850% BBB 22,038,497
</Table>
23
JPS
Nuveen Quality Preferred Income Fund 2 (continued)
Portfolio of INVESTMENTS as of December 31, 2007
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------
MEDIA (continued)
3,600 Walt Disney Company 6.875% A $ 91,116
(CORTS)
- -----------------------------------------------------------------------------------------------------------------
Total Media 73,482,992
----------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.5%
908,311 Nexen Inc. 7.350% Baa3 21,063,732
- -----------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.0%
7,600 Bristol-Myers Squibb 6.250% A+ 159,600
Company (CORTS)
7,500 Bristol-Myers Squibb 6.800% A+ 171,600
Company Trust (CORTS)
- -----------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 331,200
----------------------------------------------------------------------------------------------------
REAL ESTATE/MORTGAGE - 19.4%
40,000 AMB Property Corporation, 7.000% Baa2 878,000
Series O
212,979 AMB Property Corporation, 6.850% Baa2 4,568,400
Series P
95,400 AvalonBay Communities, 8.700% BBB 2,416,482
Inc., Series H
105,805 BRE Properties, Series C 6.750% BBB- 2,046,269
32,635 BRE Properties, Series D 6.750% BBB- 652,700
42,167 Developers Diversified 7.500% BBB- 874,544
Realty Corporation
639,813 Developers Diversified 8.000% BBB- 14,363,802
Realty Corporation,
Series G
191,323 Developers Diversified 7.375% BBB- 3,922,122
Realty Corporation,
Series H
231,300 Duke Realty Corporation, 6.500% BBB 4,385,448
Series K
302,600 Duke Realty Corporation, 6.600% BBB 5,946,090
Series L
2,200 Duke Realty Corporation, 7.250% BBB 45,364
Series N
154,846 Duke-Weeks Realty 6.950% BBB 3,120,147
Corporation
5,600 Duke-Weeks Realty 6.625% BBB 108,864
Corporation
289,100 First Industrial Realty 7.250% BBB- 5,854,328
Trust, Inc., Series J
1,066,465 HRPT Properties Trust, 8.750% BBB- 26,618,966
Series B
71,980 HRPT Properties Trust, 7.125% BBB- 1,453,996
Series C
173,200 Kimco Realty Corporation, 6.650% BBB+ 3,723,800
Series F
905,801 Kimco Realty Corporation, 7.750% BBB+ 21,000,996
Series G
1,300 Prologis Trust, Series F 6.750% BBB 27,612
95,328 Prologis Trust, Series G 6.750% BBB 2,003,795
13,100 PS Business Parks, Inc. 6.700% BBB- 248,376
774,970 PS Business Parks, Inc. 7.000% BBB- 15,189,412
108,900 PS Business Parks, Inc., 6.875% BBB- 2,090,880
Series I
110,700 PS Business Parks, Inc., 7.950% BBB- 2,436,507
Series K
401,000 PS Business Parks, Inc., 7.600% BBB- 8,437,040
Series L
6,300 PS Business Parks, Inc., 7.375% BBB- 128,205
Series O
43,400 Public Storage, Inc. 6.750% BBB+ 852,810
4,800 Public Storage, Inc. 7.125% BBB+ 101,952
234,600 Public Storage, Inc., 6.600% BBB+ 4,433,940
Series C
41,400 Public Storage, Inc., 6.750% BBB+ 811,854
Series E
73,666 Public Storage, Inc., 6.450% BBB+ 1,388,604
Series F
17,130 Public Storage, Inc., 6.950% BBB+ 339,859
Series H
401,300 Public Storage, Inc., 7.250% BBB+ 8,443,352
Series I
381,020 Public Storage, Inc., 7.250% BBB+ 8,020,471
Series K
711,570 Public Storage, Inc., 6.625% BBB+ 13,519,830
Series M
148,000 Public Storage, Inc., 7.500% BBB+ 3,300,400
Series V
5,300 Public Storage, Inc., 6.450% BBB+ 99,640
Series X
67,600 Public Storage, Inc., 6.850% BBB+ 1,444,950
Series Y
4,000 Public Storage, Inc., 6.250% BBB+ 72,200
Series Z
159,400 Realty Income Corporation 7.375% BBB- 3,769,810
474,358 Realty Income 6.750% BBB- 10,037,415
Corporation, Series E
325,223 Regency Centers 7.450% BBB- 7,171,167
Corporation
245,800 Regency Centers 7.250% BBB- 5,063,480
Corporation
26,900 Vornado Realty Trust, 6.750% BBB- 554,678
Series F
213,940 Vornado Realty Trust, 6.625% BBB- 4,208,200
Series G
122,800 Vornado Realty Trust, 6.750% BBB- 2,533,364
Series H
220,250 Vornado Realty Trust, 6.625% BBB- 4,354,343
Series I
2,296,200 Wachovia Preferred 7.250% A2 52,100,775
Funding Corporation
2,100 Weingarten Realty 6.500% BBB 40,740
Investors Series F
158,600 Weingarten Realty Trust, 6.950% A- 3,283,020
Series E
- -----------------------------------------------------------------------------------------------------------------
Total Real 268,488,999
Estate/Mortgage
----------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.7%
971,765 Countrywide Capital Trust 6.750% BBB- 11,457,109
IV
1,072,275 Countrywide Capital Trust 7.000% BBB- 12,277,549
V
22,300 Harris Preferred Capital 7.375% A1 503,534
Corporation, Series A
- -----------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage 24,238,192
Finance
----------------------------------------------------------------------------------------------------
</Table>
24
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 1.5%
67,200 Federal Home Loan 6.550% AA- $ 1,562,400
Mortgage Corporation
289,000 Federal Home Loan 8.375% AA- 7,557,350
Mortgage Corporation
238,000 Federal National Mortgage 7.000% AA- 11,029,824
Association
- -----------------------------------------------------------------------------------------------------------------
Total U.S. Agency 20,149,574
----------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.7%
939,840 United States Cellular 8.750% A- 23,439,605
Corporation
- -----------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED 1,161,814,327
SECURITIES (COST $1,351,225,257)
====================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 0.7% (0.4% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 0.7%
$ 5,000 Credit Agricole S.A. 6.637% 5/29/49 Aa3 $ 4,646,625
4,400 Swedbank 7.500% 9/27/49 Aa2 4,664,070
ForeningsSparbanken AB,
144A
- -------------------------------------------------------------------------------------------------------------------
9,400 Total Commercial Banks 9,310,695
- -------------------------------------------------------------------------------------------------------------------
$ 9,400 TOTAL CORPORATE BONDS 9,310,695
(COST $9,683,419)
===================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 64.4% (41.1% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 6.9%
1,465 Bank of New York Capital 7.970% 12/31/26 Aa3 $ 1,517,550
I, Series B
5,000 C.A. Preferred Fund Trust 7.000% 10/30/49 A1 4,869,095
II
10,300 C.A. Preferred Funding 7.000% 1/30/49 A1 10,043,911
Trust
21,190 Dresdner Funding Trust I, 8.151% 6/30/31 A1 21,669,169
144A
17,095 First Union Capital Trust 7.950% 11/15/29 A1 18,244,741
II, Series A
10,000 Mizuho JGB Investment 9.870% 6/30/48 A1 10,092,510
3,600 MUFG Capital Finance 2 4.850% 7/25/56 BBB+ 4,467,005
3,000 Schwab Capital Trust I 7.500% 11/15/37 A3 3,024,102
19,800 UBS Preferred Funding 8.622% 10/29/49 Aa2 21,349,033
Trust I
- --------------------------------------------------------------------------------------------------------------------
Total Capital Markets 95,277,116
----------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 34.9%
10,000 AB Svensk Exportkredit, 6.375% 10/27/49 AA- 9,947,120
144A
36,650 Abbey National Capital 8.963% 6/30/50 A+ 43,164,829
Trust I
29,000 AgFirst Farm Credit Bank 8.393% 12/15/16 A- 30,873,400
7,100 AgFirst Farm Credit Bank 7.300% 12/15/53 A- 6,697,679
6,500 Bank One Capital III 8.750% 9/01/30 Aa3 7,546,084
4,300 BankAmerica Institutional 7.700% 12/31/26 Aa2 4,491,905
Capital Trust, Series B,
144A
4,500 BanPonce Trust I, Series 8.327% 2/01/27 Baa1 4,699,544
A
36,000 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 37,946,770
1,000 Barclays Bank PLC 7.434% 12/15/57 Aa3 1,040,976
6,900 BBVA International 5.919% 10/18/49 A1 6,050,120
Preferred S.A.,
Unipersonal
1,000 BNP Paribas 7.195% 12/25/57 AA- 988,890
5,000 Capital One Capital III 7.686% 8/15/36 Baa1 4,075,995
Corporation
6,920 Capital One Capital IV 6.745% 2/17/37 Baa1 5,158,784
Corporation
15,000 CBG Florida REIT 7.114% 11/15/49 Baa3 13,960,845
Corporation
2,000 Corestates Capital Trust 8.000% 12/15/26 A+ 2,070,654
I, 144A
3,700 DBS Capital Funding 7.657% 3/15/49 Aa3 3,956,454
Corporation, 144A
11,700 Den Norske Bank, 144A 7.729% 6/29/49 Aa3 12,475,441
1,500 First Empire Capital 8.234% 2/01/27 A3 1,565,078
Trust I
1,500 First Midwest Bancorp 6.950% 12/01/33 Baa1 1,376,414
Inc.
6,310 HBOS Capital Funding LP, 6.850% 3/23/49 A1 5,533,914
Notes
24,200 HBOS PLC, Series, 144A 6.413% 4/01/49 A1 19,746,764
2,400 HSBC Capital Funding LP, 9.547% 12/31/49 A1 2,624,616
144A
6,250 HSBC Capital Funding LP, 10.176% 6/30/50 A1 7,910,488
Debt
6,000 HT1 Funding, GmbH 6.352% 6/30/57 A- 8,064,228
32,000 KBC Bank Fund Trust III, 9.860% 5/02/50 A1 34,392,384
144A
8,000 KeyCorp Capital III 7.750% 7/15/29 A3 8,768,856
12,500 Lloyds TSB Bank PLC, 6.900% 11/22/49 Aa2 12,151,438
Subordinated Note
14,000 Mizuho Financial Group 8.375% 4/27/49 Aa3 14,149,660
14,000 Nordbanken AB, 144A 8.950% 11/29/49 Aa3 15,077,566
8,000 North Fork Capital Trust 8.000% 12/15/27 Baa1 7,538,048
II
</Table>
25
JPS
Nuveen Quality Preferred Income Fund 2 (continued)
Portfolio of INVESTMENTS as of December 31, 2007
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
10,000 Northgroup Preferred 6.378% 10/15/57 A1 $ 8,865,080
Capital Corporation,
144A
2,000 Popular North American 6.564% 9/15/34 Baa1 1,787,800
Capital Trust I
8,000 Reliance Capital Trust I, 8.170% 5/01/28 N/R 8,411,672
Series B
17,500 Royal Bank of Scotland 9.118% 3/31/49 Aa3 18,717,860
Group PLC
3,300 Royal Bank of Scotland 7.640% 3/31/49 A1 3,398,508
Group PLC, Series U
22,700 Shinsei Finance II Cayman 7.160% 7/25/49 Baa2 19,216,980
Limited, Perpetual
Maturity, 144A
5,000 Sparebanken Rogaland, 6.443% 5/01/49 A2 4,940,135
Notes, 144A
6,900 Standard Chartered PLC, 7.014% 1/30/58 BBB+ 6,552,785
144A
13,600 Swedbank 9.000% 9/17/50 Aa3 14,532,103
ForeningsSparbanken AB,
144A
9,000 Unicredito Italiano 9.200% 4/05/51 A1 9,813,888
Capital Trust, 144A
1,500 Union Bank of Norway 7.068% 11/19/49 A2 2,262,135
-- (3) Union Planters Preferred 7.750% 7/15/53 A2 27,262,500
Fund, 144A
36,700 Washington Mutual 7.250% 3/15/49 BBB 24,142,508
Preferred Funding
Cayman, Series A-1, 144A
- --------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 483,948,898
----------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 4.0%
1,000 BNP Paribas Capital 9.003% 12/29/49 AA- 1,070,835
Trust, 144A
6,800 Fulton Capital Trust I 6.290% 2/01/36 A3 5,123,657
15,300 JPMorgan Chase Capital 6.950% 8/17/36 Aa3 14,576,356
Trust XVIII
13,400 MBNA Corporation, Capital 8.278% 12/01/26 Aa2 13,934,178
Trust A
1,805 MM Community Funding 8.030% 6/15/31 Aaa 1,872,900
Trust I Limited
19,300 Old Mutual Capital 8.000% 6/22/53 Baa2 19,354,040
Funding, Notes
- --------------------------------------------------------------------------------------------------------------------
Total Diversified 55,931,966
Financial Services
----------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.5%
30 Centaur Funding 9.080% 4/21/20 BBB 35,108,904
Corporation, Series B,
144A
- --------------------------------------------------------------------------------------------------------------------
INSURANCE - 12.9%
14,280 Ace Capital Trust II 9.700% 4/01/30 Baa1 18,137,057
28,000 American General 8.125% 3/15/46 Aa3 32,909,184
Institutional Capital,
144A
12,900 AXA S.A., 144A 6.463% 12/14/49 BBB+ 11,638,006
10,700 AXA-UAP 8.600% 12/15/30 A- 13,156,634
9,600 Great West Life and 7.153% 5/16/46 A- 9,629,923
Annuity Insurance
Company
1,000 Liberty Mutual Group 7.800% 3/15/37 Baa3 891,875
8,000 MetLife Capital Trust IV 7.880% 12/15/67 BBB+ 8,174,656
5,500 MetLife Inc. 6.400% 12/15/66 BBB+ 5,056,442
1,200 Nationwide Financial 7.899% 3/01/37 Baa1 1,236,347
Services Capital Trust
6,400 Nationwide Financial 6.750% 5/15/67 Baa1 5,912,922
Services Inc.
12,300 Oil Insurance Limited, 7.558% 12/30/49 Baa1 12,572,174
144A
15,600 Progressive Corporation 6.700% 6/15/37 A2 14,507,142
2,850 Prudential PLC 6.500% 6/29/49 A 2,559,371
18,100 QBE Capital Funding Trust 6.797% 6/01/49 BBB 17,361,466
II, 144A
28,900 XL Capital, Limited 6.500% 10/15/57 BBB 25,311,111
- --------------------------------------------------------------------------------------------------------------------
Total Insurance 179,054,310
----------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.7%
10,750 KN Capital Trust III 7.630% 4/15/28 B1 9,750,250
- --------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 1.0%
14,400 Burlington Northern Santa 6.613% 12/15/55 BBB 13,480,430
Fe Funding Trust I
- --------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.5%
12,811 Countrywide Capital Trust 8.050% 6/15/27 BBB- 8,973,273
III, Series B
1,300 MM Community Funding 9.480% 6/15/31 Baa2 1,366,339
Trust I Limited
18,100 Washington Mutual 6.665% 3/15/57 BBB 10,694,571
Preferred Funding Trust
II
- --------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage 21,034,183
Finance
----------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED 893,586,057
SECURITIES (COST
$962,916,913)
====================================================================================================
</Table>
26
<Table>
<Caption>
SHARES DESCRIPTION (1) VALUE
- --------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 5.2% (3.3% OF TOTAL INVESTMENTS)
306,317 Blackrock Preferred and $ 4,916,388
Corporate Income
Strategies Fund
1,126,886 Blackrock Preferred 17,951,294
Income Strategies Fund
347,135 Blackrock Preferred 6,008,907
Opportunity Trust
1,217,312 Flaherty and 19,671,762
Crumrine/Claymore
Preferred Securities
Income Fund Inc.
216,222 Flaherty and 3,649,827
Crumrine/Claymore Total
Return Fund Inc.
107,237 John Hancock Preferred 2,034,286
Income Fund
90,920 John Hancock Preferred 1,702,022
Income Fund II
884,701 John Hancock Preferred 15,960,006
Income Fund III
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT 71,894,492
COMPANIES (COST
$88,111,171)
====================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 0.1% (0.0% OF TOTAL INVESTMENTS)
$ 1,000 United States of America 3.125% 11/30/09 $ 1,001,407
Treasury Notes
- --------------------------------------------------------------------------------------------------------------------
$ 1,000 TOTAL U.S. GOVERNMENT AND AGENCY 1,001,407
OBLIGATIONS (COST $1,004,141)
====================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.5% (1.6% OF TOTAL INVESTMENTS)
$ 35,101 Repurchase Agreement with 1.000% 1/02/08 $ 35,100,887
Fixed Income Clearing
Corporation, dated
12/31/07, repurchase
price $35,102,837,
collateralized by
$33,190,000 U.S.
Treasury Notes, 4.875%,
due 8/15/16, value
$35,803,713
========== ----------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM 35,100,887
INVESTMENTS (COST
$35,100,887)
====================================================================================================
TOTAL INVESTMENTS (COST 2,172,707,865
$2,448,041,788) - 156.7%
----------------------------------------------------------------------------------------------------
OTHER ASSETS LESS 13,417,564
LIABILITIES - 1.0%
====================================================================================================
FUNDPREFERRED SHARES, AT (800,000,000)
LIQUIDATION
VALUE - (57.7)% (4)
----------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO $1,386,125,429
COMMON SHARES - 100%
====================================================================================================
</Table>
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2007:
<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. $200,000,000 Receive 1-Month USD-LIBOR 3.910% Monthly 11/06/09 $ (418,657)
===========================================================================================================================
</Table>
<Table>
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 Group ("Standard & Poor's") or Moody's Investor
Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's
are considered to be below investment grade.
(3) Principal Amount (000)/Shares rounds to less than $1,000.
(4) FundPreferred Shares, at Liquidation Value as a percentage of total investments is
(36.8)%.
N/R Not rated.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CORTS Corporate Backed Trust Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
</Table>
See accompanying notes to financial statements.
27
JHP
Nuveen Quality Preferred Income Fund 3
Portfolio of INVESTMENTS
as of December 31, 2007
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 100.0% (61.6% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 11.5%
21,206 Bear Stearns Capital 7.800% A2 $ 512,337
Trust III
725 BNY Capital Trust V, 5.950% Aa3 15,051
Series F
560,800 Deutsche Bank Capital 6.550% Aa3 12,118,884
Funding Trust II
5,800 Goldman Sachs Group Inc. 5.750% AA- 118,030
(SATURNS)
11,900 Goldman Sachs Group 6.000% A1 235,382
Inc., Series GSC-3
(PPLUS)
12,000 Goldman Sachs Group 6.000% A1 237,240
Inc., Series GSC-4
Class A (PPLUS)
357,800 Lehman Brothers Holdings 6.375% A2 7,120,220
Capital Trust III,
Series K
70,800 Merrill Lynch Preferred 7.000% A2 1,472,640
Capital Trust III
21,200 Merrill Lynch Preferred 7.120% A2 464,280
Capital Trust IV
88,000 Merrill Lynch Preferred 7.280% A2 1,936,000
Capital Trust V
176,623 Morgan Stanley Capital 6.250% A1 3,375,266
Trust III
1,400 Morgan Stanley Capital 6.250% A1 26,670
Trust IV
21,100 Morgan Stanley Capital 5.750% A+ 369,250
Trust V
75,700 Morgan Stanley Capital 6.600% A1 1,517,785
Trust VI
29,718 Morgan Stanley Capital 6.600% A2 582,770
Trust VII
- --------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 30,101,805
-------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 17.2%
38,300 ASBC Capital I 7.625% A3 919,200
3,600 BAC Capital Trust IV 5.875% Aa2 71,100
12,200 BAC Capital Trust VIII 6.000% Aa2 239,730
3,800 BAC Capital Trust X 6.250% Aa2 77,938
1,359 Banco Santander Finance 6.410% Aa3 29,966
17,612 Banco Santander Finance, 6.500% A 367,651
144A
204,784 Banco Santander Finance, 6.800% Aa3 4,515,487
144A
25,800 BancorpSouth Capital 8.150% Baa1 645,000
Trust I
246,100 Banesto Holdings, Series 10.500% A1 7,582,956
A, 144A
33,200 Bank One Capital Trust 7.200% Aa3 773,560
VI
29,500 Capital One Capital II 7.500% Baa1 560,500
Corporation
40,500 Citizens Funding Trust I 7.500% Baa2 627,750
44,500 Cobank ABC, 144A 7.000% A 2,248,897
349,600 Fifth Third Capital 7.250% A1 7,271,680
Trust VI
35,816 Fleet Capital Trust VIII 7.200% Aa2 841,676
141,900 HSBC Finance Corporation 6.875% AA- 3,330,393
167,655 KeyCorp Capital Trust IX 6.750% Baa1 3,177,062
245,800 National City Capital 6.625% A3 4,067,990
Trust II
8,100 National City Capital 6.625% A3 135,270
Trust III
13,600 PNC Capital Trust 6.125% A2 285,600
1,744 Royal Bank of Scotland 5.750% A1 31,305
Group PLC, Series L
104,465 Royal Bank of Scotland 6.350% A1 2,037,068
Group PLC, Series N
16,100 USB Capital Trust XI 6.600% A1 340,515
15,760 VNB Capital Trust I 7.750% A3 389,902
4,000 Wells Fargo Capital 5.625% Aa2 76,800
Trust IX
51,000 Wells Fargo Capital 7.000% Aa2 1,178,100
Trust V
49,444 Wells Fargo Capital 5.850% Aa2 997,285
Trust VII
81,600 Zions Capital Trust B 8.000% BBB- 2,018,784
- --------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 44,839,165
-------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
2,804 IBM Inc., Trust 7.100% A+ 69,259
Certificates, Series
2001-2
- --------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 13.6%
59,100 Allied Capital 6.875% BBB+ 1,004,700
Corporation
370,815 BAC Capital Trust XII 6.875% Aa3 8,380,418
10,000 Citigroup Capital XIV 6.875% A+ 202,500
55,729 Citigroup Capital XV 6.500% Aa3 1,083,929
304,900 Citigroup Capital XX 7.875% Aa3 7,612,987
108,000 General Electric Capital 6.050% AAA 2,700,000
Corporation
497,300 ING Groep N.V. 7.200% A1 11,149,465
142,600 ING Groep N.V. 7.050% A 3,122,940
11,000 ING Groep N.V. 6.125% A1 210,100
</Table>
28
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
1,913 Royal Bank of Scotland 6.750% A1 $ 39,829
Public Limited Company,
Series 2006Q
- --------------------------------------------------------------------------------------------------------------------------------
Total Diversified 35,506,868
Financial Services
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.0%
179,200 AT&T Inc. 6.375% A 4,322,304
3,300 BellSouth Capital 7.100% A 73,631
Funding (CORTS)
4,600 BellSouth Corporation 7.000% A 94,818
(CORTS)
26,600 Verizon Communications 7.625% A 668,724
(CORTS)
- --------------------------------------------------------------------------------------------------------------------------------
Total Diversified 5,159,477
Telecommunication
Services
-------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 3.9%
55,200 Entergy Louisiana LLC 7.600% A- 1,351,848
203,147 Entergy Mississippi 7.250% A- 5,145,714
Inc.
47,900 FPL Group Capital Inc. 7.450% A3 1,240,610
23,800 FPL Group Capital Inc. 6.600% A3 571,200
3,500 National Rural Utilities 6.100% A3 74,235
Cooperative Finance
Corporation
33,018 National Rural Utilities 5.950% A3 698,001
Cooperative Finance
Corporation
34,400 PPL Energy Supply LLC 7.000% BBB 854,840
8,900 Virginia Power Capital 7.375% BBB 217,071
Trust
- --------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 10,153,519
-------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
11,000 Dairy Farmers of America 7.875% BBB- 1,087,625
Inc., 144A
- --------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 18.5%
194,400 Ace Ltd., Series C 7.800% BBB 4,646,160
15,686 Aegon N.V. 6.875% A- 332,543
409,638 Aegon N.V. 6.375% A- 8,090,350
41,700 AMBAC Financial Group 5.950% AA 752,685
Inc.
142,500 American International 7.700% Aa3 3,569,625
Group
195,649 Arch Capital Group 8.000% BBB- 4,889,269
Limited
54,100 Berkley WR Corporation, 6.750% BBB- 1,134,477
Capital Trust II
139,400 Delphi Financial Group, 8.000% BBB+ 3,305,174
Inc.
92,100 Delphi Financial Group, 7.376% BBB- 1,698,785
Inc.
45,867 EverestRe Capital Trust 6.200% Baa1 863,217
II
146,200 Financial Security 6.250% AA 2,668,150
Assurance Holdings
174,900 PartnerRe Limited, 6.750% BBB+ 3,368,574
Series C
3,100 PartnerRe Limited, 6.500% BBB+ 58,249
Series D
57,100 PLC Capital Trust III 7.500% BBB+ 1,297,883
46,400 PLC Capital Trust IV 7.250% BBB+ 1,020,800
5,400 PLC Capital Trust V 6.125% BBB+ 102,978
332,700 Protective Life 7.250% BBB 7,269,495
Corporation
80,844 Prudential PLC 6.750% A 1,644,367
3,300 RenaissanceRe Holdings 6.600% BBB 61,182
Limited
73,466 RenaissanceRe Holdings 7.300% BBB 1,597,886
Limited, Series B
- --------------------------------------------------------------------------------------------------------------------------------
Total Insurance 48,371,849
-------------------------------------------------------------------------------------------------------------------
MEDIA - 5.6%
75,000 CBS Corporation 6.750% BBB 1,443,750
261,800 Comcast Corporation 7.000% BBB+ 5,955,950
25,400 Comcast Corporation 7.000% BBB+ 569,976
40,900 Comcast Corporation 6.625% BBB+ 842,131
259,800 Viacom Inc. 6.850% BBB 5,720,796
- --------------------------------------------------------------------------------------------------------------------------------
Total Media 14,532,603
-------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.7%
195,200 Nexen Inc. 7.350% Baa3 4,526,688
- --------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.2%
8,600 Bristol-Myers Squibb 6.250% A+ 180,600
Company (CORTS)
4,800 Bristol-Myers Squibb 6.800% A+ 109,824
Company Trust (CORTS)
- --------------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 290,424
-------------------------------------------------------------------------------------------------------------------
REAL ESTATE/MORTGAGE - 20.7%
10,700 AvalonBay Communities, 8.700% BBB 271,031
Inc., Series H
29,400 BRE Properties, Series C 6.750% BBB- 568,596
</Table>
29
JHP
Nuveen Quality Preferred Income Fund 3 (continued)
Portfolio of INVESTMENTS as of December 31, 2007
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
8,029 BRE Properties, Series D 6.750% BBB- $ 160,580
171,200 Developers Diversified 8.000% BBB- 3,843,440
Realty Corporation,
Series G
32,000 Developers Diversified 7.375% BBB- 656,000
Realty Corporation,
Series H
112,900 Duke Realty Corporation, 6.600% BBB 2,218,485
Series L
136,700 Duke Realty Corporation, 7.250% BBB 2,818,754
Series N
149,000 Duke-Weeks Realty 6.950% BBB 3,002,350
Corporation
144,300 First Industrial Realty 7.250% BBB- 2,922,075
Trust, Inc., Series J
145,429 HRPT Properties Trust, 8.750% BBB- 3,629,908
Series B
131,111 HRPT Properties Trust, 7.125% BBB- 2,648,442
Series C
186,200 Kimco Realty 7.750% BBB+ 4,317,047
Corporation, Series G
17,500 Prologis Trust, Series G 6.750% BBB 367,850
155,600 PS Business Parks, Inc. 7.000% BBB- 3,049,760
115,800 PS Business Parks, Inc., 7.600% BBB- 2,436,432
Series L
3,000 Public Storage, Inc. 7.125% BBB+ 63,720
115,500 Public Storage, Inc. 6.750% BBB+ 2,269,575
16,500 Public Storage, Inc., 6.450% BBB+ 311,025
Series F
194,262 Public Storage, Inc., 7.250% BBB+ 4,089,215
Series K
32,500 Public Storage, Inc., 6.625% BBB+ 617,500
Series M
15,000 Public Storage, Inc., 7.500% BBB+ 334,500
Series V
77,300 Public Storage, Inc., 6.850% BBB+ 1,652,288
Series Y
5,900 Realty Income 7.375% BBB- 139,535
Corporation
53,800 Realty Income 6.750% BBB- 1,138,408
Corporation, Series E
30,972 Regency Centers 7.450% BBB- 682,933
Corporation
76,000 Regency Centers 7.250% BBB- 1,565,600
Corporation
9,000 Regency Centers 6.700% BBB- 176,940
Corporation
61,800 Vornado Realty Trust, 6.625% BBB- 1,215,606
Series G
7,500 Vornado Realty Trust, 6.625% BBB- 148,275
Series I
262,800 Wachovia Preferred 7.250% A2 5,962,932
Funding Corporation
39,900 Weingarten Realty Trust, 6.950% A- 825,930
Series E
- --------------------------------------------------------------------------------------------------------------------------------
Total Real 54,104,732
Estate/Mortgage
-------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.3%
223,569 Countrywide Capital 6.750% BBB- 2,635,879
Trust IV
289,365 Countrywide Capital 7.000% BBB- 3,313,229
Trust V
3,300 Harris Preferred Capital 7.375% A1 74,514
Corporation, Series A
- --------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage 6,023,622
Finance
-------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 0.9%
13,200 Federal Home Loan 6.550% AA- 306,900
Mortgage Corporation
46,500 Federal National 7.000% AA- 2,154,987
Mortgage Association
- --------------------------------------------------------------------------------------------------------------------------------
Total U.S. Agency 2,461,887
-------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.5%
157,500 United States Cellular 8.750% A- 3,928,052
Corporation
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED 261,157,575
SECURITIES (COST $304,820,823)
===================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 0.7% (0.4% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 0.7%
$ 2,000 Credit Agricole S.A. 6.637% 5/29/49 Aa3 $ 1,858,650
- ----------------------------------------------------------------------------------------------------------------------------------
$ 2,000 TOTAL CORPORATE BONDS 1,858,650
(COST $1,943,989)
==================================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 52.7% (32.4% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 8.3%
1,000 Bank of New York Capital 7.970% 12/31/26 Aa3 $ 1,035,870
I, Series B
250 C.A. Preferred Fund 7.000% 10/30/49 A1 243,455
Trust II
3,250 C.A. Preferred Funding 7.000% 1/30/49 A1 3,169,195
Trust
4,300 Dresdner Funding Trust 8.151% 6/30/31 A1 4,397,236
I, 144A
8,485 First Union Capital 7.950% 11/15/29 A1 9,055,666
Trust II, Series A
3,000 Mizuho JGB Investment 9.870% 6/30/48 A1 3,027,753
</Table>
30
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS (continued)
700 MUFG Capital Finance 2 4.850% 7/25/56 BBB+ $ 868,584
- -----------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 21,797,759
-------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 24.7%
1,500 AB Svensk Exportkredit, 6.375% 10/27/49 AA- 1,492,068
144A
1,800 Abbey National Capital 8.963% 6/30/50 A+ 2,119,964
Trust I
1,900 AgFirst Farm Credit Bank 7.300% 12/15/53 A- 1,792,337
6,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 6,535,277
500 Barclays Bank PLC 7.434% 12/15/57 Aa3 520,488
1,900 BBVA International 5.919% 10/18/49 A1 1,665,975
Preferred S.A.,
Unipersonal
5,000 Capital One Capital IV 6.745% 2/17/37 Baa1 3,727,445
Corporation
3,000 CBG Florida REIT 7.114% 11/15/49 Baa3 2,792,169
Corporation
900 DBS Capital Funding 7.657% 3/15/49 Aa3 962,381
Corporation, 144A
4,400 Den Norske Bank, 144A 7.729% 6/29/49 Aa3 4,691,619
1,000 First Empire Capital 8.234% 2/01/27 A3 1,043,385
Trust I
500 First Midwest Bancorp 6.950% 12/01/33 Baa1 458,805
Inc.
1,600 HBOS Capital Funding LP, 6.850% 3/23/49 A1 1,403,211
Notes
4,600 HBOS PLC, Series, 144A 6.413% 4/01/49 A1 3,753,517
1,430 HSBC USA Capital Trust 8.380% 5/15/27 A 1,492,442
II, 144A
1,000 HT1 Funding, GmbH 6.352% 6/30/57 A- 1,344,038
2,500 KBC Bank Fund Trust III, 9.860% 5/02/50 A1 2,686,905
144A
1,000 Lloyds TSB Bank PLC, 6.900% 11/22/49 Aa2 972,115
Subordinated Note
2,000 Mizuho Financial Group 8.375% 4/27/49 Aa3 2,021,380
2,000 Northgroup Preferred 6.378% 10/15/57 A1 1,773,016
Capital Corporation,
144A
1,000 Popular North American 6.564% 9/15/34 Baa1 893,900
Capital Trust I
1,500 Royal Bank of Scotland 7.640% 3/31/49 A1 1,544,777
Group PLC, Series U
3,300 Shinsei Finance II 7.160% 7/25/49 Baa2 2,793,658
Cayman Limited,
Perpetual Maturity,
144A
1,500 Standard Chartered PLC, 7.014% 1/30/58 BBB+ 1,424,519
144A
2,660 Swedbank 9.000% 9/17/50 Aa3 2,842,308
ForeningsSparbanken AB,
144A
--(3) Union Planters Preferred 7.750% 7/15/53 A2 7,951,563
Fund, 144A
5,600 Washington Mutual 7.250% 3/15/49 BBB 3,683,870
Preferred Funding
Cayman, Series A-1,
144A
- -----------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 64,383,132
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 3.6%
1,300 Fulton Capital Trust I 6.290% 2/01/36 A3 979,523
6,000 JPMorgan Chase Capital 6.950% 8/17/36 Aa3 5,716,218
Trust XVIII
902 MM Community Funding 8.030% 6/15/31 Aaa 935,384
Trust I Limited
1,800 Old Mutual Capital 8.000% 6/22/53 Baa2 1,805,040
Funding, Notes
- -----------------------------------------------------------------------------------------------------------------------------------
Total Diversified 9,436,165
Financial Services
-------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.3%
5 Centaur Funding 9.080% 4/21/20 BBB 6,104,888
Corporation, Series B,
144A
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 11.2%
3,450 Ace Capital Trust II 9.700% 4/01/30 Baa1 4,381,852
3,500 AXA S.A., 144A 6.463% 12/14/49 BBB+ 3,157,599
2,600 Great West Life and 7.153% 5/16/46 A- 2,608,104
Annuity Insurance
Company
1,000 Liberty Mutual Group 7.800% 3/15/37 Baa3 891,875
1,000 MetLife Capital Trust IV 7.880% 12/15/67 BBB+ 1,021,832
600 MetLife Inc. 6.400% 12/15/66 BBB+ 551,612
400 Nationwide Financial 7.899% 3/01/37 Baa1 412,116
Services Capital Trust
600 Nationwide Financial 6.750% 5/15/67 Baa1 554,336
Services Inc.
2,400 Oil Insurance Limited, 7.558% 12/30/49 Baa1 2,453,107
144A
4,500 Progressive Corporation 6.700% 6/15/37 A2 4,184,753
500 Prudential PLC 6.500% 6/29/49 A 449,013
6,000 QBE Capital Funding 6.797% 6/01/49 BBB 5,755,182
Trust II, 144A
3,000 XL Capital, Limited 6.500% 10/15/57 BBB 2,627,451
- -----------------------------------------------------------------------------------------------------------------------------------
Total Insurance 29,048,832
-------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.0%
3,000 KN Capital Trust III 7.630% 4/15/28 B1 2,721,000
- -----------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 1.0%
2,785 Burlington Northern 6.613% 12/15/55 BBB 2,607,153
Santa Fe Funding Trust
I
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
31
JHP
Nuveen Quality Preferred Income Fund 3 (continued)
Portfolio of INVESTMENTS as of December 31, 2007
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.6%
2,400 Washington Mutual 6.665% 3/15/57 BBB $ 1,418,062
Preferred Funding Trust
II
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED 137,516,991
SECURITIES (COST
$148,558,258)
===================================================================================================================
<Caption>
SHARES DESCRIPTION (1) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 6.5% (4.0% OF TOTAL INVESTMENTS)
97,685 Blackrock Preferred and $ 1,567,844
Corporate Income
Strategies Fund
230,226 Blackrock Preferred 3,667,500
Income Strategies Fund
46,226 Blackrock Preferred 800,172
Opportunity Trust
241,169 Flaherty and 3,897,291
Crumrine/Claymore
Preferred Securities
Income Fund Inc.
158,064 Flaherty and 2,668,120
Crumrine/Claymore Total
Return Fund Inc.
19,342 John Hancock Preferred 366,918
Income Fund
24,126 John Hancock Preferred 451,639
Income Fund II
188,671 John Hancock Preferred 3,403,625
Income Fund III
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT 16,823,109
COMPANIES (COST
$20,757,565)
===================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.6% (1.6% OF TOTAL INVESTMENTS)
$ 6,831 Repurchase Agreement 1.000% 1/02/08 $ 6,831,159
with Fixed Income
Clearing Corporation,
dated 12/31/07,
repurchase price
$6,831,539,
collateralized by
$6,460,000 U.S.
Treasury Notes, 4.875%,
due 8/15/16, value
$6,968,725
========== -------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM 6,831,159
INVESTMENTS (COST
$6,831,159)
-------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST 424,187,484
$482,911,794) - 162.5%
-------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS 2,893,805
LIABILITIES - 1.1%
-------------------------------------------------------------------------------------------------------------------
FUNDPREFERRED SHARES, AT (166,000,000)
LIQUIDATION
VALUE - (63.6)% (4)
-------------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO $ 261,081,289
COMMON SHARES - 100%
===================================================================================================================
</Table>
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2007:
<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. $42,000,000 Receive 1-Month USD-LIBOR 3.255% Monthly 2/06/08 $ 163,755
Citigroup Inc. 42,000,000 Receive 1-Month USD-LIBOR 3.815 Monthly 2/06/10 (17,800)
-----------------------------------------------------------------------------------------------------------------------
$ 145,955
=======================================================================================================================
</Table>
<Table>
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 Group ("Standard & Poor's") or Moody's Investor
Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's
are considered to be below investment grade.
(3) Principal Amount (000)/Shares rounds to less than $1,000.
(4) FundPreferred Shares, at Liquidation Value as a percentage of total investments is
(39.1)%.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CORTS Corporate Backed Trust Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
</Table>
See accompanying notes to financial statements.
32
Statement of
ASSETS & LIABILITIES
December 31, 2007
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $1,296,954,406, $2,448,041,788
and $482,911,794, respectively) $1,147,610,708 $2,172,707,865 $424,187,484
Cash 1,160,808 863,704 255,945
Cash denominated in foreign currencies (cost $-, $155,530
and $-, respectively) -- 155,056 --
Unrealized appreciation on interest rate swaps -- -- 145,955
Receivables:
Dividends 1,514,518 2,200,160 425,791
Interest 5,105,876 10,038,580 1,528,795
Investments sold 1,036,658 2,920,311 950,010
Reclaims -- 142,729 32,914
Other assets 110,242 201,748 28,019
- ----------------------------------------------------------------------------------------------------------------
Total assets 1,156,538,810 2,189,230,153 427,554,913
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES
Unrealized depreciation on interest rate swaps 987,076 418,657 --
Payable for investments purchased 307,543 359,688 1,873
Accrued expenses:
Management fees 621,578 1,130,088 208,349
Other 384,808 645,901 130,811
FundPreferred shares dividends payable 293,236 550,390 132,591
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 2,594,241 3,104,724 473,624
- ----------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000
- ----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 713,944,569 $1,386,125,429 $261,081,289
================================================================================================================
Common shares outstanding 64,557,648 119,845,699 23,690,909
================================================================================================================
Net asset value per Common share outstanding (net assets
applicable to
Common shares, divided by Common shares outstanding) $ 11.06 $ 11.57 $ 11.02
================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
- ----------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 645,576 $ 1,198,457 $ 236,909
Paid-in surplus 897,894,532 1,686,854,230 329,654,258
Undistributed (Over-distribution of) net investment income 193,921 (3,668,866) 639,113
Accumulated net realized gain (loss) from investments and
derivative transactions (34,465,403) (22,518,627) (10,872,945)
Net unrealized appreciation (depreciation) of investments
and derivative transactions (150,324,057) (275,739,765) (58,576,046)
- ----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 713,944,569 $1,386,125,429 $261,081,289
================================================================================================================
Authorized shares:
Common Unlimited Unlimited Unlimited
FundPreferred Unlimited Unlimited Unlimited
================================================================================================================
</Table>
See accompanying notes to financial statements.
33
Statement of
OPERATIONS
Year Ended December 31, 2007
<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 $--, $5,063 and
$1,971, respectively) $ 56,601,945 $ 108,431,962 $ 23,376,546
Interest 36,089,577 67,723,485 10,910,592
- --------------------------------------------------------------------------------------------------------------------
Total investment income 92,691,522 176,155,447 34,287,138
- --------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 11,085,785 20,302,072 4,228,068
FundPreferred shares - auction fees 1,100,000 2,000,000 415,000
FundPreferred shares - dividend disbursing agent fees 29,724 42,017 14,493
Shareholders' servicing agent fees and expenses 8,208 9,942 1,604
Custodian's fees and expenses 231,269 418,670 94,771
Trustees' fees and expenses 30,448 60,273 11,675
Professional fees 87,741 123,288 39,158
Shareholders' reports - printing and mailing expenses 194,074 345,820 78,047
Stock exchange listing fees 23,270 43,236 9,698
Investor relations expense 168,550 313,010 64,585
Other expenses 50,055 66,649 27,676
- --------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 13,009,124 23,724,977 4,984,775
Custodian fee credit (17,571) (28,670) (5,188)
Expense reimbursement (3,615,359) (7,321,205) (1,531,578)
- --------------------------------------------------------------------------------------------------------------------
Net expenses 9,376,194 16,375,102 3,448,009
- --------------------------------------------------------------------------------------------------------------------
Net investment income 83,315,328 159,780,345 30,839,129
- --------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments (5,132,013) (574,703) (4,501,418)
Interest rate swaps 2,033,771 6,499,835 1,505,963
Futures (11,881,039) (19,893,208) (4,429,499)
Foreign currencies 1,097 16,390 (2,751)
Change in net unrealized appreciation (depreciation) of:
Investments (172,487,627) (330,937,014) (63,538,229)
Interest rate swaps (3,782,365) (9,742,683) (2,319,574)
Foreign currencies 5,317 10,163 1,793
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (191,242,859) (354,621,220) (73,283,715)
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (22,627,872) (40,051,092) (8,630,819)
From accumulated net realized gains -- (1,169,215) --
- --------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (22,627,872) (41,220,307) (8,630,819)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $ (130,555,403) $ (236,061,182) $(51,075,405)
- --------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
34
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
12/31/07 12/31/06 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 83,315,328 $ 82,501,402 $ 159,780,345 $ 159,268,122
Net realized gain (loss) from:
Investments (5,132,013) 132,407 (574,703) (990,466)
Interest rate swaps 2,033,771 2,298,167 6,499,835 5,781,508
Futures (11,881,039) -- (19,893,208) --
Foreign currencies 1,097 563 16,390 1,066
Change in net unrealized appreciation (depreciation) of:
Investments (172,487,627) (940,681) (330,937,014) (5,130,313)
Interest rate swaps (3,782,365) (215,813) (9,742,683) (1,630,640)
Foreign currencies 5,317 1,400 10,163 2,652
Distributions to FundPreferred shareholders:
From net investment income (22,627,872) (20,743,697) (40,051,092) (37,501,376)
From accumulated net realized gains -- -- (1,169,215) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations (130,555,403) 63,033,748 (236,061,182) 119,800,553
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (59,742,151) (69,630,812) (124,716,189) (133,434,611)
From accumulated net realized gains -- -- (5,233,037) --
Tax return of capital (6,091,299) -- (4,179,641) --
- ---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (65,833,450) (69,630,812) (134,128,867) (133,434,611)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares issued to shareholders due
to reinvestment of distributions 725,059 607,703 2,923,173 1,483,854
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from capital share transactions 725,059 607,703 2,923,173 1,483,854
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares (195,663,794) (5,989,361) (367,266,876) (12,150,204)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the beginning of
year 909,608,363 915,597,724 1,753,392,305 1,765,542,509
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of year $713,944,569 $909,608,363 $1,386,125,429 $1,753,392,305
- ---------------------------------------------------------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment income
at the end of year $ 193,921 $ (1,329,743) $ (3,668,866) $ (3,968,873)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
35
<Table>
<Caption>
QUALITY PREFERRED INCOME 3 (JHP)
---------------------------------
YEAR ENDED YEAR ENDED
12/31/07 12/31/06
- -----------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 30,839,129 $ 30,871,981
Net realized gain (loss) from:
Investments (4,501,418) (2,688,895)
Interest rate swaps 1,505,963 1,379,809
Futures (4,429,499) --
Foreign currencies (2,751) 208
Change in net unrealized appreciation (depreciation) of:
Investments (63,538,229) 3,328,270
Interest rate swaps (2,319,574) (567,278)
Foreign currencies 1,793 516
Distributions to FundPreferred shareholders:
From net investment income (8,630,819) (7,912,599)
From accumulated net realized gains -- --
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations (51,075,405) 24,412,012
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (22,471,014) (25,661,097)
From accumulated net realized gains -- --
Tax return of capital (2,322,309) (327,326)
- -----------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to
Common shareholders (24,793,323) (25,988,423)
- -----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares issued to shareholders due
to reinvestment of
distributions 409,712 259,052
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from capital share
transactions 409,712 259,052
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares (75,459,016) (1,317,359)
- -----------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the beginning of
year 336,540,305 337,857,664
- -----------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of year $261,081,289 $336,540,305
===============================================================================================
Undistributed (Over-distribution of) net investment income
at the end of year $ 639,113 $ (881,169)
===============================================================================================
</Table>
See accompanying notes to financial statements.
36
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The funds (the "Funds") covered in this report and their corresponding Common
share New York Stock Exchange symbols are Nuveen Quality Preferred Income Fund
(JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred
Income Fund 3 (JHP). The Funds are registered under the Investment Company Act
of 1940, as amended, as non-diversified, closed-end management investment
companies.
Each Fund seeks to provide high current income consistent with capital
preservation by investing primarily in a portfolio of preferred securities, debt
securities including convertible debt securities and convertible preferred
securities.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. Futures contracts are valued using the closing
settlement price or, in the absence of such a price, at the mean of the bid and
asked prices. The prices of fixed-income securities and interest rate swap
contracts are generally provided by an independent pricing service approved by
the Funds' Board of Trustees. When price quotes are not readily available, the
pricing service or, in the absence of a pricing service for a particular
investment, the Board of Trustees of the Funds, or its designee, may establish
fair value using a wide variety of market data including yields or prices of
investments of comparable quality, type of issue, coupon, maturity and rating,
market quotes or indications of value from security dealers, evaluations of
anticipated cash flows or collateral, general market conditions and other
information and analysis, including the obligor's credit characteristics
considered relevant by the pricing service or the Board of Trustees' designee.
If the pricing service is unable to supply a price for an investment or
derivative instrument, the Funds may use market quotes provided by major
broker/dealers in such investments. If it is determined that the market price
for an investment or derivative instrument is unavailable or inappropriate, the
Board of Trustees of the Funds, or its designee, may establish fair value in
accordance with procedures established in good faith by the Board of Trustees.
Short-term investments are valued at amortized cost, which approximates market
value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. Investments purchased on a when-issued/delayed delivery
basis may have extended settlement periods. Any investments so purchased are
subject to market fluctuation during this period. The Funds have instructed the
custodian to segregate assets with a current value at least equal to the amount
of the when-issued/delayed delivery purchase commitments. At December 31, 2007,
there were no such outstanding purchase commitments in any of the Funds.
Investment Income
Dividend income is recorded on the ex-dividend date or, for foreign securities,
when information is available. Interest income, which includes the amortization
of premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis. Interest income also includes paydown gains and
losses, if any.
Federal Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to distribute substantially all net investment income and net capital
gains to shareholders and to otherwise comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no federal income tax provision is required.
Effective June 29, 2007, the Funds adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN
48). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the affirmative evaluation of tax positions taken or expected to be
taken in the course of preparing the Funds' tax returns to determine whether it
is "more-likely-than-not" (i.e. greater than 50-percent) of being sustained by
the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold may result in a tax benefit or expense in the
current year.
37
Notes to
FINANCIAL STATEMENTS (continued)
Implementation of FIN 48 required management of the Funds to analyze all open
tax years, as defined by the statute of limitations, for all major
jurisdictions, which includes federal and certain states. Open tax years are
those that are open for examination by taxing authorities (i.e. the last four
tax year ends and the interim tax period since then). The Funds have no
examinations in progress.
For all open tax years and all major taxing jurisdictions through the end of the
reporting period, management of the Funds has reviewed all tax positions taken
or expected to be taken in the preparation of the Funds' tax returns and
concluded the adoption of FIN 48 resulted in no impact to the Funds' net assets
or results of operations as of and during the fiscal year ended December 31,
2007.
The Funds are also not aware of any tax positions for which it is reasonably
possible that the total amounts of unrecognized tax benefits will significantly
change in the next twelve months.
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
Distributions to Common shareholders are declared monthly. Net realized capital
gains from investment transactions, if any, are distributed to shareholders not
less frequently than annually. Futhermore, capital gains are distributed only to
the extent they exceed available capital loss carryforwards.
FundPreferred Shares
The Funds have issued and outstanding FundPreferred shares, $25,000 stated value
per share, as a means of effecting financial leverage. Each Fund's FundPreferred
shares are issued in more than one Series. The dividend rate paid by the Funds
on each Series is determined every seven days, pursuant to a dutch auction
process overseen by the auction agent, and is payable at the end of each rate
period. The number of FundPreferred shares outstanding, by Series and in total,
for each Fund is as follows:
<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 interest rate swap transactions. The
Funds' use of interest rate swap transactions is intended to mitigate the
negative impact that an increase in short-term interest rates could have on
Common share net earnings as a result of leverage. Interest rate swap
transactions involve each Fund's agreement with the counterparty to pay or
receive a fixed rate payment in exchange for the counterparty paying or
receiving a variable rate payment that is intended to approximate each Fund's
variable rate payment obligation on FundPreferred shares or any variable rate
borrowing. The payment obligation is based on the notional amount of the
interest rate swap contract. Interest rate swaps do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to the swap counterparty on such transactions is limited to
the net amount of interest payments that each Fund is to receive. Interest rate
swap positions are valued daily. Although there are economic advantages of
entering into interest rate swap transactions, there are also additional risks.
The Funds help manage the credit risks associated with interest rate swap
transactions by entering into agreements only with counterparties Nuveen Asset
Management (the "Adviser"), a wholly owned subsidiary of Nuveen Investments Inc.
("Nuveen"), believes have the financial resources to honor their obligations and
by having the Adviser continually monitor the financial stability of the swap
counterparties.
38
Futures Contracts
The Funds are authorized to invest in futures contracts. Upon entering into a
futures contract, a Fund is required to deposit with the broker an amount of
cash or liquid securities equal to a specified percentage of the contract
amount. This is known as the "initial margin." Subsequent payments ("variation
margin") are made or received by a Fund each day, depending on the daily
fluctuation of the value of the contract.
During the period the futures contract is open, changes in the value of the
contract are recognized as an unrealized gain or loss by "marking-to-market" on
a daily basis to reflect the changes in market value of the contract. When the
contract is closed or expired, a Fund records a realized gain or loss equal to
the difference between the value of the contract on the closing date and the
value of the contract when originally entered into. Cash held by the broker to
cover initial margin requirements on open futures contracts, if any, is
recognized in the Statement of Assets and Liabilities. Additionally, the
Statement of Assets and Liabilities reflects a receivable or payable for the
variation margin when applicable. During the fiscal year ended December 31, 2007
each Fund invested in futures contracts. As of December 31, 2007, there were no
outstanding futures contracts in any of the Funds.
Risks of investments in futures contracts include the possible adverse movement
of the securities or indices underlying the contracts, the possibility that
there may not be a liquid secondary market for the contracts and/or that a
change in the value of the contract may not correlate with a change in the value
of the underlying securities or indices.
Foreign Currency Transactions
The Funds are authorized to engage in foreign currency exchange transactions,
including foreign currency forward, options and futures contracts. To the extent
that the Funds invest in securities and/or contracts that are denominated in a
currency other than U.S. dollars, the Funds will be subject to currency risk,
which is the risk that an increase in the U.S. dollar relative to the foreign
currency will reduce returns or portfolio value. Generally, when the U.S. dollar
rises in value against a foreign currency, the Funds' investments denominated in
that currency will lose value because its currency is worth fewer U.S. dollars;
the opposite effect occurs if the U.S. dollar falls in relative value.
Investments and other assets and liabilities denominated in foreign currencies
are converted into U.S. dollars on a spot (i.e. cash) basis at the spot rate
prevailing in the foreign currency exchange market at the time of valuation.
Purchases and sales of investments and income denominated in foreign currencies
are translated into U.S. dollars on the respective dates of such transactions.
The gains or losses resulting from changes in foreign exchange rates are
included in "Realized gain (loss) on foreign currencies" and "Change in net
unrealized appreciation (depreciation) of foreign currencies" in the Statement
of Operations.
The books and records of the Funds are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at 4:00 p.m. Eastern time. Investments and income and expenses are
translated on the respective dates of such transactions. Net realized foreign
currency gains and losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date of the
transactions, foreign currency transactions, and the difference between the
amounts of interest and dividends recorded on the books of a Fund and the
amounts actually received.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Funds'
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by net credits earned on each Fund's cash on
deposit with the bank. Such deposit arrangements are an alternative to overnight
investments. Credits for cash balances may be offset by charges for any days on
which the Fund overdraws its account at the custodian bank.
Indemnifications
Under the Funds' organizational documents, their Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Funds. In addition, in the normal course of business, the Funds
enter into contracts that provide general indemnifications to other parties. The
Funds' maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Funds that have not yet
occurred. However, the Funds have not had prior claims or losses pursuant to
these contracts and expect the risk of loss to be remote.
39
Notes to
FINANCIAL STATEMENTS (continued)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
Transactions in Common shares were as follows:
<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
12/31/07 12/31/06 12/31/07 12/31/06 12/31/07 12/31/06
- ---------------------------------------------------------------------------------------------------------------------------------
Shares issued to shareholders due to reinvestment
of distributions 52,207 43,337 202,230 101,627 29,874 18,314
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
3. INVESTMENT TRANSACTIONS
Purchases and sales (including maturities but excluding short-term investments
and derivative transactions) during the fiscal year ended December 31, 2007,
were as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ---------------------------------------------------------------------------------------------------------------------------
Purchases:
Investment securities $422,748,494 $728,959,254 $165,766,536
U.S. Government and agency obligations 1,011,328 1,004,141 --
Sales and maturities:
Investment securities 403,151,787 756,290,322 171,275,438
U.S. Government and agency obligations -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
</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, recognition of income on REIT investments,
timing differences in the recognition of income and timing differences in
recognizing certain gains and losses on investment transactions. To the extent
that differences arise that are permanent in nature, such amounts are
reclassified within the capital accounts on the Statement of Assets and
Liabilities presented in the annual report, based on their federal tax basis
treatment; temporary differences do not require reclassification. Temporary and
permanent differences do not impact the net asset values of the Funds.
At December 31, 2007, the cost of investments was as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ---------------------------------------------------------------------------------------------------------------------------
Cost of investments $1,296,481,002 $2,451,160,434 $482,057,296
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
40
Gross unrealized appreciation and gross unrealized depreciation of investments
at December 31, 2007, were as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ---------------------------------------------------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 10,574,821 $ 18,261,957 $ 4,111,824
Depreciation (159,445,115) (296,714,526) (61,981,636)
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $(148,870,294) $(278,452,569) $(57,869,812)
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
The tax components of undistributed net ordinary income and net long-term
capital gains at July 31, 2007, the Funds' last tax year end, were as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ---------------------------------------------------------------------------------------------------------------------------
Undistributed net ordinary income * $ -- $ -- $ --
Undistributed net long-term capital gains -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
The tax character of distributions paid during the Funds' tax years ended July
31, 2007 and July 31, 2006, was designated for purposes of the dividends paid
deduction as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
JULY 31, 2007 (JTP) (JPS) (JHP)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $84,716,262 $168,144,072 $31,830,464
Distributions from net long-term capital gains -- 6,399,646 --
Tax return of capital 6,091,299 4,179,641 2,322,309
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
<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>
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
At July 31, 2007, the Funds' last tax year end, the Funds had unused capital
loss carryforwards available for federal income tax purposes to be applied
against future capital gains, if any. If not applied, the carryforwards will
expire as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ---------------------------------------------------------------------------------------------------------------------------
Expiration year:
2011 $16,197,046 $ -- $ --
2012 -- -- --
2013 -- -- --
2014 -- -- --
2015 1,000,781 -- 1,054,637
- ---------------------------------------------------------------------------------------------------------------------------
Total $17,197,827 $ -- $1,054,637
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
41
Notes to
FINANCIAL STATEMENTS (continued)
The following Funds have elected to defer net realized losses from investments
incurred from November 1, 2006 through July 31, 2007, the Funds' last tax year
end, ("post-October losses") in accordance with federal income tax regulations.
Post-October losses are treated as having arisen on the first day of the
following fiscal year:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ---------------------------------------------------------------------------------------------------------------------------
$12,689,093 $16,433,733 $7,874,982
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
Calculation of certain of the amounts presented above (namely, undistributed net
ordinary income for tax purposes) involves the application of complex aspects of
the Internal Revenue Code to certain securities held by the Funds. In
calculating the amount of taxable income derived from these securities,
management made assumptions as to the correct tax treatment of certain of those
securities and made estimates about the tax characteristics of income received
from those securities, based on information currently available to the Funds.
The use of these assumptions and estimates will not affect the qualification of
the Funds as regulated investment companies under Subchapter M of the Internal
Revenue Code, nor is it expected that these assumptions and estimates will be
used in computing taxable income for purposes of preparing the federal and state
income and excise tax returns.
5. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Each Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by the
Adviser, and a specific fund-level component, based only on the amount of assets
within each individual Fund. This pricing structure enables Nuveen fund
shareholders to benefit from growth in the assets within each individual fund as
well as from growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly, for each Fund is based upon the
average daily Managed Assets of each Fund as follows:
<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>
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the tables below. As
of December 31, 2007, the complex-level fee rate was .1846%.
Effective August 20, 2007, the complex-level fee schedule is as follows:
<Table>
<Caption>
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL (1) EFFECTIVE RATE AT BREAKPOINT LEVEL
- ------------------------------------------------------------------------------------------------
$55 billion .2000%
$56 billion .1996
$57 billion .1989
$60 billion .1961
$63 billion .1931
$66 billion .1900
$71 billion .1851
$76 billion .1806
$80 billion .1773
$91 billion .1691
$125 billion .1599
$200 billion .1505
$250 billion .1469
$300 billion .1445
- ------------------------------------------------------------------------------------------------
</Table>
42
Prior to August 20, 2007, the complex-level fee schedule was as follows:
<Table>
<Caption>
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL (1) EFFECTIVE RATE AT BREAKPOINT LEVEL
- ------------------------------------------------------------------------------------------------
$55 billion .2000%
$56 billion .1996
$57 billion .1989
$60 billion .1961
$63 billion .1931
$66 billion .1900
$71 billion .1851
$76 billion .1806
$80 billion .1773
$91 billion .1698
$125 billion .1617
$200 billion .1536
$250 billion .1509
$300 billion .1490
- ------------------------------------------------------------------------------------------------
</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.
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.
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.
43
Notes to
FINANCIAL STATEMENTS (continued)
The Adviser has not agreed to reimburse Quality Preferred Income 2 (JPS) for any
portion of its fees and expenses beyond September 30, 2010.
For the first eight years of Quality Preferred Income 3's (JHP) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
<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.
Agreement and Plan of Merger
On June 20, 2007, Nuveen Investments announced that it had entered into a
definitive Agreement and Plan of Merger ("Merger Agreement") with Windy City
Investments, Inc. ("Windy City"), a corporation formed by investors led by
Madison Dearborn Partners, LLC ("Madison Dearborn"), pursuant to which Windy
City would acquire Nuveen Investments. Madison Dearborn is a private equity
investment firm based in Chicago, Illinois. The merger was consummated on
November 13, 2007.
The consummation of the merger was deemed to be an "assignment" (as that term is
defined in the Investment Company Act of 1940) of the investment management
agreement between each Fund and the Adviser and, if applicable, the sub-advisory
agreement between the Adviser and the sub-adviser of the Funds, and resulted in
the automatic termination of such agreements. The Board of Trustees of each Fund
considered and approved a new investment management agreement with the Adviser,
and, if applicable, a new sub-advisory agreement between the Adviser and the
sub-adviser on the same terms as the previous agreements. Each new ongoing
investment management agreement and sub-advisory agreement, if applicable, was
approved by the shareholders of each Fund and took effect on November 13, 2007.
The investors led by Madison Dearborn includes an affiliate of Merrill Lynch. As
a result, Merrill Lynch is an indirect "affiliated person" (as that term is
defined in the Investment Company Act of 1940) of each Fund. Certain conflicts
of interest may arise as a result of such indirect affiliation. For example, the
Funds are generally prohibited from entering into principal transactions with
Merrill Lynch and its affiliates. The Adviser does not believe that any such
prohibitions or limitations as a result of Merrill Lynch's affiliation will
significantly impact the ability of the Funds to pursue their investment
objectives and policies.
Related Party Holdings
At December 31, 2007, Quality Preferred Income (JTP), Quality Preferred Income 2
(JPS) and Quality Preferred Income 3 (JHP) owned 395,313, 753,181 and 180,000
shares, respectively, of Merrill Lynch and Company, Inc. preferred securities
with aggregate market values of $8,540,540, $15,912,165 and $3,872,920,
respectively. Total income earned by Quality Preferred Income (JTP), Quality
Preferred Income 2 (JPS) and Quality Preferred Income 3 (JHP) from such
securities amounted to $754,698, $1,471,854 and $324,370, respectively, and is
included in dividend income on the Statement of Operations.
6. NEW ACCOUNTING PRONOUNCEMENT
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The changes to current generally accepted accounting principles from the
application of this standard relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. As of December 31, 2007, management does not believe the adoption
of SFAS No. 157 will impact the financial statement amounts; however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements included within the Statement of
Operations for the period.
44
7. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Funds declared Common share distributions which were paid on February 1,
2008, to shareholders of record on January 15, 2008, as follows:
<Table>
<Caption>
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions per share $.0810 $.0860 $.0835
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
During February 2008, regularly scheduled auctions for the FundPreferred shares
issued by the Funds began attracting more shares for sale than offers to buy.
This meant that these auctions "failed to clear," and that many FundPreferred
shareholders who wanted to sell their shares in these auctions were unable to do
so. FundPreferred shareholders unable to sell their shares received
distributions at the "maximum rate" calculated in accordance with the
pre-established terms of the FundPreferred stock.
These developments do not affect the management or investment policies of the
Funds. However, one implication of these auction failures for Common
shareholders is that the Funds' cost of leverage will be higher than it
otherwise would have been had the auctions been successful. As a result, the
Funds' future Common share earnings may be lower than they otherwise might have
been.
45
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
<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:
2007 $14.10 $1.29 $(2.96) $(.35) $ -- $(2.02)
2006 14.20 1.28 .02 (.32) -- .98
2005 14.92 1.30 (.68) (.21) -- .41
2004(b) 14.40 .60 .47 (.05) -- 1.02
Year Ended 7/31:
2004(c) 14.10 1.37 .26 (.08) -- 1.55
2003 14.12 1.31 .16 (.09) -- 1.38
QUALITY PREFERRED INCOME 2 (JPS)
- ---------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2007 14.66 1.34 (2.96) (.34) (.01) (1.97)
2006 14.77 1.33 (.01) (.31) -- 1.01
2005 15.66 1.34 (.69) (.18) (.02) .45
2004(b) 15.32 .60 .50 (.04) (.01) 1.05
Year Ended 7/31:
2004(c) 14.97 1.42 .37 (.08) -- 1.71
2003(d) 14.33 1.02 .79 (.07) -- 1.74
QUALITY PREFERRED INCOME 3 (JHP)
- ---------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2007 14.22 1.31 (3.09) (.37) -- (2.15)
2006 14.29 1.31 .05 (.33) -- 1.03
2005 15.15 1.32 (.70) (.21) (.01) .40
2004(b) 14.71 .60 .46 (.05) -- 1.01
Year Ended 7/31:
2004(c) 14.38 1.38 .40 (.08) (.01) 1.69
2003(e) 14.33 .67 .22 (.04) -- .85
- ---------------------------------------------------------------------------------------------------------------------------
<Caption>
Less Distributions
----------------------------------------------
Net Tax Offering Costs
Investment Capital Return of and Ending
Income to Gains to Capital to FundPreferred Common
Common Common Common Share Share Ending
Share- Share- Share- Underwriting Net Asset Market
holders holders holders Total Discounts Value Value
- ---------------------------------------------------------------------------------------------------------------------------
QUALITY PREFERRED INCOME (JTP)
- ---------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2007 $(.93) $ -- $(.09) $(1.02) $ -- $11.06 $ 10.33
2006 (1.08) -- -- (1.08) -- 14.10 14.84
2005 (1.13) -- -- (1.13) -- 14.20 12.40
2004(b) (.50) -- -- (.50) -- 14.92 14.00
Year Ended 7/31: --
2004(c) (1.25) -- -- (1.25) -- 14.40 13.96
2003 (1.25) -- -- (1.25) (.15) 14.10 14.59
QUALITY PREFERRED INCOME 2 (JPS)
- ---------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2007 (1.04) (.04) (.04) (1.12) -- 11.57 $ 10.81
2006 (1.12) -- -- (1.12) -- 14.66 15.12
2005 (1.16) (.18) -- (1.34) -- 14.77 12.80
2004(b) (.53) (.18) -- (.71) -- 15.66 14.40
Year Ended 7/31:
2004(c) (1.32) (.04) -- (1.36) -- 15.32 14.61
2003(d) (.95) -- -- (.95) (.15) 14.97 14.65
QUALITY PREFERRED INCOME 3 (JHP)
- ---------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2007 (.95) -- (.10) (1.05) -- 11.02 $ 10.51
2006 (1.09) -- (.01) (1.10) -- 14.22 14.92
2005 (1.17) (.09) -- (1.26) -- 14.29 12.92
2004(b) (.51) (.06) -- (.57) -- 15.15 14.44
Year Ended 7/31:
2004(c) (1.24) (.12) -- (1.36) -- 14.71 14.34
2003(e) (.62) -- -- (.62) (.18) 14.38 14.36
- ---------------------------------------------------------------------------------------------------------------------------
</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. The last dividend declared in the
period, which is typically paid on the first business day of the following
month, is assumed to be reinvested at the ending market price. The actual
reinvestment for the last dividend declared in the period takes place over
several days, and in some instances may not be based on the market price,
so the actual reinvestment price may be different from the price used in
the calculation. Total returns are not annualized.
Total Return on Common Share Net Asset Value is the combination of changes
in Common share net asset value, reinvested dividend income at net asset
value and reinvested capital gains distributions at net asset value, if
any. The last dividend declared in the period, which is typically paid on
the first business day of the following month, is assumed to be reinvested
at the ending net asset value. The actual reinvest price for the last
dividend declared in the period may often be based on the Fund's market
price (and not its net asset value), and therefore may be different from
the price used in the calculation. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ - Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders.
- Income ratios reflect income earned on assets attributable to
FundPreferred shares.
- For the periods presented below each ratio includes the effect of the
interest expense paid on interest rate swap transactions as follows:
<Table>
<Caption>
Ratios of Net Interest Expense to Average Net
Assets Applicable to Common Shares
- -----------------------------------------------------------------------------------
QUALITY PREFERRED INCOME
(JTP)
Year Ended 7/31:
2003 .80%
QUALITY PREFERRED INCOME 2
(JPS)
Year Ended 7/31:
2003(d) .58*
QUALITY PREFERRED INCOME 3
(JHP)
Year Ended 7/31:
2003(e) .51*
</Table>
46
<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 to Net Net Portfolio
Market Asset Common Investment Investment Turnover
Value** Value** Shares (000) Expenses++ Income++ Expenses++ Income++ Rate
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
(24.60)% (15.32)% $ 713,945 1.54% 9.43% 1.11% 9.86% 32%
29.51 7.26 909,608 1.50 8.70 1.02 9.18 34
(3.69) 2.89 915,598 1.49 8.47 1.02 8.94 19
3.79 7.10 961,583 1.49* 9.15* 1.02* 9.62* 8
4.20 11.17 927,892 1.51 8.87 1.04 9.33 18
4.95 9.15 907,746 2.38 8.84 1.91 9.31 45
- ------------------------------------------------------------------------------------------------------------------
(22.24)% (14.32)% 1,386,125 1.45 9.35 1.00 9.80 31
27.75 7.09 1,753,392 1.42 8.72 .95 9.19 34
(2.06) 3.01 1,765,543 1.40 8.32 .94 8.78 17
3.34 6.94 1,872,283 1.40* 8.69* .94* 9.14* 6
8.98 11.60 1,830,878 1.41 8.64 .95 9.10 19
4.02 11.22 1,789,809 1.99* 7.59* 1.54* 8.04* 35
- ------------------------------------------------------------------------------------------------------------------
(23.61)% (16.01)% 261,081 1.60 9.38 1.10 9.87 35
25.00 7.49 336,540 1.56 8.81 1.08 9.29 39
(2.16) 2.88 337,858 1.54 8.48 1.07 8.96 16
4.64 6.81 358,197 1.54* 9.03* 1.07* 9.50* 7
9.36 11.93 347,900 1.55 8.75 1.08 9.22 17
(.19) 4.62 339,499 1.97* 7.14* 1.53* 7.58* 57
- ------------------------------------------------------------------------------------------------------------------
<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 $65,565
440,000 25,000 76,682
440,000 25,000 77,023
440,000 25,000 79,635
440,000 25,000 77,721
440,000 25,000 76,577
- ------------------------------------------------------------------------------------------------------------------
800,000 25,000 68,316
800,000 25,000 79,794
800,000 25,000 80,173
800,000 25,000 83,509
800,000 25,000 82,215
800,000 25,000 80,932
- ------------------------------------------------------------------------------------------------------------------
166,000 25,000 64,319
166,000 25,000 75,684
166,000 25,000 75,882
166,000 25,000 78,945
166,000 25,000 77,395
166,000 25,000 76,129
- ---
</Table>
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) For the period August 1, 2004, through December 31,2004.
(c) The Funds changed their method of presentation for net interest expense on
interest rate swap transactions. The effect of this reclassification for
the fiscal year ended July 31, 2004, was as follows:
<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 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>
(d) For the period September 24, 2002 (commencement of operations) through
July 31, 2003.
(e) For the period December 18, 2002 (commencement of operations) through July
31, 2003.
See accompanying notes to financial statements.
47
BOARD MEMBERS & OFFICERS
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board
Members of the Funds. The number of board members of the Fund is currently set
at eight. None of the board members who are not interested persons of the Funds
has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
<Table>
<Caption>
NAME, BIRTHDATE POSITION(S) HELD WITH YEAR FIRST NUMBER OF PORTFOLIOS
& ADDRESS THE FUNDS ELECTED OR IN FUND COMPLEX PRINCIPAL OCCUPATION(S)
APPOINTED OVERSEEN BY INCLUDING OTHER DIRECTORSHIPS
AND TERM(2) BOARD MEMBER DURING PAST 5 YEARS
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS:
- - TIMOTHY R.
SCHWERTFEGER(1)
3/28/49 Chairman of 1994 Former director
333 W. Wacker Drive the Board ANNUAL (1994-November 12, 2007),
Chicago, IL 60606 and Board Member Chairman (1996-June 30,
2007), Non-Executive Chairman
(July 1, 2007-November 12,
2007) and Chief Executive
Officer (1996-June 30, 2007)
184 of Nuveen Investments, Inc.
and Nuveen Asset Management
and certain other
subsidiaries of Nuveen
Investments, Inc.; formerly,
Director (1992-2006) of
Institutional Capital
Corporation.
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
- - ROBERT P. BREMNER
8/22/40 Lead Independent 1997 184 Private Investor and
333 W. Wacker Drive Board member CLASS III Management Consultant.
Chicago, IL 60606
- - JACK B. EVANS
10/22/48 1999 President, The Hall-Perrine
333 W. Wacker Drive Board member CLASS III Foundation, a private
Chicago, IL 60606 philanthropic corporation
(since 1996); Director and
Vice Chairman, United Fire
Group, a publicly held
company; Member of the Board
of Regents Companies; for the
State of Iowa University
System; Director, Gazette
Life Trustee of Coe College
184 and Iowa College Foundation;
Member of the Advisory
Council of the Department of
Finance in the Tippie College
of Business, University of
Iowa; formerly, Director,
Alliant Energy; formerly,
Director, Federal Reserve
Bank of Chicago; formerly,
President and Chief Operating
Officer, SCI Financial Group,
Inc., a regional financial
services firm.
</Table>
48
<Table>
<Caption>
NAME, BIRTHDATE POSITION(S) HELD WITH YEAR FIRST NUMBER OF PORTFOLIOS
& ADDRESS THE FUNDS ELECTED OR IN FUND COMPLEX PRINCIPAL OCCUPATION(S)
APPOINTED OVERSEEN BY INCLUDING OTHER DIRECTORSHIPS
AND TERM(2) BOARD MEMBER DURING PAST 5 YEARS
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
- - WILLIAM C. HUNTER
3/6/48 2004 Dean, Tippie College of
333 W. Wacker Drive Board member CLASS II Business, University of Iowa
Chicago, IL 60606 (since July 2006); formerly,
Dean and Distinguished
Professor of Finance, School
of Business at the University
of Connecticut (2003-2006);
previously, Senior Vice
President and Director of
Research at the Federal
184 Reserve Bank of Chicago
(1995-2003); Director (since
1997), Credit Research Center
at George Washington
University; Director (since
2004) of Xerox Corporation;
Director (since 2005) Beta
Gamma Sigma International
Honor Society; Director, SS&C
Technologies, Inc. (May
2005-October 2005).
- - DAVID J. KUNDERT
10/28/42 2005 Director, Northwestern Mutual
333 W. Wacker Drive Board member CLASS II Wealth Management Company;
Chicago, IL 60606 Retired (since 2004) as
Chairman, JPMorgan Fleming
Asset Management, President
and CEO, Banc One Investment
Advisors Corporation, and
President, One Group Mutual
Funds; prior thereto,
Executive Vice President,
182 Banc One Corporation and
Chairman and CEO, Banc One
Investment Management Group;
Member, Board of Regents,
Luther College; member of the
Wisconsin Bar Association;
member of Board of Directors,
Friends of Boerner Botanical
Gardens; member of Investment
Committee, Greater Milwaukee
Foundation.
- - WILLIAM J. SCHNEIDER
9/24/44 1997 Chairman of Miller-Valentine
333 W. Wacker Drive Board member ANNUAL Partners Ltd., a real estate
Chicago, IL 60606 investment company, formerly,
Senior Partner and Chief
184 Operating Officer (retired,
2004); Director, Dayton
Development Coalition;
formerly, Member, Business
Advisory Council, Cleveland
Federal Reserve Bank.
- - JUDITH M. STOCKDALE
12/29/47 1997 Executive Director, Gaylord
333 W. Wacker Drive Board member CLASS I and Dorothy Donnelley
Chicago, IL 60606 Foundation (since 1994);
184 prior thereto, Executive
Director, Great Lakes
Protection Fund (from 1990 to
1994).
- - CAROLE E. STONE
6/28/47 2007 Director, Chicago Board
333 W. Wacker Drive Board member CLASS I Options Exchange (since
Chicago, IL 60606 2006); Chair New York Racing
Association Oversight Board
(2005-12/2007); Commissioner,
New York State Commission on
Public Authority Reform
184 (since 2005); formerly
Director, New York State
Division of the Budget
(2000-2004), Chair, Public
Authorities Control Board
(2000-2004) and Director,
Local Government Assistance
Corporation (2000-2004).
</Table>
49
<Table>
<Caption>
NAME, BIRTHDATE POSITION(S) HELD WITH NUMBER OF PORTFOLIOS
& ADDRESS THE FUNDS YEAR FIRST IN FUND COMPLEX PRINCIPAL
ELECTED OR OVERSEEN OCCUPATION(S)
APPOINTED(4) BY OFFICER DURING PAST 5 YEARS
OFFICERS OF THE FUND:
- - GIFFORD R. ZIMMERMAN
9/9/56 Chief Administrative Managing Director (since
333 W. Wacker Drive Officer 1988 2002), Assistant
Chicago, IL 60606 Secretary and Associate
General Counsel,
formerly, Vice President
and Assistant General
Counsel, of Nuveen
Investments, LLC;
Managing Director (since
2002), Associate General
Counsel and Assistant
Secretary, of Nuveen
Asset Management; Vice
President and Assistant
Secretary of NWQ
Investment Management
Company, LLC. (since
2002), Nuveen Investments
Advisers Inc. (since
2002), Symphony Asset
Management LLC, and NWQ
184 Investment Management
Company, LLC (since
2003), Tradewinds Global
Investors, LLC, and Santa
Barbara Asset Management,
LLC (since 2006); Nuveen
HydePark Group LLC and
Richards & Tierney, Inc.
(since 2007); Managing
Director, Associate
General Counsel and
Assistant Secretary of
Rittenhouse Asset
Management, Inc. (since
2003); Managing Director
(since 2004) and
Assistant Secretary
(since 1994) of Nuveen
Investments, Inc.,
Assistant Secretary
(since 2003) of Symphony
Asset Management LLC.
- - WILLIAM ADAMS IV
6/9/55 Executive Vice President,
333 W. Wacker Drive Vice President 2007 U.S. Structured Products
Chicago, IL 60606 of Nuveen Investments,
120 LLC, (since 1999), prior
thereto, Managing
Director of Structured
Investments.
- - JULIA L. ANTONATOS
9/22/63 Managing Director (since
333 W. Wacker Drive Vice President 2004 2005), formerly Vice
Chicago, IL 60606 184 President (2002-2005) of
Nuveen Investments, LLC;
Chartered Financial
Analyst.
- - CEDRIC H. ANTOSIEWICZ
1/11/62 Managing Director, (since
333 W. Wacker Drive Vice President 2007 120 2004) previously, Vice
Chicago, IL 60606 President (1993-2004) of
Nuveen Investments, LLC.
- - MICHAEL T. ATKINSON
2/3/66 Vice President Vice President (since
333 W. Wacker Drive and Assistant 2000 184 2002) of Nuveen
Chicago, IL 60606 Secretary Investments, LLC.
- - PETER H. D(#)ARRIGO
11/28/67 Vice President and
333 W. Wacker Drive Vice President 1999 Treasurer of Nuveen
Chicago, IL 60606 Investments, LLC and
Nuveen Investments, Inc.;
Vice President and
Treasurer of Nuveen Asset
Management (since 2002),
Nuveen Investments
Advisers Inc. (since
2002); NWQ Investment
Management Company, LLC.
(since 2002); Rittenhouse
Asset Management, Inc.
(since 2003), Tradewinds
NWQ Global Investors, LLC
184 (since 2006), Santa
Barbara Asset Management,
LLC (since 2006) and
Nuveen HydePark Group,
LLC and Richards &
Tierney, Inc. (since
2007); Treasurer of
Symphony Asset Management
LLC (since 2003);
formerly, Vice President
and Treasurer (1999-2004)
of Nuveen Advisory Corp.
and Nuveen Institutional
Advisory Corp.(3),
Chartered Financial
Analyst.
</Table>
50
<Table>
<Caption>
NAME, BIRTHDATE POSITION(S) HELD WITH NUMBER OF PORTFOLIOS
& ADDRESS THE FUNDS YEAR FIRST IN FUND COMPLEX PRINCIPAL
ELECTED OR OVERSEEN OCCUPATION(S)
APPOINTED(4) BY OFFICER DURING PAST 5 YEARS
OFFICERS OF THE FUND (CONTINUED):
- - LORNA C. FERGUSON
10/24/45 Managing Director (since
333 W. Wacker Drive Vice President 1998 2004), formerly, Vice
Chicago, IL 60606 President of Nuveen
Investments, LLC,
Managing Director (2004)
184 formerly, Vice President
(1998-2004) of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.(3); Managing
Director (since 2005) of
Nuveen Asset Management.
- - STEPHEN D. FOY
5/31/54 Vice President Vice President (since
333 W. Wacker Drive and Controller 1998 1993) and Funds
Chicago, IL 60606 Controller (since 1998)
of Nuveen Investments,
LLC; Vice President
(since 2005) of Nuveen
184 Asset Management;
formerly, Vice President
and Funds Controller
(1998-2004) of Nuveen
Investments, Inc.;
Certified Public
Accountant.
- - WALTER M. KELLY
2/24/70 Chief Compliance Vice President (since
333 W. Wacker Drive Officer and 2003 2006) formerly, Assistant
Chicago, IL 60606 Vice President Vice President and
Assistant General Counsel
(2003-2006) of Nuveen
Investments, LLC;
184 Assistant Vice President
and Assistant Secretary
of the Nuveen Funds
(2003-2006); previously,
Associate (2001-2003) at
the law firm of
VedderPrice P.C.
- - DAVID J. LAMB
3/22/63 Vice President (since
333 W. Wacker Drive Vice President 2000 2000) of Nuveen
Chicago, IL 60606 184 Investments, LLC;
Certified Public
Accountant.
- - TINA M. LAZAR
8/27/61 Vice President of Nuveen
333 W. Wacker Drive Vice President 2002 184 Investments, LLC (since
Chicago, IL 60606 1999).
- - LARRY W. MARTIN
7/27/51 Vice President Vice President, Assistant
333 W. Wacker Drive and Assistant 1988 Secretary and Assistant
Chicago, IL 60606 Secretary General Counsel of Nuveen
Investments, LLC;
formerly, Vice President
and Assistant Secretary
of Nuveen Advisory Corp.
and Nuveen Institutional
Advisory Corp.(3); Vice
President (since 2005)
and Assistant Secretary
of Nuveen Investments,
Inc.; Vice President
(since 2005) and
Assistant Secretary
(since 1997) of Nuveen
Asset Management; Vice
President (since 2000),
Assistant Secretary and
184 Assistant General Counsel
(since 1998) of
Rittenhouse Asset
Management, Inc.; Vice
President and Assistant
Secretary of Nuveen
Investments Advisers Inc.
(since 2002); NWQ
Investment Management
Company, LLC (since
2002), Symphony Asset
Management LLC (since
2003), Tradewinds Global
Investors, LLC, Santa
Barbara Asset Management
LLC (since 2006) and of
Nuveen HydePark Group,
LLC and Richards &
Tierney, Inc. (since
2007).
</Table>
51
<Table>
<Caption>
NAME, BIRTHDATE POSITION(S) HELD WITH NUMBER OF PORTFOLIOS
& ADDRESS THE FUNDS YEAR FIRST IN FUND COMPLEX PRINCIPAL
ELECTED OR OVERSEEN OCCUPATION(S)
APPOINTED(4) BY OFFICER DURING PAST 5 YEARS
OFFICERS OF THE FUND (CONTINUED):
- - KEVIN J. MCCARTHY
3/26/66 Vice President Vice President, Nuveen
333 W. Wacker Drive and Secretary 2007 Investments, LLC (since
Chicago, IL 60606 2007); Vice President,
and Assistant Secretary,
Nuveen Asset Management,
Rittenhouse Asset
Management, Inc., Nuveen
Investment Advisers Inc.,
Nuveen Investment
Institutional Services
Group LLC, NWQ Investment
Management Company, LLC,
Tradewinds Global
184 Investors LLC, NWQ
Holdings, LLC, Symphony
Asset Management LLC,
Santa Barbara Asset
Management LLC, Nuveen
HydePark Group, LLC and
Richards & Tierney, Inc.
(since 2007); Vice
President and Assistant
General Counsel, Nuveen
Investments, Inc. (since
2007). Prior thereto,
Partner, Bell, Boyd &
Lloyd LLP (1997-2007).
- - JOHN V. MILLER
4/10/67 Managing Director (since
333 W. Wacker Drive Vice President 2007 2007), formerly, Vice
Chicago, IL 60606 184 President (2002-2007) of
Nuveen Investments, LLC;
Chartered Financial
Analyst.
- - JAMES F. RUANE
7/3/62 Vice President Vice President, Nuveen
333 W. Wacker Drive and Assistant 2007 Investments (since 2007);
Chicago, IL 60606 Secretary prior thereto, Partner,
184 Deloitte & Touche USA LLP
(since 2005), formerly,
senior tax manager (since
2002); Certified Public
Accountant.
- - MARK L. WINGET
12/21/68 Vice President Vice President, Nuveen
333 W. Wacker Drive and Assistant 2008 Investments, LLC (since
Chicago, IL 60606 Secretary 2008); Vice President and
Assistant Secretary,
Nuveen Asset Management,
Rittenhouse Asset
Management, Inc., Nuveen
Investment Advisers Inc.,
Nuveen Investment
Institutional Services
Group LLC, NWQ Investment
Management Company, LLC,
Tradewinds Global
184 Investors, LLC, NWQ
Holdings, LLC, Symphony
Asset Management LLC,
Santa Barbara Asset
Management, LLC, Nuveen
HydePark Group, LLC and
Richards & Tierney, Inc.
(since 2008); Vice
President and Assistant
General Counsel, Nuveen
Investments Inc. (since
2008); prior thereto,
Counsel, VedderPrice P.C.
(1997-2007).
</Table>
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, by reason of being the former Chairman and
Chief Executive Officer of Nuveen Investments, Inc. and having previously
served in various other capacities with Nuveen Investments, Inc. and its
subsidiaries. It is expected that Mr. Schwertfeger will resign from the
Board of Trustees by the end of the second quarter of 2008.
(2) Board Members serve three year terms, except for two board members who are
elected by the holders of Preferred Shares. The Board of Trustees is divided
into three classes, Class I, Class II, and Class III, with each being
elected to serve until the third succeeding annual shareholders' meeting
subsequent to its election or thereafter in each case when its respective
successors are duly elected or appointed, except two board members are
elected by the holders of Preferred Shares to serve until the next annual
shareholders' meeting subsequent to its election or thereafter in each case
when its respective successors are duly elected or appointed. The first year
elected or appointed represents the year in which the board member was first
elected or appointed to any fund in the Nuveen Complex.
(3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were
reorganized into Nuveen Asset Management, effective January 1, 2005.
(4) Officers serve one year terms through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
52
Reinvest Automatically
EASILY and CONVENIENTLY
NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET UP YOUR
REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END FUNDS DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Fund allows you to conveniently reinvest dividends and/or
capital gains distributions in additional Fund shares.
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of tax-free
compounding. Just like dividends or distributions in cash, there may be times
when income or capital gains taxes may be payable on dividends or distributions
that are reinvested.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. If the Plan Agent begins purchasing Fund shares on
the open market while shares are trading below net asset value, but the Fund's
shares subsequently trade at or above their net asset value before the Plan
Agent is able to complete its purchases, the Plan Agent may cease open-market
purchases and may invest the uninvested portion of the distribution in
newly-issued Fund shares at a price equal to the greater of the shares' net
asset value or 95% of the shares' market value on the last business day
immediately prior to the purchase date. Dividends and distributions received to
purchase shares in the open market will normally be invested shortly after the
dividend payment date. No interest will be paid on dividends and distributions
awaiting reinvestment. Because the market price of the shares may increase
before purchases are completed, the average purchase price per share may exceed
the market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
53
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
54
Glossary of
TERMS USED in this REPORT
Average Annual Total Return: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
Market Yield (also known as Dividend Yield or Current Yield): Market yield is
based on the Fund's current annualized monthly distribution divided by the
Fund's current market price. The Fund's monthly distributions to its
shareholders may be comprised of ordinary income, net realized capital gains
and, if at the end of the calendar year the Fund's cumulative net ordinary
income and net realized gains are less than the amount of the Fund's
distributions, a tax return of capital.
Net Asset Value (NAV): A Fund's common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any Preferred shares issued
in order to leverage the Fund) from its total assets and then dividing the
remainder by the number of shares outstanding. Fund NAVs are calculated at the
end of each business day.
55
NOTES
56
NOTES
57
NOTES
58
OTHER USEFUL INFORMATION
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
Each Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
most recent twelve-month period ended June 30, 2007, and (iii) a description of
the policies and procedures that the Funds used to determine how to vote proxies
relating to portfolio securities are available without charge, upon request, by
calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549.
CEO Certification Disclosure
Each Fund's Chief Executive Officer has submitted to the New York Stock Exchange
the annual CEO certification as required by Section 303A.12(a) of the NYSE
Listed Company Manual.
Each Fund has filed with the Securities and Exchange Commission the
certification of its Chief Executive Officer and Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act.
Distribution Information
Nuveen Quality Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund
2 (JPS) and Nuveen Quality Preferred Income Fund 3 (JHP) hereby designate
12.63%, 12.89% and 13.02%, respectively, of dividends paid from ordinary income
as dividends qualifying for the 70% dividends received deduction for
corporations and 29.87%, 30.64% and 30.27%, respectively, as qualified dividend
income for individuals under Section 1(h)(11) of the Internal Revenue Code.
Board of Trustees
Robert P. Bremner
Jack B. Evans
William C. Hunter
David J. Kundert
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Carol E. Stone
Fund Manager
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
Custodian
State Street Bank & Trust Company
Boston, MA
Transfer Agent and
Shareholder Services
State Street Bank & Trust Company
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
Legal Counsel
Chapman and Cutler LLP
Chicago, IL
Independent Registered
Public Accounting Firm
Ernst & Young LLP
Chicago, IL
The Fund intends to repurchase shares of its own common or preferred
stock in the future at such times and in such amounts as is deemed
advisable. No shares were repurchased during the period covered by
this report. Any future repurchases will be reported to shareholders
in the next annual or semi-annual report.
59
Nuveen Investments:
- -----------------------------------------------------------------------
SERVING INVESTORS FOR GENERATIONS
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past century,
Nuveen Investments has adhered to the belief that the best approach to investing
is to apply conservative risk-management principles to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity and
fixed-income solutions that are integral to a well-diversified core portfolio.
Our clients have come to appreciate this diversity, as well as our continued
adherence to proven, long-term investing principles.
We offer many different investing solutions for our clients' different needs.
Managing $170 billion in assets, as of September 30, 2007, Nuveen Investments
offers access to a number of different asset classes and investing solutions
through a variety of products. Nuveen Investments markets its capabilities under
six distinct brands: Nuveen, a leader in fixed-income investments; NWQ, a leader
in value-style equities; Rittenhouse, a leader in growth-style equities;
Symphony, a leading institutional manager of market-neutral alternative
investment portfolios; Santa Barbara, a leader in growth equities; and
Tradewinds, a leader in global equities.
Find out how we can help you reach your financial goals.
To learn more about the products and services Nuveen Investments offers, talk to
your financial advisor, or call us at (800) 257-8787. Please read the
information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should consider the
investment objective and policies, risk considerations, charges and expenses of
the Fund carefully before investing. The prospectus contains this and other
information relevant to an investment in the Fund. For a prospectus, please
contact your securities representative or Nuveen Investments, 333 W. Wacker Dr.,
Chicago, IL 60606. Please read the prospectus carefully before you invest or
send money.
EAN-E-1207D
Learn more about Nuveen Funds at: WWW.NUVEEN.COM/CEF
Share prices
Fund details
Daily financial news
Investor education
Interactive planning tools
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. [There were no amendments to or waivers
from the Code during the period covered by this report.] The registrant has
posted the code of ethics on its website at www.nuveen.com/etf. (To view the
code, click on the Shareholder Resources drop down menu box, click on Fund
Governance and then click on Code of Conduct.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors (the "Board") determined that the registrant
has at least one "audit committee financial expert" (as defined in Item 3 of
Form N-CSR) serving on its Audit Committee. The registrant's audit committee
financial expert is Jack B. Evans, Chairman of the Audit Committee, who is
"independent" for purposes of Item 3 of Form N-CSR.
Mr. Evans was formerly President and Chief Operating Officer of SCI Financial
Group, Inc., a full service registered broker-dealer and registered investment
adviser ("SCI"). As part of his role as President and Chief Operating Officer,
Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and
actively supervised the CFO's preparation of financial statements and other
filings with various regulatory authorities. In such capacity, Mr. Evans was
actively involved in the preparation of SCI's financial statements and the
resolution of issues raised in connection therewith. Mr. Evans has also served
on the audit committee of various reporting companies. At such companies, Mr.
Evans was involved in the oversight of audits, audit plans, and the preparation
of financial statements. Mr. Evans also formerly chaired the audit committee of
the Federal Reserve Bank of Chicago.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Nuveen Quality Preferred Income Fund 2
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP the Audit Committee approved in advance all
audit services and non-audit services that Ernst & Young LLP provided to the
Fund, except for those non-audit services that were subject to the pre-approval
exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The
pre-approval exception for services provided directly to the Fund waives the
pre-approval requirement for services other than audit, review or attest
services if: (A) the aggregate amount of all such services provided constitutes
no more than 5% of the total amount of revenues paid by the Fund to its
accountant during the fiscal year in which the services are provided; (B) the
Fund did not recognize the services as non-audit services at the time of the
engagement; and (C) the services are promptly brought to the Audit Committee's
attention, and the Committee (or its delegate) approves the services before the
audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND (1) BILLED TO FUND (2) BILLED TO FUND (3) BILLED TO FUND (4)
- ----------------- ----------------- ------------------ ------------------ ------------------
December 31, 2007 $32,472 $0 $1,000 $4,300
------- --- ------ ------
Percentage approved
pursuant to
pre-approval
exception 0% 0% 0% 0%
------- --- ------ ------
December 31, 2006 $30,313 $0 $ 800 $3,950
------- --- ------ ------
Percentage approved
pursuant to
pre-approval
exception 0% 0% 0% 0%
(1) "Audit Fees" are the aggregate fees billed for professional services for
the audit of the Fund's annual financial statements and services provided
in connection with statutory and regulatory filings or engagements.
(2) "Audit Related Fees" are the aggregate fees billed for assurance and
related services reasonably related to the performance of the audit or
review of financial statements and are not reported under "Audit Fees".
(3) "Tax Fees" are the aggregate fees billed for professional services for tax
advice, tax compliance, and tax planning.
(4) "All Other Fees" are the aggregate fees billed for products and services
for agreed upon procedures engagements performed for leveraged funds.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling,
controlled by or under common control with NAM ("Control Affiliate") that
provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for
engagements directly related to the Fund's operations and financial reporting,
during the Fund's last two full fiscal years.
The tables also show the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES
BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER
AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND
FISCAL YEAR ENDED SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS
- ----------------- --------------------- ------------------ -------------------
December 31, 2007 $0 $0 $0
--- --- ---
Percentage approved
pursuant to
pre-approval
exception 0% 0% 0%
--- --- ---
December 31, 2006 $0 $0 $0
--- --- ---
Percentage approved
pursuant to
pre-approval
exception 0% 0% 0%
NON-AUDIT SERVICES
The following table shows the amount of fees that Ernst & Young LLP billed
during the Fund's last two full fiscal years for non-audit services. For
engagements entered into on or after May 6, 2003, the Audit Committee is
required to pre-approve non-audit services that Ernst & Young LLP provides to
the Adviser and any Affiliated Fund Services Provider, if the engagement related
directly to the Fund's operations and financial reporting (except for those
subject to the de minimis exception described above). The Audit Committee
requested and received information from Ernst & Young LLP about any non-audit
services that Ernst & Young LLP rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating Ernst & Young LLP's independence.
TOTAL NON-AUDIT FEES
BILLED TO ADVISER AND
AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES
PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND
RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE
TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER
FISCAL YEAR ENDED BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL
- ----------------- -------------------- ------------------------ ----------------------- ------
December 31, 2007 $5,300 $0 $0 $5,300
December 31, 2006 $4,750 $0 $0 $4,750
"Non-Audit Fees billed to Adviser" for both fiscal year ends represent "Tax
Fees" billed to Adviser in their respective amounts from the previous table.
Audit Committee Pre-Approval Policies and Procedures. Generally, the Audit
Committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the Audit Committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the Audit Committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the Audit Committee at
the next Audit Committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant's Board has a separately designated Audit Committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended (15 U.S.C. 78c(a)(58)(A)). The members of the audit committee are
Robert P. Bremner, Jack B. Evans, David J. Kundert and William J. Schneider. Mr.
Eugene S. Sunshine, who also served as a member of the Committee during this
reporting period, has resigned from the Board. His resignation became effective
on July 31, 2007.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Adviser has engaged Spectrum Asset Management, Inc. ("Spectrum" or
"Sub-Adviser") as Sub-Adviser to provide discretionary investment advisory
services. As part of these services, the Adviser has also delegated to the
Sub-Adviser the full responsibility for proxy voting and related duties in
accordance with the Sub-Adviser's policy and procedures. The Adviser
periodically will monitor the Sub-Adviser's voting to ensure that they are
carrying out their duties. The Sub-Adviser's proxy voting policies and
procedures are summarized as follows:
Spectrum has adopted a Policy on Proxy Voting for Investment Advisory Clients
(the "Voting Policy"), which provides that Spectrum aims to ensure that, when
delegated proxy voting authority by a client, Spectrum act (1) solely in the
interest of the client in providing for ultimate long-term stockholder value,
and (2) without undue influence from individuals or groups who may have an
economic interest in the outcome of a proxy vote. Spectrum relies on the
custodian bank to deliver proxies to Spectrum for voting.
Spectrum has selected Institutional Shareholder Services, Inc. ("ISS") to assist
with Spectrum's proxy voting responsibilities. Spectrum generally follows ISS
standard proxy voting guidelines which embody the positions and factors Spectrum
considers important in casting proxy votes. In connection with each proxy vote,
ISS prepares a written analysis and recommendation based on its guidelines. In
order to avoid any conflict of interest for ISS, the CCO will require ISS to
deliver additional information or certify that ISS has adopted policies and
procedures to detect and mitigate such conflicts of interest in issuing voting
recommendations. Spectrum also may obtain voting recommendations from two proxy
voting services as an additional check on the independence of ISS' voting
recommendations.
Spectrum may, on any particular proxy vote, diverge from ISS' guidelines or
recommendations. In such a case, Spectrum's Voting Policy requires that: (i) the
requesting party document the reason for the request; (ii) the approval of the
Chief Investment Officer; (iii) notification to appropriate compliance
personnel; (iv) a determination that the decision is not influenced by any
conflict of interest; and (v) a written record of the process.
When Spectrum determines not to follow ISS' guidelines or recommendations,
Spectrum classifies proxy voting issues into three broad categories: (1) Routine
Administrative Items; (2) Special Interest Issues; and (3) Issues having the
Potential for Significant Economic Impact, and casts proxy votes in accordance
with the philosophy and decision guidelines developed for that category in the
Voting Policy.
- Routine Administrative Items. Spectrum is willing to defer to
management on matters a routine administrative nature. Examples of
issues on which Spectrum will normally defer to management's
recommendation include selection of auditors, increasing the authorized
number of common shares and the election of unopposed directors.
- Special Interest Issues. In general, Spectrum will abstain from
voting on shareholder social, political, environmental proposals
because their long-term impact on share value cannot be calculated with
any reasonable degree of confidence.
- Issues Having the Potential for Significant Economic Impact.
Spectrum is not willing to defer to management on proposals which have
the potential for major economic impact on the corporation and value of
its shares and believes such issues should be carefully analyzed and
decided by shareholders. Examples of such issues are classification of
board of directors' cumulative voting and supermajority provisions,
defensive strategies (e.g., greenmail prevention), business
combinations and restructurings and executive and director
compensation.
Conflicts of Interest. There may be a material conflict of interest when
Spectrum votes, on behalf of a client, a proxy that is solicited by an
affiliated person of Spectrum or another Spectrum client. To avoid such
conflicts, Spectrum has established procedures under its Voting Policy to seek
to ensure that voting decisions are based on a client's best interests and are
not the product of a material conflict. In addition to employee monitoring for
potential conflicts, the CCO reviews Spectrum's and its affiliates' material
business relationships and personal and financial relationships of senior
personnel of Spectrum and its affiliates to monitor for conflicts of interest.
If a conflict of interest is identified, Spectrum considers both financial and
non-financial materiality to determine if a conflict of interest is material. If
a material conflict of interest is found to exist, the CCO discloses the
conflict to affected clients and obtains consent from each client in the manner
in which Spectrum proposed to vote.
Spectrum clients can obtain a copy of the Voting Policy or information on how
Spectrum voted their proxies by calling Spectrum's Compliance Department at
(203) 322-0189.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The Adviser has engaged Spectrum Asset Management, Inc. (the "Sub-Adviser"), as
sub-adviser to provide discretionary investment advisory services. The following
section provides information on the portfolio managers at the Sub-Adviser.
ITEM 8(a)(1). PORTFOLIO MANAGER BIOGRAPHIES
MARK A. LIEB - Mr. Lieb is Chief Financial Officer and is responsible for
business development. Prior to founding Spectrum in 1987, Mr. Lieb was a
Founder, Director and Partner of DBL Preferred Management, Inc., a wholly owned
corporate cash management subsidiary of Drexel Burnham Lambert, Inc. Mr. Lieb
was instrumental in the formation and development of all aspects of DBL
Preferred Management, Inc., including the daily management of preferred stock
portfolios for institutional clients, hedging strategies, and marketing
strategies. Mr. Lieb's prior employment included the development of the
preferred stock trading desk at Mosley Hallgarten & Estabrook. BA Economics,
Central Connecticut State College; MBA Finance, University of Hartford.
L. PHILLIP JACOBY, IV - Managing Director and Senior Portfolio Manager. Mr.
Jacoby joined Spectrum in 1995 as Portfolio Manager. Previously, Mr. Jacoby was
a Senior Investment Officer at USL Capital Corporation (a subsidiary of Ford
Motor Corporation) and was a co-manager of a the preferred stock portfolio of
its US Corporate Financing Division for six years. Mr. Jacoby began his career
in 1981 with The Northern Trust Company, Chicago and then moved to Los Angeles
to join E.F. Hutton & Co. as a Vice President and Institutional Salesman,
Generalist Fixed Income Sales through most of the 1980s. BSBA (Finance), Boston
University School of Management.
BERNARD M. SUSSMAN - Mr. Sussman is Chief Investment Officer and Chairman of
Spectrum's Investment Committee. Prior to joining Spectrum in 1995, Mr. Sussman
was with Goldman Sachs & Co. for nearly 18 years. A General Partner and head of
the Preferred Stock Department, he was in charge of sales, trading and
underwriting for all preferred products and was instrumental in the development
of the hybrid (MIPS) market. He was a Limited Partner at Goldman Sachs from
December 1994 through November 1996. BS Industrial Relations and MBA Finance,
Cornell University. NASD Series 55 "Equity Trader Limited Representative".
ITEM 8(a)(2). OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
<Table>
<Caption>
TYPE OF ACCOUNT NUMBER OF
PORTFOLIO MANAGER MANAGED ACCOUNTS ASSETS*
- ----------------- ------------------------------ --------- ---------------
Phillip Jacoby Separately Managed accounts 43 $2,765,773,535
Pooled Accounts 11 $1,887,834,020
Registered Investment Vehicles 11 $5,398,941,863
Mark Lieb Separately Managed accounts 52 $2,775,356,100
Pooled Accounts 11 $1,887,834,020
Registered Investment Vehicles 11 $5,398,941,863
Bernard Sussman Separately Managed accounts 46 $2,772,486,173
Pooled Accounts 11 $1,887,834,020
Registered Investment Vehicles 11 $5,398,941,863
</Table>
POTENTIAL MATERIAL CONFLICTS OF INTEREST
There are no material conflicts of interest to report.
ITEM 8(a)(3). FUND MANAGER COMPENSATION
All employees of Spectrum Asset Management are paid a base salary and
discretionary bonus. The bonus is paid quarterly and may represent a significant
proportion of an individual's total annual compensation. Discretionary bonuses
are determined by management after consideration of several factors including
but not necessarily limited to:
- Changes in overall firm assets under management (employees have no
direct incentive to increase assets)
- Portfolio performance relative to benchmarks
- Contribution to client servicing
- Compliance with firm and/or regulatory policies and procedures
- Work ethic
- Seniority and length of service
- Contribution to overall functioning of organization
ITEM 8(a)(4). OWNERSHIP OF JPS SECURITIES AS OF DECEMBER 31, 2007
<Table>
<Caption>
DOLLAR RANGE OF EQUITY SECURITIES
NAME OF PORTFOLIO MANAGER BENEFICIALLY OWNED IN FUND
- ------------------------- ---------------------------------
Phillip Jacoby $0
Mark Lieb $100,001-$500,000
Bernard Sussman $100,001-$500,000
</Table>
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board implemented after the registrant
last provided disclosure in response to this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of this report that
includes the disclosure required by this paragraph, based on their
evaluation of the controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because the code is posted on registrant's website at www.nuveen.com/etf and
there were no amendments during the period covered by this report. (To view the
code, click on the Shareholder Resources drop down menu box, click on Fund
Governance and then Code of Conduct.)
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: See
Ex-99.CERT Attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons: Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference: See Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Quality Preferred Income Fund 2
-------------------------------------------------------
By (Signature and Title)* /s/ Kevin J. McCarthy
------------------------------------------
Kevin J. McCarthy
Vice President and Secretary
Date: March 7, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: March 7, 2008
By (Signature and Title)* /s/ Stephen D. Foy
------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: March 7, 2008
* Print the name and title of each signing officer under his or her signature.