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: June 30, 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
Semi-Annual Report
JUNE 30, 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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NUVEEN INVESTMENTS LOGO
Chairman's
LETTER TO SHAREHOLDERS
(TIMOTHY
SCHWERTFEGER
PHOTO) Timothy R. Schwertfeger Chairman of the Board
Dear Shareholder:
Once again, I am pleased to report that over the six-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 Dividend and Share Price Information, and
the Performance Overview sections of this report.
I also wanted to take this opportunity to report some important news about
Nuveen Investments. We have accepted a buyout offer from a private equity
investment firm. While this may affect the corporate structure of Nuveen
Investments, it will have no impact on the investment objectives of the Funds,
portfolio management strategies or their dividend policies. We will provide you
with additional information about this transaction as more details become
available.
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
August 15, 2007
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. Here
Mark, Bernie and Phil talk about their management strategy and the performance
of each Fund for the six-month period ended June 30, 2007.
WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE SIX-MONTH PERIOD ENDED JUNE
30, 2007?
During a relatively heavy call cycle, we reinvested to maintain the general
60/40 portfolio mix between the $25 par (retail driven) sector and the 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.
We also did some relative value switches with the capital securities bucket
where we sold "Euro-listed" securities and purchased Yankee Tier 1 and Enhanced
Capital Advantaged Preferred Securities, "ECAPS," that offered more attractive
yields and better call protection. Separately, we purchased more closed-end
funds to augment income while the common stock NAVs were attractively
discounted--this brought our concentration in closed end-funds to 3.4% in JTP,
3.1% in JPS and 3.8% in JHP at the end of the six-month period.
Discussions of specific investments are for illustration only and are not
intended as recommendations of individual investments. The views expressed
herein 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.
4
HOW DID THE FUNDS PERFORM OVER THE SIX-MONTHS ENDED JUNE 30, 2007?
The performance of each Fund, as well as the performance of several widely
followed market indices, is presented in the accompanying table.
Cumulative Total Returns on Net Asset Value
For the six months ended 6-30-07
Fund
JTP -2.35%
JPS -2.07%
JHP -2.33%
Lehman Brothers Aggregate Bond Index(1) 0.97%
Comparative Benchmark(2) 0.05%
--------------------------------------------------------------------------------
Past performance does not guarantee future results. Current performance may be
higher or lower than the data shown.
Returns do not reflect the deduction of taxes that a shareholder may have to pay
on Fund distributions or upon the sale of Fund shares. For additional
information, please see the Performance Overview page for your Fund in this
report.
--------------------------------------------------------------------------------
For the six months ended June 30, 2007, all three Funds underperformed the
unleveraged, unmanaged Lehman Brothers Aggregate Bond Index and their
comparative benchmark.
Over the six-month period we increased the Funds' concentration in $25 par
securities due to relative attractiveness. The retail sector outperformed the
capital securities sector because the retail sector was less sensitive to the
overall increase in U.S. Treasury (UST) yields toward the end of the period.
This was manifested by $25 par spreads tightening 7 basis points while capital
securities widened by 24 basis points. As the corporate credit markets repriced
risk (wider) in June, we sold a portion of the Fund's "Euro-listed" securities
(US dollar denominated, but traded in Europe) because they were slow to weaken
like the rest of the market. We reinvested the proceeds primarily in capital
securities where we were able to improve income and obtain better structural
terms.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
We purchased futures on UST notes and bonds in order to manage the Funds'
effective duration within an acceptable range of the Index duration. During
periods of declining interest rates, the effective duration in the $25 par
sector can decline when interest rates decline due to the call options trading
in-the-money. The significant UST sell off in June constrained the Fund's
performance and more than offset the benefits gained earlier in the period.
5
Distribution and Share Price
INFORMATION
Each of these Funds uses financial leverage in an effort to enhance its
dividend-paying capabilities. While this strategy adds volatility to a Fund's
net asset value and share price, it generally enhances the amount of income the
Fund has to distribute to its common shareholders. The extent of this benefit is
tied in part to the short-term rates these Funds pay their FundPreferred(TM)
shareholders. As short-term rates rose through this reporting period, the Funds
paid higher dividends to their FundPreferred shareholders, marginally reducing
the benefits of the Funds' use of financial leverage.
All three Funds declared monthly distributions over the course of the period,
including one distribution decrease in March. 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 June 30, 2007, all three Funds had a
negative UNII balance for financial statement purposes and a positive UNII
balance, based upon our best estimate, for tax purposes.
As of June 30, 2007, the Funds' shares were trading relative to their NAVs as
shown in the accompanying table:
------------------------------------------------------------------------------------------------
6/30/07 6-Month Average
Premium/Discount Premium/Discount
------------------------------------------------------------------------------------------------
JTP -1.13% 0.60%
JPS 0.15% 0.69%
JHP -0.15% 1.67%
------------------------------------------------------------------------------------------------
*Quality Preferred Income 2 (JPS) hereby designates as a long-term capital gain
dividend, pursuant to Internal Revenue Code Section 852(b)(3), the dividend paid
on May 1, 2007 in the amount of $5,233,037.
6
JTP Nuveen Quality
PERFORMANCE Preferred Income
OVERVIEW Fund
as of 6-30-07
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS)
(PIE CHART)
Corporate Bonds 0.9
Short-Term Investments 2.4
Investment Companies 3.4
Capital Preferred Securities 37.9
$25 Par (or similar) Preferred Securities 55.4
2006-2007 MONTHLY DISTRIBUTIONS PER SHARE
(GRAPH)
Jul 0.09
Aug 0.09
Sep 0.09
Oct 0.09
Nov 0.09
Dec 0.09
Jan 0.09
Feb 0.09
Mar 0.086
Apr 0.086
May 0.086
Jun 0.086
SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE
(GRAPH)
7/03/06 13.05
13.87
14.07
14.33
14.55
14.59
14.84
14.01
14.48
14.08
13.99
14.14
6/30/07 13.12
FUND SNAPSHOT
-------------------------------------------------------------------------------------
Common Share Price $13.12
-------------------------------------------------------------------------------------
Common Share
Net Asset Value $13.27
-------------------------------------------------------------------------------------
Premium/(Discount) to NAV -1.13%
-------------------------------------------------------------------------------------
Current Distribution Rate(1) 7.87%
-------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $856,305
-------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 6/25/02)
-------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
-------------------------------------------------------------------------------------
6-Month (Cumulative) -8.19% -2.35%
-------------------------------------------------------------------------------------
1-Year 9.41% 5.51%
-------------------------------------------------------------------------------------
5-Year 5.05% 6.74%
-------------------------------------------------------------------------------------
Since Inception 5.58% 6.63%
-------------------------------------------------------------------------------------
INDUSTRIES
(as a % of total investments)
-------------------------------------------------------------------------------------
Commercial Banks 29.7%
-------------------------------------------------------------------------------------
Insurance 18.0%
-------------------------------------------------------------------------------------
Real Estate 13.8%
-------------------------------------------------------------------------------------
Capital Markets 9.7%
-------------------------------------------------------------------------------------
Diversified Financial Services 8.9%
-------------------------------------------------------------------------------------
Media 3.8%
-------------------------------------------------------------------------------------
Short-Term Investments 2.4%
-------------------------------------------------------------------------------------
Other 13.7%
-------------------------------------------------------------------------------------
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
------------------------------------------------------------------------------------
Deutsche Bank Capital Funding Trust II 2.3%
------------------------------------------------------------------------------------
Aegon N.V. 2.2%
------------------------------------------------------------------------------------
Abbey National Capital Trust I 2.0%
------------------------------------------------------------------------------------
ING Group N.V. 2.0%
------------------------------------------------------------------------------------
HRPT Properties Trust, Series B 1.9%
------------------------------------------------------------------------------------
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.
7
JPS Nuveen Quality
PERFORMANCE Preferred Income
OVERVIEW Fund 2
as of 6-30-07
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS)
(PIE CHART)
$25 Par (or similar) Preferred Securities 56.4
Capital Preferred Securities 38.0
Investment Companies 3.1
Short-Term Investments 2.2
Corporate Bonds 0.3
2006-2007 MONTHLY DISTRIBUTIONS PER SHARE
(BAR CHART)
Jul 0.093
Aug 0.093
Sep 0.093
Oct 0.093
Nov 0.093
Dec 0.093
Jan 0.093
Feb 0.093
Mar 0.091
Apr 0.091
May 0.091
Jun 0.091
SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE
(LINE GRAPH)
7/03/06 13.8
14.32
14.47
14.65
14.84
14.84
15.12
14.64
15.05
14.78
14.62
14.69
6/30/07 13.79
FUND SNAPSHOT
--------------------------------------------------------------------------------------
Common Share Price $13.79
--------------------------------------------------------------------------------------
Common Share
Net Asset Value $13.77
--------------------------------------------------------------------------------------
Premium/(Discount) to NAV 0.15%
--------------------------------------------------------------------------------------
Current Distribution Rate(1) 7.92%
--------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $1,649,801
--------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 9/24/02)
-------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
-------------------------------------------------------------------------------------
6-Month (Cumulative) -4.98% -2.07%
-------------------------------------------------------------------------------------
1-Year 9.42% 5.77%
-------------------------------------------------------------------------------------
Since
Inception 7.19% 7.85%
-------------------------------------------------------------------------------------
INDUSTRIES
(as a % of total investments)
-------------------------------------------------------------------------------------
Commercial Banks 29.4%
-------------------------------------------------------------------------------------
Insurance 19.4%
-------------------------------------------------------------------------------------
Real Estate 13.7%
-------------------------------------------------------------------------------------
Diversified Financial Services 9.0%
-------------------------------------------------------------------------------------
Capital Markets 8.6%
-------------------------------------------------------------------------------------
Thrifts and Mortgage 3.4%
-------------------------------------------------------------------------------------
Short-Term Investments 2.2%
-------------------------------------------------------------------------------------
Other 14.3%
-------------------------------------------------------------------------------------
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
------------------------------------------------------------------------------------
Wachovia Corporation 2.5%
------------------------------------------------------------------------------------
Aegon N.V. 2.3%
------------------------------------------------------------------------------------
Abbey National Capital Trust I 1.9%
------------------------------------------------------------------------------------
HRPT Properties Trust, Series B 1.9%
------------------------------------------------------------------------------------
EverestRe Group Limited 1.8%
------------------------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
8
JHP Nuveen Quality
PERFORMANCE Preferred Income
OVERVIEW Fund 3
as of 6-30-07
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS)
(PIE CHART)
$25 Par (or similar) Preferred Securities 62.8
Capital Preferred Securities 29.9
Investment Companies 3.8
Short-Term Investments 2.7
Corporate Bonds 0.8
2006-2007 MONTHLY DISTRIBUTIONS PER SHARE
(GRAPH)
Jul 0.0910
Aug 0.0910
Sep 0.0910
Oct 0.0910
Nov 0.0910
Dec 0.0910
Jan 0.0910
Feb 0.0910
Mar 0.0885
Apr 0.0885
May 0.0885
Jun 0.0885
SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE
(GRAPH)
7/03/06 13.03
14.08
14.73
14.76
14.52
14.86
14.92
14.62
14.68
14.51
14.29
14.33
6/30/07 13.35
FUND SNAPSHOT
-------------------------------------------------------------------------------------
Common Share Price $13.35
-------------------------------------------------------------------------------------
Common Share Net Asset Value $13.37
-------------------------------------------------------------------------------------
Premium/(Discount) to NAV -0.15%
-------------------------------------------------------------------------------------
Current Distribution Rate(1) 7.96%
-------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $316,615
-------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 12/18/02)
-------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
-------------------------------------------------------------------------------------
6-Month (Cumulative) -7.05% -2.33%
-------------------------------------------------------------------------------------
1-Year 10.94% 5.58%
-------------------------------------------------------------------------------------
Since
Inception 5.93% 6.86%
-------------------------------------------------------------------------------------
INDUSTRIES
(as a % of total investments)
-------------------------------------------------------------------------------------
Commercial Banks 23.3%
-------------------------------------------------------------------------------------
Insurance 19.2%
-------------------------------------------------------------------------------------
Real Estate 13.7%
-------------------------------------------------------------------------------------
Capital Markets 13.5%
-------------------------------------------------------------------------------------
Diversified Financial Services 9.2%
-------------------------------------------------------------------------------------
Investment Companies 3.8%
-------------------------------------------------------------------------------------
Short-Term Investments 2.7%
-------------------------------------------------------------------------------------
Other 14.6%
-------------------------------------------------------------------------------------
TOP FIVE ISSUERS
(EXCLUDING SHORT-TERM INVESTMENTS)
(as a % of total investments)
------------------------------------------------------------------------------------
Deutsche Bank Capital Funding Trust II 2.9%
------------------------------------------------------------------------------------
ING Group N.V. 2.6%
------------------------------------------------------------------------------------
Aegon N.V. 2.0%
------------------------------------------------------------------------------------
First Union Capital Trust II, Series A 2.0%
------------------------------------------------------------------------------------
BAC Capital Trust XII 2.0%
------------------------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
9
SHAREHOLDER MEETING REPORT
The shareholder meeting was held in the offices of Nuveen
Investments on April 4, 2007.
JTP JPS
-----------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
Common and Common and
Preferred Preferred Preferred Preferred
shares voting shares voting shares voting shares voting
together together together together
as a class as a class as a class as a class
-----------------------------------------------------------------------------------------------------------------------
Robert P. Bremner
For 59,572,484 -- 108,304,392 --
Withhold 582,630 -- 1,992,907 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,155,114 -- 110,297,299 --
-----------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown(1)
For 59,536,588 -- 108,289,266 --
Withhold 618,526 -- 2,008,033 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,155,114 -- 110,297,299 --
-----------------------------------------------------------------------------------------------------------------------
Jack B. Evans
For 59,562,669 -- 108,345,679 --
Withhold 592,445 -- 1,951,620 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,155,114 -- 110,297,299 --
-----------------------------------------------------------------------------------------------------------------------
William C. Hunter
For 59,573,846 -- 108,323,110 --
Withhold 581,268 -- 1,974,189 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,155,114 -- 110,297,299 --
-----------------------------------------------------------------------------------------------------------------------
David J. Kundert
For 59,553,119 -- 108,315,538 --
Withhold 601,995 -- 1,981,761 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,155,114 -- 110,297,299 --
-----------------------------------------------------------------------------------------------------------------------
William J. Schneider
For -- 16,101 -- 28,228
Withhold -- 59 -- 129
-----------------------------------------------------------------------------------------------------------------------
Total -- 16,160 -- 28,357
-----------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger
For -- 16,101 -- 28,236
Withhold -- 59 -- 121
-----------------------------------------------------------------------------------------------------------------------
Total -- 16,160 -- 28,357
-----------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale
For 59,550,921 -- 108,301,768 --
Withhold 604,193 -- 1,995,531 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,155,114 -- 110,297,299 --
-----------------------------------------------------------------------------------------------------------------------
Carole E. Stone
For 59,511,431 -- 108,316,828 --
Withhold 643,683 -- 1,980,471 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,155,114 -- 110,297,299 --
-----------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine(2)
For 59,568,105 -- 108,321,519 --
Withhold 587,009 -- 1,975,780 --
-----------------------------------------------------------------------------------------------------------------------
Total 60,155,114 -- 110,297,299 --
-----------------------------------------------------------------------------------------------------------------------
JHP
----------------------------------------------------- -----------------------------
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
Common and
Preferred Preferred
shares voting shares voting
together together
as a class as a class
Robert P. Bremner
For 21,867,839 --
Withhold 176,476 --
--------------------------------------------------------------------------------------------------
Total 22,044,315 --
-----------------------------------------------------------------------------------------------------------------
Lawrence H. Brown(1)
For 21,856,464 --
Withhold 187,851 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,044,315 --
-----------------------------------------------------------------------------------------------------------------------
Jack B. Evans
For 21,873,922 --
Withhold 170,393 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,044,315 --
-----------------------------------------------------------------------------------------------------------------------
William C. Hunter
For 21,876,097 --
Withhold 168,218 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,044,315 --
-----------------------------------------------------------------------------------------------------------------------
David J. Kundert
For 21,873,669 --
Withhold 170,646 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,044,315 --
-----------------------------------------------------------------------------------------------------------------------
William J. Schneider
For -- 6,012
Withhold -- 23
-----------------------------------------------------------------------------------------------------------------------
Total -- 6,035
-----------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger
For -- 6,012
Withhold -- 23
-----------------------------------------------------------------------------------------------------------------------
Total -- 6,035
-----------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale
For 21,872,088 --
Withhold 172,227 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,044,315 --
-----------------------------------------------------------------------------------------------------------------------
Carole E. Stone
For 21,872,180 --
Withhold 172,135 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,044,315 --
-----------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine(2)
For 21,876,164 --
Withhold 168,151 --
-----------------------------------------------------------------------------------------------------------------------
Total 22,044,315 --
-----------------------------------------------------------------------------------------------------------------------
(1) Mr. Lawrence H. Brown retired from the Board of Trustees on July 1, 2007.
(2) Mr. Eugene S. Sunshine resigned from the Board of Trustees on July 31, 2007.
10
JTP
Nuveen Quality Preferred Income Fund
Portfolio of INVESTMENTS
as of 6-30-07 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 83.7% (55.4% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 10.3%
40,358 Bear Stearns Capital Trust III 7.800% A2 $ 1,023,479
251,747 BNY Capital Trust V, Series F 5.950% Aa3 5,845,565
244,295 Compass Capital Trust III 7.350% A3 6,112,261
2,700 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 67,716
1,233,200 Deutsche Bank Capital Funding Trust II 6.550% Aa3 30,339,800
4,300 Goldman Sachs Capital I (CORTS) 6.000% A1 99,158
15,700 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 356,233
7,000 Goldman Sachs Group Inc. (SATURNS) 5.750% AA- 154,980
1,100 Goldman Sachs Group Inc., Series 2003-06 (SATURNS) 6.000% AA- 25,190
14,000 Goldman Sachs Group Inc., Series 2004-04 (SATURNS) 6.000% A1 321,860
18,300 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 424,560
26,000 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 591,760
1,200 Goldman Sachs Group Inc., Series GSC-4 Class A (PPLUS) 6.000% A1 27,360
5,800 Goldman Sachs Group Inc., Series GSG-1 (PPLUS) 6.000% AA- 131,834
1,400 JP Morgan Chase Capital Trust XIX, Series S 6.625% Aa3 34,650
108,549 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 2,561,756
85,000 Lehman Brothers Holdings Capital Trust IV, Series L 6.375% A2 2,028,950
25,700 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 584,675
88,220 Lehman Brothers Holdings Capital Trust VI, Series N 6.240% A2 2,111,105
135,800 Merrill Lynch Preferred Capital Trust III 7.000% A1 3,396,358
94,500 Merrill Lynch Preferred Capital Trust IV 7.120% A1 2,369,115
178,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 4,495,680
7,300 Morgan Stanley (PPLUS) 7.050% Aa3 184,398
200,626 Morgan Stanley Capital Trust III 6.250% A1 4,798,974
167,669 Morgan Stanley Capital Trust IV 6.250% A1 3,953,635
515,305 Morgan Stanley Capital Trust VI 6.600% A1 12,743,493
144,324 Morgan Stanley Capital Trust VII 6.600% A2 3,533,052
----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 88,317,597
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 9.9%
121,050 ABN AMRO Capital Fund Trust V 5.900% A1 2,803,518
105,400 ASBC Capital I 7.625% A3 2,649,756
8,400 BAC Capital Trust X 6.250% Aa2 198,744
50,479 Banco Santander, 144A 6.800% A+ 1,258,820
94,143 Banco Santander, 144A 6.500% A 2,309,450
269,472 Banco Santander 6.410% Aa3 6,704,463
7,100 BancorpSouth Capital Trust I 8.150% Baa1 179,346
84,500 Banesto Holdings, Series A, 144A 10.500% A1 2,498,031
64,300 Bank One Capital Trust VI 7.200% Aa3 1,633,863
8,517 Barclays Bank PLC, (3) 6.625% Aa3 217,609
28,571 Chittenden Capital Trust I 8.000% A3 716,061
189,400 Citizens Funding Trust I 7.500% Baa2 4,811,953
116,800 Cobank ABC, 144A, (3) 7.000% A 5,795,032
12,500 Fleet Capital Trust VIII 7.200% Aa2 314,625
4,400 HSBC Finance Corporation 6.875% AA- 110,660
59,115 KeyCorp Capital Trust IX 6.750% Baa1 1,462,062
859,600 National City Capital Trust II 6.625% A3 21,167,650
200,000 PFGI Capital Corporation 7.750% A- 5,206,260
6,350 PNC Capital Trust 6.125% A2 147,828
224,762 Royal Bank of Scotland Group PLC, Series N 6.350% A1 5,439,240
23,600 USB Capital Trust XI 6.600% A1 583,392
33,480 VNB Capital Trust I 7.750% A3 843,361
85,000 Wachovia Capital Trust IX 6.375% A1 2,058,598
238,800 Wells Fargo Capital Trust V 7.000% Aa2 6,005,820
18,525 Wells Fargo Capital Trust VII 5.850% Aa2 433,300
382,250 Zions Capital Trust B 8.000% BBB- 9,644,168
----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 85,193,610
----------------------------------------------------------------------------------------------------------------
11
JTP
Nuveen Quality Preferred Income Fund (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
3,100 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ $ 77,500
1,500 IBM Trust IV (CORTS) 7.000% A+ 37,635
----------------------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 115,135
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 10.4%
42,600 Allied Capital Corporation 6.875% BBB+ 1,015,158
599,640 BAC Capital Trust XII 6.875% Aa3 15,413,746
350,130 Citigroup Capital Trust VIII 6.950% Aa2 8,770,757
15,900 Citigroup Capital XIV 6.875% Aa2 407,517
417,950 Citigroup Capital XV 6.500% Aa3 10,292,019
10,900 Citigroup Capital XVI 6.450% Aa2 265,851
314,900 Deutsche Bank Capital Funding Trust VIII 6.375% A 7,823,313
5,500 General Electric Capital Corporation 6.450% AAA 139,068
5,100 General Electric Capital Corporation 6.100% AAA 123,267
8,000 General Electric Capital Corporation 5.875% AAA 188,880
1,015,058 ING Group N.V. 7.200% A1 25,528,708
569,000 ING Group N.V. 7.050% A 14,270,520
15,600 Merrill Lynch Capital Trust I 6.450% A1 382,688
126,685 Royal Bank of Scotland Group PLC, Series R 6.125% A1 2,996,100
59,200 Royal Bank of Scotland Public Limited Company, Series 2006Q 6.750% A1 1,501,904
----------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 89,119,496
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.9%
90,400 AT&T Inc. 7.000% A 2,272,656
99,000 AT&T Inc. 6.375% A 2,453,349
13,300 BellSouth Capital Funding (CORTS) 7.100% A 339,815
74,635 BellSouth Corporation (CORTS) 7.000% A 1,758,587
2,200 Verizon Communications (CORTS) 7.625% A 55,418
9,000 Verizon Communications, Series 2004-1 (SATURNS) 6.125% A+ 214,470
1,100 Verizon Global Funding Corporation Trust III, Series III (CORTS) 6.250% A 26,851
23,900 Verizon New England Inc., Series B 7.000% A3 601,324
----------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 7,722,470
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.9%
77,740 DTE Energy Trust I 7.800% Baa3 1,978,483
109,205 Entergy Louisiana LLC 7.600% A- 2,732,309
2,000 Entergy Mississippi Inc. 7.250% A- 50,440
78,400 FPL Group Capital Inc. 6.600% A3 1,950,592
400 Georgia Power Company 5.750% A 9,220
36,500 National Rural Utilities Cooperative Finance Corporation 6.100% A3 847,530
15,025 National Rural Utilities Cooperative Finance Corporation 5.950% A3 347,679
111,500 PPL Energy Supply LLC 7.000% BBB 2,860,677
11,000 Southern Company Capital Trust VI 7.125% BBB+ 275,220
191,400 Virginia Power Capital Trust 7.375% Baa2 4,834,764
----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 15,886,914
----------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
29,900 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 3,027,375
----------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 1.1%
372,382 Pulte Homes Inc. 7.375% BBB 9,169,907
----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 17.7%
642,200 Ace Ltd., Series C 7.800% Baa2 16,369,678
17,840 Aegon N.V. 6.875% A- 450,282
1,161,650 Aegon N.V., (3) 6.375% A- 28,297,793
7,167 AMBAC Financial Group Inc. 5.950% AA 163,909
14,700 Arch Capital Group Limited, Series B 7.785% Baa3 373,380
513,512 Arch Capital Group Limited 8.000% BBB- 13,094,556
382,400 Berkley WR Corporation, Capital Trust II 6.750% BBB- 9,533,232
216,000 Delphi Financial Group, Inc. 8.000% BBB+ 5,562,000
170,000 Delphi Financial Group, Inc. 7.376% BBB- 4,196,875
466,600 EverestRe Capital Trust II 6.200% Baa1 10,661,810
89,800 EverestRe Group Limited 7.850% Baa1 2,280,022
6,500 Financial Security Assurance Holdings 6.875% AA 161,850
4,600 Financial Security Assurance Holdings 6.250% AA 110,354
34,500 Lincoln National Capital Trust VI 6.750% A- 859,050
265,320 Markel Corporation 7.500% BBB- 6,875,768
296,700 PartnerRe Limited, Series C 6.750% BBB+ 7,298,820
77,700 PartnerRe Limited, Series D 6.500% BBB+ 1,851,591
12
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
80,600 PLC Capital Trust III 7.500% BBB+ $ 2,039,583
414,300 PLC Capital Trust IV 7.250% BBB+ 10,353,357
5,300 PLC Capital Trust V 6.125% BBB+ 122,430
19,300 Protective Life Corporation 7.250% BBB 490,220
8,100 Prudential Financial Inc. (CORTS) 6.000% A+ 188,730
264,265 Prudential PLC 6.750% A 6,633,052
65,100 RenaissanceRe Holdings Limited, Series B 7.300% BBB 1,645,077
284,402 RenaissanceRe Holdings Limited 6.600% BBB 6,755,970
11,200 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 280,392
3,300 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 82,632
445,854 XL Capital Ltd, Series A 8.000% Baa1 11,182,018
156,900 XL Capital Ltd, Series B 7.625% Baa1 3,930,345
----------------------------------------------------------------------------------------------------------------------------
Total Insurance 151,844,776
----------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.1%
31,500 Vertex Industries Inc. (PPLUS) 7.625% A 793,328
----------------------------------------------------------------------------------------------------------------------------
MEDIA - 5.7%
127,800 CBS Corporation 7.250% BBB 3,209,058
150,000 CBS Corporation 6.750% BBB 3,656,250
124,800 Comcast Corporation 7.000% BBB+ 3,159,000
735,519 Comcast Corporation 7.000% BBB+ 18,387,975
828,932 Viacom Inc. 6.850% BBB 20,308,834
----------------------------------------------------------------------------------------------------------------------------
Total Media 48,721,117
----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.2%
98,100 Dominion CNG Capital Trust I 7.800% Baa2 2,482,911
----------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.9%
532,332 Nexen Inc. 7.350% Baa3 13,521,233
98,200 TransCanada Pipeline 8.250% A3 2,454,018
----------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 15,975,251
----------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
20,400 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 515,508
13,800 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 349,278
----------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 864,786
----------------------------------------------------------------------------------------------------------------
REAL ESTATE/MORTGAGE - 18.1%
41,158 AMB Property Corporation, Series M 6.750% Baa2 1,015,779
196,300 AMB Property Corporation, Series P 6.850% Baa2 4,901,375
12,500 AvalonBay Communities, Inc., Series H 8.700% BBB 324,750
128,788 BRE Properties, Series B 8.080% BBB- 3,234,511
47,300 Developers Diversified Realty Corporation, Series G 8.000% BBB- 1,196,217
406,400 Developers Diversified Realty Corporation, Series H 7.375% BBB- 10,220,960
29,600 Developers Diversified Realty Corporation 7.500% BBB- 746,808
155,700 Duke Realty Corporation, Series L 6.600% BBB 3,769,497
51,700 Duke Realty Corporation, Series N 7.250% BBB 1,316,737
157,779 Duke-Weeks Realty Corporation, Series B 7.990% BBB 7,731,171
25,800 Equity Residential Properties Trust, Series D 8.600% BBB 642,936
279,400 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 7,052,056
989,210 HRPT Properties Trust, Series B 8.750% BBB- 25,096,257
3,600 Prologis Trust, Series F 6.750% BBB 89,244
107,400 Prologis Trust, Series G 6.750% BBB 2,650,632
57,770 PS Business Parks, Inc., Series I 6.875% BBB- 1,381,858
240,000 PS Business Parks, Inc., Series L 7.600% BBB- 6,060,000
1,000 PS Business Parks, Inc., Series O 7.375% BBB- 25,469
455,400 PS Business Parks, Inc. 7.000% BBB- 11,088,990
64,800 Public Storage, Inc., Series C 6.600% BBB+ 1,550,664
5,200 Public Storage, Inc., Series E 6.750% BBB+ 126,828
59,400 Public Storage, Inc., Series F 6.450% BBB+ 1,381,050
367,196 Public Storage, Inc., Series K 7.250% BBB+ 9,443,840
95,200 Public Storage, Inc., Series M 6.625% BBB+ 2,276,470
347,600 Public Storage, Inc., Series V 7.500% BBB+ 8,749,092
2,071 Public Storage, Inc., Series X 6.450% BBB+ 49,269
107,100 Public Storage, Inc., Series Y 6.850% BBB+ 2,654,077
4,100 Public Storage, Inc. 7.125% BBB+ 104,304
17,100 Public Storage, Inc. 6.750% BBB+ 419,164
103,600 Realty Income Corporation, Series E 6.750% BBB- 2,590,000
13
JTP
Nuveen Quality Preferred Income Fund (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE/MORTGAGE (continued)
94,000 Realty Income Corporation 7.375% BBB- $ 2,392,300
47,500 Regency Centers Corporation 7.450% BBB- 1,193,675
22,600 Regency Centers Corporation 7.250% BBB- 566,130
177,200 Simon Property Group, Inc., Series G 7.890% BBB 8,863,544
323,633 Vornado Realty Trust, Series G 6.625% BBB- 7,663,629
40,200 Vornado Realty Trust, Series H 6.750% BBB- 976,056
90,600 Vornado Realty Trust, Series I 6.625% BBB- 2,156,280
509,100 Wachovia Preferred Funding Corporation 7.250% A2 13,547,151
2,300 Weingarten Realty Trust, Series E 6.950% A- 56,971
----------------------------------------------------------------------------------------------------------------------------
Total Real Estate/Mortgage 155,305,741
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 4.5%
13,400 Countrywide Capital Trust III (PPLUS) 8.050% BBB+ 346,591
740,834 Countrywide Capital Trust IV 6.750% BBB+ 17,320,699
769,555 Countrywide Capital Trust V 7.000% BBB+ 19,022,476
60,800 Harris Preferred Capital Corporation, Series A 7.375% A1 1,531,552
----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 38,221,318
----------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.5%
159,700 United States Cellular Corporation 8.750% A- 4,078,738
----------------------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES (COST $723,569,689) 716,840,470
================================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
-------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 1.4% (0.9% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 1.1%
$ 8,600 Swedbank ForengingsSparbanken AB, 144A 7.500% 9/27/49 Aa2 $ 9,064,985
-------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.3%
3,000 Progressive Corporation 6.700% 6/15/37 A2 2,986,956
-------------------------------------------------------------------------------------------------------------------------------
$ 11,600 TOTAL CORPORATE BONDS (COST $12,368,625) 12,051,941
===============================================================================================================================
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 57.3% (37.9% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 4.4%
2,500 Bank of New York Capital I, Series B 7.970% 12/31/26 Aa3 $ 2,599,625
2,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 2,236,318
11,250 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 11,168,156
11,400 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A1 13,167,331
1,900 MUFG Capital Finance 2 4.850% 7/25/56 BBB 2,413,465
5,500 UBS Preferred Funding Trust I 8.622% 10/29/49 Aa2 5,977,714
--------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 37,562,609
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 33.8%
6,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 5,955,402
20,750 Abbey National Capital Trust I 8.963% 6/30/50 A+ 26,339,074
23,000 AgFirst Farm Credit Bank 8.393% 12/15/16 A- 24,996,998
3,000 AgFirst Farm Credit Bank 7.300% 12/15/53 A- 2,997,048
2,500 Bank One Capital III 8.750% 9/01/30 Aa3 3,186,838
1,500 BanPonce Trust I, Series A 8.327% 2/01/27 A3 1,562,445
7,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 7,935,624
9,400 BBVA International Preferred SA, Unipersonal 5.919% 10/18/49 A1 8,834,722
7,500 Capital One Capital IV Corporation 6.745% 2/17/37 Baa1 6,924,308
2,000 CBG Florida REIT Corporation 7.114% 11/15/49 Baa3 1,976,726
3,000 Centura Capital Trust I, 144A 8.845% 6/01/27 A2 3,138,978
2,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A+ 2,071,506
1,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 Aa3 1,813,269
11,500 Den Norske Bank, 144A 7.729% 6/29/49 Aa3 12,245,235
1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa1 1,531,383
11,300 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 11,040,880
8,800 HBOS PLC, 144A 6.413% 4/01/49 A1 8,262,373
5,750 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 6,353,624
17,150 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 24,070,231
3,000 HT1 Funding, GmbH 6.352% 6/30/57 A- 4,126,280
14
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
13,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A1 $ 14,183,039
2,000 KeyCorp Capital III 7.750% 7/15/29 A3 2,275,714
8,850 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 8,750,349
12,000 Mizuho Financial Group 8.375% 4/27/49 Aa3 12,534,372
7,755 Nordbanken AB, 144A 8.950% 11/29/49 Aa3 8,275,043
2,000 Popular North American Capital Trust I 6.564% 9/15/34 A3 1,835,998
4,600 RBS Capital Trust B 6.800% 12/31/49 A1 4,509,072
17,500 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 18,458,685
1,400 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 1,452,710
9,400 Shinsei Finance II Cayman Limited, Perpetual Maturity, 144A 7.160% 7/25/49 Baa2 9,391,192
5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 A2 4,887,975
2,600 Standard Chartered PLC, 144A 6.409% 1/30/57 BBB+ 2,483,738
3,600 Standard Chartered PLC, 144A 7.014% 1/30/58 BBB+ 3,463,423
6,100 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 Aa3 6,571,414
4,700 Unicredito Italiano Capital Trust, 144A 9.200% 4/05/51 A1 5,193,505
800 Union Bank of Norway 7.068% 11/19/49 A2 1,179,233
4,000 Wachovia Capital Trust I, Capital Securities, 144A 7.640% 1/15/27 A1 4,155,552
14,900 Washington Mutual Preferred Funding Cayman, Series A-1, 144A 7.250% 3/15/49 Baa1 14,771,949
------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 289,735,907
--------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 3.0%
1,500 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 Aa3 1,644,659
3,500 Fulton Capital Trust I 6.290% 2/01/36 A3 3,314,784
7,400 JPMorgan Chase Capital Trust XVIII 6.950% 8/17/36 Aa3 7,503,319
4,686 MM Community Funding Trust I Limited 8.030% 6/15/31 Aaa 5,131,225
8,100 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 8,302,500
------------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 25,896,487
--------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.5%
11 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 12,635,156
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 9.3%
7,570 Ace Capital Trust II 9.700% 4/01/30 Baa1 9,816,791
1,000 Allstate Corporation 6.125% 5/15/37 A2 965,167
2,000 American General Capital II 8.500% 7/01/30 Aa3 2,494,104
19,000 AXA SA, 144A 6.463% 12/14/49 BBB+ 17,697,170
5,800 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A- 5,949,466
7,500 MetLife Inc. 6.400% 12/15/66 BBB+ 6,969,593
1,400 Nationwide Financial Services Capital Trust 7.899% 3/01/37 Baa1 1,583,541
6,500 Oil Insurance Limited, 144A 7.558% 12/30/49 Baa1 6,741,677
2,000 Prudential PLC 6.500% 6/29/49 A 1,901,722
10,200 QBE Capital Funding Trust II, 144A 6.797% 6/01/49 BBB 9,977,589
16,400 XL Capital, Limited 6.500% 10/15/57 BBB 15,429,776
------------------------------------------------------------------------------------------------------------------------------------
Total Insurance 79,526,596
--------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.6%
5,860 KN Capital Trust III 7.630% 4/15/28 B1 5,523,812
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 2.8%
19 Firstar Realty LLC, 144A 8.875% 12/31/50 Aa3 23,750,000
------------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.8%
7,600 Burlington Northern Santa Fe Funding Trust I 6.613% 12/15/55 BBB 6,960,331
------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.1%
4,000 Caisse Nationale Des Caisses d'Epargne et de Prevoyance 6.750% 1/27/49 A+ 3,888,760
800 Onbank Capital Trust I 9.250% 2/01/27 A3 836,680
4,600 Washington Mutual Preferred Funding Trust II 6.665% 3/15/57 Baa1 4,398,893
------------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 9,124,333
--------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST $499,203,832) 490,715,231
====================================================================================================================
SHARES DESCRIPTION (1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 5.1% (3.4% OF TOTAL INVESTMENTS)
206,464 Blackrock Preferred and Corporate Income Strategies Fund $ 4,213,930
518,748 Blackrock Preferred Income Strategies Fund 10,094,836
26,379 Blackrock Preferred Opportunity Trust 629,139
15
JTP
Nuveen Quality Preferred Income Fund (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------
579,200 Flaherty and Crumrine/Claymore Preferred Securities Income Fund Inc. $ 11,827,264
291,906 Flaherty and Crumrine/Claymore Total Return Fund Inc. 5,951,963
492,869 John Hancock Preferred Income Fund III 10,729,758
6,079 John Hancock Preferred Income Fund II 144,680
6,643 John Hancock Preferred Income Fund 157,971
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $43,709,938) 43,749,541
=========================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 3.6% (2.4% OF TOTAL INVESTMENTS)
$ 30,945 Repurchase Agreement with Fixed Income 4.000% 7/02/07 $ 30,944,584
Clearing Corporation, dated 6/29/07,
repurchase price $30,954,899, collateralized
by $24,495,000 U.S. Treasury Bonds, 8.125%,
due 5/15/21, value $31,567,931
========= ---------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $30,944,584) $ 30,944,584)
---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $1,309,796,668) - 151.1% 1,294,301,767
=========================================================================================================
OTHER ASSETS LESS LIABILITIES - 0.3% 2,003,507
=========================================================================================================
PREFERRED SHARES, AT LIQUIDATION VALUE - (51.4)% (440,000,000)
=========================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 856,305,274
=========================================================================================================
INTEREST RATE SWAPS OUTSTANDING AT JUNE 30, 2007:
FUND FIXED RATE UNREALIZED
NOTIONAL PAY/RECEIVE FLOATING RATE FIXED RATE PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION)
------------------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $110,000,000 Receive 1-Month USD-LIBOR 3.860% Monthly 8/29/07 $ 262,511
Citigroup Inc. 110,000,000 Receive 1-Month USD-LIBOR 4.350 Monthly 8/29/09 2,004,599
------------------------------------------------------------------------------------------------------------------------------
$ 2,267,110
==============================================================================================================================
USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
FUTURES CONTRACTS OUTSTANDING AT JUNE 30, 2007:
UNREALIZED
CONTRACT NUMBER OF CONTRACT VALUE AT APPRECIATION
TYPE POSITION CONTRACTS EXPIRATION JUNE 30, 2007 (DEPRECIATION)
-------------------------------------------------------------------------------------------------
U.S. Treasury Bond Long 647 9/07 $ 69,714,250 $ (899,589)
U.S. 10-Year Treasury Notes Long 187 9/07 19,766,484 (146,071)
-------------------------------------------------------------------------------------------------
$ (1,045,660)
=================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by
Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be
below investment grade.
(3) Investment is eligible for the Dividends Received Deduction.
N/R Not rated.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CORTS Corporate Backed Trust Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
16
JPS
Nuveen Quality Preferred Income Fund 2
Portfolio of INVESTMENTS
as of 6-30-07 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
-------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 82.9% (56.4% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 5.7%
68,324 Bear Stearns Capital Trust III 7.800% A2 $ 1,732,697
19,200 BNY Capital Trust IV, Series E 6.875% Aa3 481,152
38,493 BNY Capital Trust V, Series F 5.950% Aa3 893,807
399,525 Compass Capital Trust III 7.350% A3 9,996,116
28,800 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 722,304
838,400 Deutsche Bank Capital Funding Trust II 6.550% Aa3 20,626,736
9,500 Goldman Sachs Capital I (CORTS) 6.000% A1 219,070
8,800 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 199,672
4,800 Goldman Sachs Group Inc. (SATURNS) 5.750% AA- 106,272
4,100 Goldman Sachs Group Inc., Series 2003-11 (SATURNS) 5.625% Aa3 89,913
20,700 Goldman Sachs Group Inc., Series 2004-04 (SATURNS) 6.000% A1 475,893
4,600 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 106,720
1,800 Goldman Sachs Group Inc., Series 2004-4 (CORTS) 6.000% A1 40,608
16,500 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 375,540
7,900 Goldman Sachs Group Inc., Series GSC-4 Class A (PPLUS) 6.000% A1 180,120
10,000 Goldman Sachs Group Inc., Series GSG-1 (PPLUS) 6.000% AA- 227,300
7,300 Goldman Sachs Group Inc., Series GSG-2 (PPLUS) 5.750% AA- 162,790
228,000 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 5,380,800
103,600 Lehman Brothers Holdings Capital Trust IV, Series L 6.375% A2 2,472,932
56,200 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 1,278,550
219,500 Merrill Lynch Preferred Capital Trust III 7.000% A1 5,489,695
144,200 Merrill Lynch Preferred Capital Trust IV 7.120% A1 3,615,094
252,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 6,360,480
55,800 Morgan Stanley (PPLUS) 7.050% Aa3 1,409,508
408,864 Morgan Stanley Capital Trust III 6.250% A1 9,780,027
248,757 Morgan Stanley Capital Trust IV 6.250% A1 5,865,690
9,800 Morgan Stanley Capital Trust V 5.750% A+ 217,266
498,200 Morgan Stanley Capital Trust VI 6.600% A1 12,320,486
124,897 Morgan Stanley Capital Trust VII 6.600% A2 3,057,479
-------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 93,884,717
------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 11.6%
107,100 ABN AMRO Capital Fund Trust V 5.900% A1 2,480,436
160,760 ASBC Capital I 7.625% A3 4,041,506
3,300 BAC Capital Trust V 6.000% Aa3 76,461
3,000 BAC Capital Trust VIII 6.000% Aa2 69,210
141,300 BAC Capital Trust X 6.250% Aa2 3,343,158
21,695 Banco Santander, 144A 6.800% A+ 541,019
16,704 Banco Santander, 144A 6.500% A 409,771
229,152 Banco Santander 6.410% Aa3 5,701,302
17,900 BancorpSouth Capital Trust I 8.150% Baa1 452,154
731,000 Banesto Holdings, Series A, 144A 10.500% A1 21,610,188
204,700 Bank One Capital Trust VI 7.200% Aa3 5,201,427
27,412 Barclays Bank PLC, (3) 6.625% Aa3 700,377
605,600 Capital One Capital II Corporation 7.500% Baa1 15,480,650
17,352 Chittenden Capital Trust I 8.000% A3 434,885
481,100 Citizens Funding Trust I 7.500% Baa2 12,222,971
225,500 Cobank ABC, 144A, (3) 7.000% A 11,188,183
374,795 HSBC Finance Corporation 6.875% AA- 9,426,094
51,398 KeyCorp Capital Trust IX 6.750% Baa1 1,271,201
1,300 Keycorp Capital VI 6.125% A3 30,199
60,162 KeyCorp Capital VIII 7.000% A3 1,517,213
1,060,500 National City Capital Trust II 6.625% A3 26,114,813
1,800 National Westminster Bank PLC 7.760% Aa3 46,350
289,600 PFGI Capital Corporation 7.750% A- 7,538,664
4,100 PNC Capital Trust 6.125% A2 95,448
598,076 Royal Bank of Scotland Group PLC, 6.350% A1 14,473,439
Series N
189,800 Royal Bank of Scotland Group PLC 6.600% Aa3 4,697,550
2,500 SunAmerica CORTS 6.700% AA 62,700
1,400 USB Capital Trust VI 5.750% Aa3 30,926
7,900 USB Capital Trust VII 5.875% Aa3 178,461
17
JPS
Nuveen Quality Preferred Income Fund 2 (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
522,050 USB Capital Trust XI 6.600% A1 $ 12,905,076
83,070 VNB Capital Trust I 7.750% A3 2,092,533
9,715 Wachovia Capital Trust IX 6.375% A1 235,286
179,416 Wachovia Trust IV 6.375% A1 4,292,079
309,000 Wells Fargo Capital Trust V 7.000% Aa2 7,771,350
34,481 Wells Fargo Capital Trust VII 5.850% Aa2 806,511
578,650 Zions Capital Trust B 8.000% BBB- 14,599,340
----------------------------------------------------------------------------------------------------------------
Total Commercial Banks 192,138,931
---------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
7,100 IBM Corporation, Class A (CORTS) 5.625% A+ 156,910
11,700 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 292,500
1,200 IBM Trust VI (CORTS) 6.375% A+ 29,520
----------------------------------------------------------------------------------------------------------------
Total Computers & Peripherals 478,930
---------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.0%
13,620 SLM Corporation 6.000% A2 265,590
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 10.4%
493,960 BAC Capital Trust XII 6.875% Aa3 12,697,242
586,725 Citigroup Capital Trust VIII 6.950% Aa2 14,697,461
8,800 Citigroup Capital Trust XI 6.000% Aa2 203,368
188,975 Citigroup Capital XIV 6.875% Aa2 4,843,429
847,588 Citigroup Capital XV 6.500% Aa3 20,871,855
29,000 Citigroup Capital XVI 6.450% Aa2 707,310
29,400 Citigroup Capital XVII 6.350% Aa2 709,275
1,264,700 Deutsche Bank Capital Funding Trust VIII 6.375% A 31,419,954
145,762 General Electric Capital Corporation 6.450% AAA 3,685,592
4,500 General Electric Capital Corporation 6.100% AAA 108,765
1,523,600 ING Group N.V. 7.200% A1 38,318,540
1,445,555 ING Group N.V. 7.050% A 36,254,519
2,700 ING Group N.V. 6.200% A1 64,125
3,400 JP Morgan Chase Capital Trust XII 6.250% Aa3 81,396
4,300 JPMorgan Chase Capital Trust XIV 6.200% Aa3 102,297
251,100 Merrill Lynch Capital Trust I 6.450% A1 6,159,809
----------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 170,924,937
---------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.6%
116,899 AT&T Inc. 7.000% A 2,938,841
87,100 AT&T Inc. 6.375% A 2,158,451
17,500 BellSouth Capital Funding (CORTS) 7.100% A 447,125
43,200 BellSouth Corporation (CORTS) 7.000% A 1,017,900
28,800 Verizon Communications (CORTS) 7.625% A 725,472
7,700 Verizon Communications (CORTS) 7.375% A 194,040
74,200 Verizon Global Funding Corporation (SATURNS) 7.500% A 1,863,162
22,100 Verizon New England Inc., Series B 7.000% A3 556,036
----------------------------------------------------------------------------------------------------------------
Total Diversified 9,901,027
Telecommunication Services
---------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 3.3%
27,400 DTE Energy Trust I 7.800% Baa3 697,330
4,200 Entergy Arkansas Inc. 6.700% AAA 104,496
57,650 Entergy Louisiana LLC 7.600% A- 1,442,403
1,299,100 Entergy Mississippi Inc. 7.250% A- 32,763,302
108,392 FPL Group Capital Inc. 6.600% A3 2,696,793
7,700 National Rural Utilities Cooperative Finance Corporation 6.100% A3 178,794
25,600 National Rural Utilities Cooperative Finance Corporation 5.950% A3 592,384
336,800 PPL Energy Supply LLC 7.000% BBB 8,641,042
265,500 Virginia Power Capital Trust 7.375% Baa2 6,706,530
----------------------------------------------------------------------------------------------------------------
Total Electric Utilities 53,823,074
---------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.3%
56,900 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 5,761,125
----------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.7%
489,240 Pulte Homes Inc. 7.375% BBB 12,047,535
----------------------------------------------------------------------------------------------------------------
INSURANCE - 19.1%
1,214,900 Ace Ltd., Series C 7.800% Baa2 30,967,801
73,618 Aegon N.V. 6.875% A- 1,858,118
18
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
2,334,600 Aegon N.V., (3) 6.375% A- $ 56,870,855
20,933 AMBAC Financial Group Inc. 5.950% AA 478,738
8,700 Arch Capital Group Limited, Series B 7.785% Baa3 220,980
989,383 Arch Capital Group Limited 8.000% BBB- 25,229,267
711,146 Berkley WR Corporation, Capital Trust II 6.750% BBB- 17,728,870
479,357 Delphi Financial Group, Inc. 8.000% BBB+ 12,343,443
392,300 Delphi Financial Group, Inc. 7.376% BBB- 9,684,906
1,702,521 EverestRe Group Limited 7.850% Baa1 43,227,007
65,000 Financial Security Assurance Holdings 6.875% AA 1,618,500
709,500 Financial Security Assurance Holdings 6.250% AA 17,020,905
54,300 Lincoln National Capital Trust VI 6.750% A- 1,352,070
13,400 Lincoln National Corporation 6.750% A- 337,546
531,300 Markel Corporation 7.500% BBB- 13,768,640
651,620 PartnerRe Limited, Series C 6.750% BBB+ 16,029,852
27,400 PartnerRe Limited, Series D 6.500% BBB+ 652,942
109,000 PLC Capital Trust III 7.500% BBB+ 2,758,245
455,740 PLC Capital Trust IV 7.250% BBB+ 11,388,943
22,200 PLC Capital Trust V 6.125% BBB+ 512,820
122,700 Protective Life Corporation 7.250% BBB 3,116,580
7,000 Prudential Financial Inc. (CORTS) 6.000% A+ 163,100
223,300 Prudential PLC 6.750% A 5,604,830
145,800 RenaissanceRe Holdings Limited, Series B 7.300% BBB 3,684,366
3,000 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 65,550
305,400 RenaissanceRe Holdings Limited 6.600% BBB 7,254,777
24,500 Safeco Capital Trust I (CORTS) 8.750% Baa2 711,480
3,900 Safeco Capital Trust IV (CORTS) 8.375% Baa2 108,615
2,600 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 65,091
8,500 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 212,840
572,200 XL Capital Ltd, Series A 8.000% Baa1 14,350,776
607,817 XL Capital Ltd, Series B 7.625% Baa1 15,225,816
----------------------------------------------------------------------------------------------------------------
Total Insurance 314,614,269
---------------------------------------------------------------------------------------------------
IT SERVICES - 0.0%
16,500 Vertex Industries Inc. (PPLUS) 7.625% A 415,553
----------------------------------------------------------------------------------------------------------------
MEDIA - 4.7%
178,000 CBS Corporation 7.250% BBB 4,469,580
685,300 CBS Corporation 6.750% BBB 16,704,188
100 Comcast Corporation 7.000% BBB+ 2,531
1,364,614 Comcast Corporation 7.000% BBB+ 34,115,350
908,740 Viacom Inc. 6.850% BBB 22,264,130
3,500 Walt Disney Company (CORTS) 6.875% A2 89,250
----------------------------------------------------------------------------------------------------------------
Total Media 77,645,029
---------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.3%
119,400 Dominion CNG Capital Trust I 7.800% Baa2 3,022,014
----------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.6%
908,811 Nexen Inc. 7.350% Baa3 23,083,799
145,800 TransCanada Pipeline 8.250% A3 3,643,542
----------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 26,727,341
---------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.0%
7,600 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 192,052
7,500 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 189,825
----------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 381,877
---------------------------------------------------------------------------------------------------
REAL ESTATE/MORTGAGE - 20.1%
40,000 AMB Property Corporation, Series O 7.000% Baa2 1,018,000
201,379 AMB Property Corporation, Series P 6.850% Baa2 5,028,192
95,400 AvalonBay Communities, Inc., Series H 8.700% BBB 2,478,492
16,400 BRE Properties, Series B 8.080% BBB- 411,886
105,805 BRE Properties, Series C 6.750% BBB- 2,555,191
30,335 BRE Properties, Series D 6.750% BBB- 734,714
639,813 Developers Diversified Realty Corporation, Series G 8.000% BBB- 16,180,871
187,823 Developers Diversified Realty Corporation, Series H 7.375% BBB- 4,723,748
40,467 Developers Diversified Realty Corporation 7.500% BBB- 1,020,982
298,900 Duke Realty Corporation, Series L 6.600% BBB 7,236,369
2,200 Duke Realty Corporation, Series N 7.250% BBB 56,031
19
JPS
Nuveen Quality Preferred Income Fund 2 (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------
REAL ESTATE/MORTGAGE (continued)
220,650 Duke-Weeks Realty Corporation, Series B 7.990% BBB $ 10,811,850
151,846 Duke-Weeks Realty Corporation 6.950% BBB 3,834,112
5,600 Duke-Weeks Realty Corporation 6.625% BBB 134,624
66,850 Equity Residential Properties Trust, Series D 8.600% BBB 1,665,902
279,000 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 7,041,960
Inc., Series J
1,828,225 HRPT Properties Trust, Series B 8.750% BBB- 46,382,067
71,980 HRPT Properties Trust, Series C 7.125% BBB- 1,812,456
175,900 Kimco Realty Corporation, Series F 6.650% BBB+ 4,311,309
1,300 Prologis Trust, Series F 6.750% BBB 32,227
95,328 Prologis Trust, Series G 6.750% BBB 2,352,695
108,300 PS Business Parks, Inc., Series I 6.875% BBB- 2,590,536
110,700 PS Business Parks, Inc., Series K 7.950% BBB- 2,916,945
401,000 PS Business Parks, Inc., Series L 7.600% BBB- 10,125,250
5,500 PS Business Parks, Inc., Series O 7.375% BBB- 140,078
774,970 PS Business Parks, Inc. 7.000% BBB- 18,870,520
8,200 PS Business Parks, Inc. 6.700% BBB- 192,864
234,300 Public Storage, Inc., Series C 6.600% BBB+ 5,606,799
38,600 Public Storage, Inc., Series E 6.750% BBB+ 941,454
72,566 Public Storage, Inc., Series F 6.450% BBB+ 1,687,160
11,230 Public Storage, Inc., Series H 6.950% BBB+ 280,076
401,300 Public Storage, Inc., Series I 7.250% BBB+ 10,253,215
381,020 Public Storage, Inc., Series K 7.250% BBB+ 9,799,377
706,070 Public Storage, Inc., Series M 6.625% BBB+ 16,883,899
148,000 Public Storage, Inc., Series V 7.500% BBB+ 3,725,160
67,600 Public Storage, Inc., Series Y 6.850% BBB+ 1,675,216
7,500 Public Storage, Inc. 7.125% BBB+ 190,800
41,400 Public Storage, Inc. 6.750% BBB+ 1,014,818
466,397 Realty Income Corporation, Series E 6.750% BBB- 11,659,925
165,900 Realty Income Corporation 7.375% BBB- 4,222,155
325,223 Regency Centers Corporation 7.450% BBB- 8,172,854
245,800 Regency Centers Corporation 7.250% BBB- 6,157,290
326,041 Simon Property Group, Inc., Series G 7.890% BBB 16,308,571
24,100 Vornado Realty Trust, Series F 6.750% BBB- 592,137
213,940 Vornado Realty Trust, Series G 6.625% BBB- 5,066,099
122,800 Vornado Realty Trust, Series H 6.750% BBB- 2,981,584
220,250 Vornado Realty Trust, Series I 6.625% BBB- 5,241,950
2,296,200 Wachovia Preferred Funding Corporation 7.250% A2 61,101,881
158,600 Weingarten Realty Trust, Series E 6.950% A- 3,928,522
----------------------------------------------------------------------------------------------------------------
Total Real Estate/Mortgage 332,150,813
---------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 3.0%
971,765 Countrywide Capital Trust IV 6.750% BBB+ 22,719,866
1,072,275 Countrywide Capital Trust V 7.000% BBB+ 26,505,351
17,700 Harris Preferred Capital 7.375% A1 445,863
Corporation, Series A
----------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 49,671,080
---------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.5%
939,840 United States Cellular Corporation 8.750% A- 24,003,514
----------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES (COST $1,376,210,189) 1,367,857,356
===================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 0.5% (0.3% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 0.5%
$ 5,000 Credit Agricole SA 6.637% 5/29/49 Aa3 $ 4,869,000
4,400 Swedbank ForengingsSparbanken AB, 144A 7.500% 9/27/49 Aa2 4,637,899
144A
----------------------------------------------------------------------------------------------------------------------
9,400 Total Commercial Banks 9,506,899
----------------------------------------------------------------------------------------------------------------------
$ 9,400 TOTAL CORPORATE BONDS (COST $9,697,716) 9,506,899
======================================================================================================================
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 56.0% (38.0% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 6.9%
1,465 Bank of New York Capital I, Series 7.970% 12/31/26 Aa3 $ 1,523,380
B
5,000 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 4,969,595
20
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS (continued)
18,600 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 $ 18,464,685
21,190 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A1 24,475,065
5,050 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A- 5,270,064
17,095 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 20,088,864
10,000 Mizuho JGB Investment 9.870% 6/30/48 A1 10,397,650
3,600 MUFG Capital Finance 2 4.850% 7/25/56 BBB 4,572,880
3,240 State Street Institutional Capital Trust, 144A 7.940% 12/30/26 A1 3,374,907
19,800 UBS Preferred Funding Trust I 8.622% 10/29/49 Aa2 21,519,769
--------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 114,656,859
------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 31.2%
10,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 9,925,670
37,250 Abbey National Capital Trust I 8.963% 6/30/50 A+ 47,283,398
29,000 AgFirst Farm Credit Bank 8.393% 12/15/16 A- 31,517,954
7,100 AgFirst Farm Credit Bank 7.300% 12/15/53 A- 7,093,014
6,500 Bank One Capital III 8.750% 9/01/30 Aa3 8,285,778
5,000 BanPonce Trust I, Series A 8.327% 2/01/27 A3 5,208,150
36,000 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 39,678,120
10,800 BBVA International Preferred SA, Unipersonal 5.919% 10/18/49 A1 10,150,531
6,920 Capital One Capital IV Corporation 6.745% 2/17/37 Baa1 6,388,828
15,000 CBG Florida REIT Corporation 7.114% 11/15/49 Baa3 14,825,445
2,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A+ 2,071,506
3,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 Aa3 3,946,527
11,700 Den Norske Bank, 144A 7.729% 6/29/49 Aa3 12,458,195
1,500 First Empire Capital Trust I 8.234% 2/01/27 A3 1,563,530
1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa1 1,531,383
16,310 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 15,935,995
14,200 HBOS PLC, 144A 6.413% 4/01/49 A1 13,332,465
2,400 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 2,651,947
6,250 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 8,771,950
6,000 HT1 Funding, GmbH 6.352% 6/30/57 A- 8,252,559
32,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A1 34,912,096
8,000 KeyCorp Capital III 7.750% 7/15/29 A3 9,102,856
13,500 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 13,347,990
14,000 Mizuho Financial Group 8.375% 4/27/49 Aa3 14,623,434
14,000 Nordbanken AB, 144A 8.950% 11/29/49 Aa3 14,938,826
8,000 North Fork Capital Trust II 8.000% 12/15/27 Baa1 8,370,264
7,000 Northgroup Preferred Capital Corporation, 144A 6.378% 10/15/57 A1 6,809,572
2,000 Popular North American Capital Trust I 6.564% 9/15/34 A3 1,835,998
3,400 RBS Capital Trust B 6.800% 12/31/49 A1 3,332,792
8,000 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 8,438,256
500 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 518,825
17,500 Royal Bank of Scotland Group PLC 9.118% 3/31/49 Aa3 19,036,833
22,700 Shinsei Finance II Cayman Limited, Perpetual Maturity, 144A 7.160% 7/25/49 Baa2 22,678,730
5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 A2 4,887,975
6,900 Standard Chartered PLC, 144A 7.014% 1/30/58 BBB+ 6,638,228
5,000 Suntrust Capital VIII 6.100% 12/01/66 A1 4,593,625
13,600 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 Aa3 14,651,022
9,000 Unicredito Italiano Capital Trust, 144A 9.200% 4/05/51 A1 9,945,009
1,500 Union Bank of Norway 7.068% 11/19/49 A2 2,211,062
-- Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 25,612,500
38,200 Washington Mutual Preferred 7.250% 3/15/49 Baa1 37,871,709
Funding Cayman, Series A-1, 144A
--------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 515,230,547
------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 2.9%
1,000 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 Aa3 1,096,439
6,800 Fulton Capital Trust I 6.290% 2/01/36 A3 6,440,151
15,300 JPMorgan Chase Capital Trust XVIII 6.950% 8/17/36 Aa3 15,513,619
4,594 MM Community Funding Trust I Limited 8.030% 6/15/31 Aaa 5,030,613
19,300 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 19,782,500
--------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 47,863,322
------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.1%
30 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 33,974,531
--------------------------------------------------------------------------------------------------------------------------------
21
JPS
Nuveen Quality Preferred Income Fund 2 (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
-----------------------------------------------------------------------------------------------------------------------
INSURANCE - 9.4%
14,280 Ace Capital Trust II 9.700% 4/01/30 Baa1 $ 18,518,333
2,000 Allstate Corporation 6.125% 5/15/37 A2 1,930,334
28,000 American General Institutional Capital, 144A 8.125% 3/15/46 Aa3 33,904,080
12,900 AXA SA, 144A 6.463% 12/14/49 BBB+ 12,015,447
10,700 AXA-UAP 8.600% 12/15/30 A- 13,074,630
9,600 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A- 9,847,392
11,800 MetLife Inc. 6.400% 12/15/66 BBB+ 10,965,492
1,200 Nationwide Financial Services Capital Trust 7.899% 3/01/37 Baa1 1,357,321
12,300 Oil Insurance Limited, 144A 7.558% 12/30/49 Baa1 12,757,326
5,850 Prudential PLC 6.500% 6/29/49 A 5,562,537
15,100 QBE Capital Funding Trust II, 144A 6.797% 6/01/49 BBB 14,770,745
21,600 XL Capital, Limited 6.500% 10/15/57 BBB 20,322,144
-----------------------------------------------------------------------------------------------------------------------
Total Insurance 155,025,781
-------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.7%
10,750 KN Capital Trust III 7.630% 4/15/28 B1 10,133,273
-----------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.8%
14,400 Burlington Northern Santa Fe Funding Trust I 6.613% 12/15/55 BBB 13,187,995
-----------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.0%
1,000 Caisse Nationale Des Caisses d'Epargne et de Prevoyance 6.750% 1/27/49 A+ 972,190
12,811 Countrywide Capital Trust III, Series B 8.050% 6/15/27 BBB+ 13,729,805
1,300 MM Community Funding Trust I Limited 9.480% 6/15/31 Baa2 1,452,750
18,100 Washington Mutual Preferred Funding Trust II 6.665% 3/15/57 Baa1 17,308,686
-----------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 33,463,431
-------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST $942,329,613) 923,535,739
=======================================================================================================
SHARES DESCRIPTION (1) VALUE
-----------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 4.5% (3.1% OF TOTAL INVESTMENTS)
306,317 Blackrock Preferred and Corporate Income Strategies Fund $ 6,251,930
967,880 Blackrock Preferred Income Strategies Fund 18,834,945
76,677 Blackrock Preferred Opportunity Trust 1,828,746
1,035,253 Flaherty and Crumrine/Claymore Preferred Securities Income Fund Inc. 21,139,866
291,898 Flaherty and Crumrine/Claymore Total Return Fund Inc. 5,951,800
884,701 John Hancock Preferred Income Fund III 19,259,941
19,819 John Hancock Preferred Income Fund II 471,692
12,653 John Hancock Preferred Income Fund 300,888
-----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $73,866,605) 74,039,808
=======================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 3.2% (2.2% OF TOTAL INVESTMENTS)
$ 52,361 Repurchase Agreement with Fixed 4.000% 7/02/07 $ 52,361,165
Income Clearing Corporation,
dated 6/29/07, repurchase price
$52,378,619, collateralized by
$39,130,000 U.S. Treasury Bonds,
8.750%, due 8/15/20, value
$53,412,450
========== -------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $52,361,165) 52,361,165
=======================================================================================================
TOTAL INVESTMENTS (COST $2,454,465,288) - 147.1% 2,427,300,967
=======================================================================================================
OTHER ASSETS LESS LIABILITIES - 1.4% 22,500,262
=======================================================================================================
PREFERRED SHARES, AT LIQUIDATION VALUE - (48.5)% (800,000,000)
=======================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 1,649,801,229
=======================================================================================================
22
INTEREST RATE SWAPS OUTSTANDING AT JUNE 30, 2007:
FUND FIXED RATE UNREALIZED
NOTIONAL PAY/RECEIVE FLOATING RATE FIXED RATE PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION)
---------------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $200,000,000 Receive 1-Month USD-LIBOR 3.375% Monthly 11/06/07 $ 1,642,571
Citigroup Inc. 200,000,000 Receive 1-Month USD-LIBOR 3.910 Monthly 11/06/09 6,124,643
---------------------------------------------------------------------------------------------------------------------------
$ 7,749,214
===========================================================================================================================
USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
FUTURES CONTRACTS OUTSTANDING AT JUNE 30, 2007:
UNREALIZED
CONTRACT NUMBER OF CONTRACT VALUE AT APPRECIATION
TYPE POSITION CONTRACTS EXPIRATION JUNE 30, 2007 (DEPRECIATION)
-------------------------------------------------------------------------------------------------
U.S. Treasury Bond Long 1,271 9/07 $136,950,250 $ (1,767,331)
U.S. 10-Year Treasury Notes Long 294 9/07 31,076,719 (229,672)
-------------------------------------------------------------------------------------------------
$ (1,997,003)
=================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by
Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be
below investment grade.
(3) Investment is eligible for the Dividends Received Deduction.
N/R Not rated.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CORTS Corporate Backed Trust Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
23
JHP
Nuveen Quality Preferred Income Fund 3
Portfolio of INVESTMENTS
as of 6-30-07 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 95.5% (62.8% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 12.3%
21,206 Bear Stearns Capital Trust III 7.800% A2 $ 537,784
7,225 BNY Capital Trust V, Series F 5.950% Aa3 167,765
60,300 Compass Capital Trust III 7.350% A3 1,508,706
40,700 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 1,020,756
560,800 Deutsche Bank Capital Funding Trust II 6.550% Aa3 13,797,078
5,500 Goldman Sachs Group Inc. (SATURNS) 5.750% AA- 121,770
11,400 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 259,464
10,800 Goldman Sachs Group Inc., Series GSC-4 Class A 6.000% A1 246,240
(PPLUS)
357,800 Lehman Brothers Holdings Capital Trust III, 6.375% A2 8,444,080
Series K
70,800 Merrill Lynch Preferred Capital Trust III 7.000% A1 1,770,708
21,200 Merrill Lynch Preferred Capital Trust IV 7.120% A1 531,484
88,000 Merrill Lynch Preferred Capital Trust V 7.280% A1 2,217,600
41,900 Morgan Stanley (PPLUS) 7.050% Aa3 1,058,394
176,623 Morgan Stanley Capital Trust III 6.250% A1 4,224,822
1,400 Morgan Stanley Capital Trust IV 6.250% A1 33,012
20,300 Morgan Stanley Capital Trust V 5.750% A+ 450,051
75,700 Morgan Stanley Capital Trust VI 6.600% A1 1,872,061
29,718 Morgan Stanley Capital Trust VII 6.600% A2 727,497
----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 38,989,272
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 13.3%
38,300 ASBC Capital I 7.625% A3 962,862
2,600 BAC Capital Trust IV 5.875% Aa2 59,098
10,200 BAC Capital Trust VIII 6.000% Aa2 235,314
3,800 BAC Capital Trust X 6.250% Aa2 89,908
188,983 Banco Santander, 144A 6.800% A+ 4,712,764
10,611 Banco Santander, 144A 6.500% A 260,302
26,224 Banco Santander 6.410% Aa3 652,453
3,800 BancorpSouth Capital Trust I 8.150% Baa1 95,988
244,100 Banesto Holdings, Series A, 144A 10.500% A1 7,216,206
33,200 Bank One Capital Trust VI 7.200% Aa3 843,612
29,400 Capital One Capital II Corporation 7.500% Baa1 751,538
3,504 Chittenden Capital Trust I 8.000% A3 87,819
40,500 Citizens Funding Trust I 7.500% Baa2 1,028,955
44,500 Cobank ABC, 144A, (3) 7.000% A 2,207,868
35,816 Fleet Capital Trust VIII 7.200% Aa2 901,489
141,900 HSBC Finance Corporation 6.875% AA- 3,568,785
167,655 KeyCorp Capital Trust IX 6.750% Baa1 4,146,527
245,800 National City Capital Trust II 6.625% A3 6,052,825
12,500 PNC Capital Trust 6.125% A2 291,000
104,465 Royal Bank of Scotland Group PLC, Series N 6.350% A1 2,528,053
16,100 USB Capital Trust XI 6.600% A1 397,992
17,730 VNB Capital Trust I 7.750% A3 446,619
4,000 Wells Fargo Capital Trust IX 5.625% Aa2 89,640
51,000 Wells Fargo Capital Trust V 7.000% Aa2 1,282,650
49,444 Wells Fargo Capital Trust VII 5.850% Aa2 1,156,495
80,800 Zions Capital Trust B 8.000% BBB- 2,038,584
----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 42,105,346
----------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.0%
2,900 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 72,500
----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 10.1%
59,100 Allied Capital Corporation 6.875% BBB+ 1,408,353
377,415 BAC Capital Trust XII 6.875% Aa3 9,701,452
10,100 Citigroup Capital XIV 6.875% Aa2 258,863
55,729 Citigroup Capital XV 6.500% Aa3 1,372,327
12,350 General Electric Capital Corporation 6.450% AAA 312,270
24
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
108,000 General Electric Capital Corporation 6.050% AAA $ 2,612,250
504,300 ING Group N.V. 7.200% A1 12,683,144
142,900 ING Group N.V. 7.050% A 3,583,932
6,300 Royal Bank of Scotland Public Limited Company, Series 2006Q 6.750% A1 159,831
----------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 32,092,422
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.9%
25,000 AT&T Inc. 7.000% A 628,500
179,200 AT&T Inc. 6.375% A 4,440,809
3,300 BellSouth Capital Funding (CORTS) 7.100% A 84,315
4,600 BellSouth Corporation (CORTS) 7.000% A 108,388
26,600 Verizon Communications (CORTS) 7.625% A 670,054
----------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 5,932,066
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 2.9%
55,200 Entergy Louisiana LLC 7.600% A- 1,381,104
203,447 Entergy Mississippi Inc. 7.250% A- 5,130,933
23,800 FPL Group Capital Inc. 6.600% A3 592,144
2,300 National Rural Utilities Cooperative Finance Corporation 6.100% A3 53,406
33,018 National Rural Utilities Cooperative Finance Corporation 5.950% A3 764,037
34,400 PPL Energy Supply LLC 7.000% BBB 882,577
8,900 Virginia Power Capital Trust 7.375% Baa2 224,814
----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 9,029,015
----------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
11,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 1,113,750
----------------------------------------------------------------------------------------------------------------------------
INSURANCE - 21.2%
194,400 Ace Ltd., Series C 7.800% Baa2 4,955,256
15,686 Aegon N.V. 6.875% A- 395,915
409,638 Aegon N.V., (3) 6.375% A- 9,978,781
10,800 AMBAC Financial Group Inc. 5.950% AA 246,996
195,649 Arch Capital Group Limited 8.000% BBB- 4,989,050
7,000 Berkley WR Corporation, Capital Trust II 6.750% BBB- 174,510
138,700 Delphi Financial Group, Inc. 8.000% BBB+ 3,571,525
92,100 Delphi Financial Group, Inc. 7.376% BBB- 2,273,719
45,867 EverestRe Capital Trust II 6.200% Baa1 1,048,061
294,716 EverestRe Group Limited 7.850% Baa1 7,482,839
151,100 Financial Security Assurance Holdings 6.250% AA 3,624,889
174,900 PartnerRe Limited, Series C 6.750% BBB+ 4,302,540
3,000 PartnerRe Limited, Series D 6.500% BBB+ 71,490
57,100 PLC Capital Trust III 7.500% BBB+ 1,444,916
46,400 PLC Capital Trust IV 7.250% BBB+ 1,159,536
4,500 PLC Capital Trust V 6.125% BBB+ 103,950
332,400 Protective Life Corporation 7.250% BBB 8,442,960
53,244 Prudential PLC 6.750% A 1,336,424
60,401 RenaissanceRe Holdings Limited, Series B 7.300% BBB 1,526,333
3,000 RenaissanceRe Holdings Limited 6.600% BBB 71,265
6,500 Safeco Capital Trust IV (CORTS) 8.375% Baa2 181,025
33,000 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 826,155
65,100 XL Capital Ltd, Series A 8.000% Baa1 1,632,708
294,200 XL Capital Ltd, Series B 7.625% Baa1 7,369,710
----------------------------------------------------------------------------------------------------------------------------
Total Insurance 67,210,553
----------------------------------------------------------------------------------------------------------------
MEDIA - 5.3%
1,700 CBS Corporation 7.250% BBB 42,687
75,000 CBS Corporation 6.750% BBB 1,828,125
270,300 Comcast Corporation 7.000% BBB+ 6,841,969
25,400 Comcast Corporation 7.000% BBB+ 635,000
40,000 Comcast Corporation 6.625% BBB+ 960,000
259,800 Viacom Inc. 6.850% BBB 6,365,100
----------------------------------------------------------------------------------------------------------------------------
Total Media 16,672,881
-----------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.1%
17,900 Dominion CNG Capital Trust I 7.800% Baa2 453,049
----------------------------------------------------------------------------------------------------------------------------
25
JHP
Nuveen Quality Preferred Income Fund 3 (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
----------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.8%
195,200 Nexen Inc. 7.350% Baa3 $ 4,958,080
34,700 TransCanada Pipeline 8.250% A3 867,153
----------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 5,825,233
----------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
8,600 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 217,322
4,300 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 108,833
----------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 326,155
----------------------------------------------------------------------------------------------------------------
REAL ESTATE/MORTGAGE - 20.9%
10,700 AvalonBay Communities, Inc., Series H 8.700% BBB 277,986
29,200 BRE Properties, Series C 6.750% BBB- 705,180
8,029 BRE Properties, Series D 6.750% BBB- 194,462
171,200 Developers Diversified Realty Corporation, Series G 8.000% BBB- 4,329,648
32,000 Developers Diversified Realty Corporation, Series H 7.375% BBB- 804,800
112,900 Duke Realty Corporation, Series L 6.600% BBB 2,733,309
136,700 Duke Realty Corporation, Series N 7.250% BBB 3,481,585
149,000 Duke-Weeks Realty Corporation 6.950% BBB 3,762,250
20,800 Equity Residential Properties Trust, Series D 8.600% BBB 518,336
144,300 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 3,642,132
249,307 HRPT Properties Trust, Series B 8.750% BBB- 6,324,919
129,611 HRPT Properties Trust, Series C 7.125% BBB- 3,263,605
17,500 Prologis Trust, Series G 6.750% BBB 431,900
120,000 PS Business Parks, Inc., Series L 7.600% BBB- 3,030,000
155,400 PS Business Parks, Inc. 7.000% BBB- 3,783,990
16,500 Public Storage, Inc., Series F 6.450% BBB+ 383,625
194,262 Public Storage, Inc., Series K 7.250% BBB+ 4,996,186
32,500 Public Storage, Inc., Series M 6.625% BBB+ 777,156
17,000 Public Storage, Inc., Series V 7.500% BBB+ 427,890
77,300 Public Storage, Inc., Series Y 6.850% BBB+ 1,915,594
3,000 Public Storage, Inc. 7.125% BBB+ 76,320
115,500 Public Storage, Inc. 6.750% BBB+ 2,831,194
53,800 Realty Income Corporation, Series E 6.750% BBB- 1,345,000
5,900 Realty Income Corporation 7.375% BBB- 150,155
30,972 Regency Centers Corporation 7.450% BBB- 778,326
84,500 Regency Centers Corporation 7.250% BBB- 2,116,725
68,600 Simon Property Group, Inc., Series G 7.890% BBB 3,431,372
61,800 Vornado Realty Trust, Series G 6.625% BBB- 1,463,424
7,500 Vornado Realty Trust, Series I 6.625% BBB- 178,500
262,800 Wachovia Preferred Funding Corporation 7.250% A2 6,993,108
39,900 Weingarten Realty Trust, Series E 6.950% A- 988,323
----------------------------------------------------------------------------------------------------------------------------
Total Real Estate/Mortgage 66,137,000
----------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 3.9%
223,569 Countrywide Capital Trust IV 6.750% BBB+ 5,227,043
289,365 Countrywide Capital Trust V 7.000% BBB+ 7,152,756
3,300 Harris Preferred Capital Corporation, Series A 7.375% A1 83,127
----------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 12,462,926
----------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.3%
157,500 United States Cellular Corporation 8.750% A- 4,022,550
----------------------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES (COST $305,835,130) 302,444,718
================================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
-------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 1.3% (0.8% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 0.6%
$ 2,000 Credit Agricole SA 6.637% 5/29/49 Aa3 $ 1,947,600
-------------------------------------------------------------------------------------------------------------------------------
26
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
-------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.7%
$ 1,000 Liberty Mutual Group 7.800% 3/15/37 Baa3 $ 944,137
1,000 Progressive Corporation 6.700% 6/15/37 A2 995,652
-------------------------------------------------------------------------------------------------------------------------------
2,000 Total Insurance 1,939,789
-------------------------------------------------------------------------------------------------------------------------------
$ 4,000 TOTAL CORPORATE BONDS (COST $3,876,025) 3,887,389
===============================================================================================================================
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
--------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 45.5% (29.9% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 8.2%
1,000 Bank of New York Capital I, Series B 7.970% 12/31/26 Aa3 $ 1,039,850
250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 248,480
3,750 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 3,722,719
4,300 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A1 4,966,625
2,000 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A- 2,087,154
8,485 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 9,970,986
3,000 Mizuho JGB Investment 9.870% 6/30/48 A1 3,119,295
700 MUFG Capital Finance 2 4.850% 7/25/56 BBB 889,171
--------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 26,044,280
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 21.7%
1,500 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 1,488,851
1,500 Abbey National Capital Trust I 8.963% 6/30/50 A+ 1,904,030
1,900 AgFirst Farm Credit Bank 7.300% 12/15/53 A- 1,898,130
500 BanPonce Trust I, Series A 8.327% 2/01/27 A3 520,815
6,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 6,833,454
2,900 BBVA International Preferred SA, Unipersonal 5.919% 10/18/49 A1 2,725,606
5,000 Capital One Capital IV Corporation 6.745% 2/17/37 Baa1 4,616,205
3,000 CBG Florida REIT Corporation 7.114% 11/15/49 Baa3 2,965,089
900 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 Aa3 959,966
4,400 Den Norske Bank, 144A 7.729% 6/29/49 Aa3 4,685,133
1,000 First Empire Capital Trust I 8.234% 2/01/27 A3 1,042,353
500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa1 510,461
3,700 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 3,615,155
2,500 HBOS PLC, 144A 6.413% 4/01/49 A1 2,347,265
1,430 HSBC USA Capital Trust II, 144A 8.380% 5/15/27 A 1,492,961
1,000 HT1 Funding, GmbH 6.352% 6/30/57 A- 1,375,427
2,500 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A1 2,727,508
2,000 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 1,977,480
2,000 Mizuho Financial Group 8.375% 4/27/49 Aa3 2,089,062
1,000 Popular North American Capital Trust I 6.564% 9/15/34 A3 917,999
1,300 RBS Capital Trust B 6.800% 12/31/49 A1 1,274,303
3,300 Shinsei Finance II Cayman Limited, Perpetual Maturity, 144A 7.160% 7/25/49 Baa2 3,296,908
1,500 Standard Chartered PLC, 144A 7.014% 1/30/58 BBB+ 1,443,093
2,660 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 Aa3 2,865,567
-- Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 7,470,313
5,600 Washington Mutual Preferred Funding Cayman, Series A-1, 144A 7.250% 3/15/49 Baa1 5,551,874
Series A-1, 144A
--------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 68,595,008
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 3.8%
1,300 Fulton Capital Trust I 6.290% 2/01/36 A3 1,231,205
6,000 JPMorgan Chase Capital Trust XVIII 6.950% 8/17/36 Aa3 6,083,772
2,757 MM Community Funding Trust I Limited 8.030% 6/15/31 Aaa 3,018,368
1,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 1,845,000
--------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 12,178,345
----------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.9%
5 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 5,907,638
--------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 7.5%
3,450 Ace Capital Trust II 9.700% 4/01/30 Baa1 4,473,967
3,500 AXA SA, 144A 6.463% 12/14/49 BBB+ 3,260,005
2,600 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A- 2,667,002
27
JHP
Nuveen Quality Preferred Income Fund 3 (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
--------------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
1,200 MetLife Inc. 6.400% 12/15/66 BBB+ $ 1,115,135
400 Nationwide Financial Services Capital Trust 7.899% 3/01/37 Baa1 452,440
2,400 Oil Insurance Limited, 144A 7.558% 12/30/49 Baa1 2,489,234
1,500 Prudential PLC 6.500% 6/29/49 A 1,426,292
6,000 QBE Capital Funding Trust II, 144A 6.797% 6/01/49 BBB 5,869,170
2,000 XL Capital, Limited 6.500% 10/15/57 BBB 1,881,680
--------------------------------------------------------------------------------------------------------------------------------
Total Insurance 23,634,925
----------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
3,000 KN Capital Trust III 7.630% 4/15/28 B1 2,827,890
--------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.8%
2,785 Burlington Northern Santa Fe Funding Trust I 6.613% 12/15/55 BBB 2,550,595
--------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.7%
2,400 Washington Mutual Preferred Funding Trust II 6.665% 3/15/57 Baa1 2,295,074
--------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST $147,304,921) 144,033,755
================================================================================================================
SHARES DESCRIPTION (1) VALUE
--------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 5.8% (3.8% OF TOTAL INVESTMENTS)
82,719 Blackrock Preferred and Corporate Income Strategies Fund $ 1,688,295
199,225 Blackrock Preferred Income Strategies Fund 3,876,919
10,170 Blackrock Preferred Opportunity Trust 242,555
204,484 Flaherty and Crumrine/Claymore Preferred Securities Income Fund Inc. 4,175,563
213,385 Flaherty and Crumrine/Claymore Total Return Fund Inc. 4,350,920
187,021 John Hancock Preferred Income Fund III 4,071,447
2,258 John Hancock Preferred Income Fund II 53,740
1,707 John Hancock Preferred Income Fund 40,592
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT COMPANIES (COST $18,751,198) 18,500,031
================================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 4.1% (2.7% OF TOTAL INVESTMENTS)
$ 12,983 Repurchase Agreement with Fixed Income 4.000% 7/02/07 $ 12,983,383
Clearing Corporation, dated 6/29/07,
repurchase price $12,987,711, collateralized
by $10,280,000 U.S. Treasury Bonds, 8.125%,
due 5/15/21, value $13,248,350
========= ----------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $12,983,383) 12,983,383
================================================================================================================
TOTAL INVESTMENTS (COST $488,750,657) - 152.2% 481,849,276
================================================================================================================
OTHER ASSETS LESS LIABILITIES - 0.2% 765,614
================================================================================================================
PREFERRED SHARES, AT LIQUIDATION VALUE - (52.4)% (166,000,000)
================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 316,614,890
================================================================================================================
INTEREST RATE SWAPS OUTSTANDING AT JUNE 30, 2007:
FUND FIXED RATE UNREALIZED
NOTIONAL PAY/RECEIVE FLOATING RATE FIXED RATE PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $42,000,000 Receive 1-Month USD-LIBOR 3.255% Monthly 2/06/08 $ 641,870
Citigroup Inc. 42,000,000 Receive 1-Month USD-LIBOR 3.815 Monthly 2/06/10 1,568,892
-----------------------------------------------------------------------------------------------------------------------------
$ 2,210,762
=============================================================================================================================
USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
28
FUTURES CONTRACTS OUTSTANDING AT JUNE 30, 2007:
UNREALIZED
CONTRACT NUMBER OF CONTRACT VALUE AT APPRECIATION
TYPE POSITION CONTRACTS EXPIRATION JUNE 30, 2007 (DEPRECIATION)
-------------------------------------------------------------------------------------------------
U.S. Treasury Bond Long 300 9/07 $ 32,325,000 $ (416,032)
U.S. 10-Year Treasury Notes Long 7 9/07 739,922 (5,468)
-------------------------------------------------------------------------------------------------
$ (421,500)
=================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by
Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be
below investment grade.
(3) Investment is eligible for the Dividends Received Deduction.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
CORTS Corporate Backed Trust Securities.
PPLUS PreferredPlus Trust.
SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
29
Statement of
ASSETS & LIABILITIES
June 30, 2007 (Unaudited)
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
-----------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $1,309,796,668, $2,454,465,288
and $488,750,657, respectively) $1,294,301,767 $2,427,300,967 $481,849,276
Cash 907,301 1,731,000 364,900
Unrealized appreciation on interest rate swaps 2,267,110 7,749,214 2,210,762
Receivables:
Dividends 2,713,575 4,387,028 1,067,607
Variation margin on futures contracts 720,281 1,378,281 294,125
Interest 8,868,207 15,045,627 2,264,144
Investments sold 37,462 9,807,427 2,712,138
Reclaims 52,810 47,542 9,744
Other assets 96,011 183,151 35,252
-----------------------------------------------------------------------------------------------------------------------------
Total assets 1,309,964,524 2,467,630,237 490,807,948
-----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 12,458,587 15,745,557 7,768,077
Accrued expenses:
Management fees 578,238 1,036,756 223,909
Other 378,633 626,674 121,482
FundPreferred shares dividends payable 243,792 420,021 79,590
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities 13,659,250 17,829,008 8,193,058
-----------------------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000
-----------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 856,305,274 $1,649,801,229 $316,614,890
=============================================================================================================================
Common shares outstanding 64,548,639 119,816,861 23,682,846
=============================================================================================================================
Net asset value per Common share outstanding (net assets
applicable to Common shares, divided by Common shares outstanding) $ 13.27 $ 13.77 $ 13.37
=============================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
-----------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 645,486 $ 1,198,169 $ 236,828
Paid-in surplus 903,756,826 1,690,099,455 331,832,748
Undistributed (Over-distribution of) net investment income (5,912,870) (9,112,188) (3,032,223)
Accumulated net realized gain (loss) from investments and
derivative transactions (27,918,179) (10,975,557) (7,310,621)
Net unrealized appreciation (depreciation) of investments
and derivative transactions (14,265,989) (21,408,650) (5,111,842)
-----------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 856,305,274 $1,649,801,229 $316,614,890
=============================================================================================================================
Authorized shares:
Common Unlimited Unlimited Unlimited
FundPreferred Unlimited Unlimited Unlimited
=============================================================================================================================
See accompanying notes to financial statements.
30
Statement of
OPERATIONS
Six Months Ended June 30, 2007
(Unaudited)
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $7,595, $16,340
and $4,023, respectively) $ 26,447,579 $ 50,431,027 $10,723,667
Interest 18,320,163 37,182,611 5,729,860
---------------------------------------------------------------------------------------------------------------
Total investment income $ 44,767,742 $ 87,613,638 $16,453,527
---------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 5,718,170 10,453,632 2,184,496
FundPreferred shares - auction fees 545,480 991,780 205,795
FundPreferred shares - dividend disbursing agent fees 15,383 22,635 7,400
Shareholders' servicing agent fees and expenses 4,003 4,425 781
Custodian's fees and expenses 126,635 221,103 51,298
Trustees' fees and expenses 15,330 28,215 5,367
Professional fees 36,086 58,941 16,511
Shareholders' reports - printing and mailing expenses 89,414 144,966 34,440
Stock exchange listing fees 11,539 21,440 4,809
Investor relations expense 104,127 193,773 38,379
Other expenses 24,781 31,908 14,045
---------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 6,690,948 12,172,818 2,563,321
Custodian fee credit (8,970) (12,937) (1,175)
Expense reimbursement (2,124,169) (4,016,795) (791,376)
---------------------------------------------------------------------------------------------------------------
Net expenses 4,557,809 8,143,086 1,770,770
---------------------------------------------------------------------------------------------------------------
Net investment income 40,209,933 79,470,552 14,682,757
---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments 1,718,311 11,645,757 (1,526,174)
Interest rate swaps 1,357,033 3,403,278 764,196
Futures (12,175,863) (23,255,838) (4,923,424)
Foreign currencies (18,161) (26,366) (6,504)
Change in net unrealized appreciation (depreciation) of:
Investments (38,638,830) (82,767,412) (11,715,300)
Interest rate swaps (528,179) (1,574,812) (254,768)
Futures (1,045,660) (1,997,003) (421,500)
Foreign currencies 6,061 807 (237)
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (49,325,288) (94,571,589) (18,083,711)
---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From and in excess of net investment income (10,980,204) (18,756,875) (4,144,688)
From accumulated net realized gains -- (1,169,215) --
---------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (10,980,204) (19,926,090) (4,144,688)
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $(20,095,559) $(35,027,127) $(7,545,642)
---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
31
Statement of
CHANGES in NET ASSETS (Unaudited)
QUALITY PREFERRED INCOME (JTP) QUALITY PREFERRED INCOME 2 (JPS)
------------------------------- ---------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
6/30/07 12/31/06 6/30/07 12/31/06
---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 40,209,933 $ 82,501,402 $ 79,470,552 $ 159,268,122
Net realized gain (loss) from:
Investments 1,718,311 132,407 11,645,757 (990,466)
Interest rate swaps 1,357,033 2,298,167 3,403,278 5,781,508
Futures (12,175,863) -- (23,255,838) --
Foreign currencies (18,161) 563 (26,366) 1,066
Change in net unrealized appreciation (depreciation) of:
Investments (38,638,830) (940,681) (82,767,412) (5,130,313)
Interest rate swaps (528,179) (215,813) (1,574,812) (1,630,640)
Futures (1,045,660) -- (1,997,003) --
Foreign currencies 6,061 1,400 807 2,652
Distributions to FundPreferred shareholders:
From and in excess of net investment income (10,980,204) -- (18,756,875) --
From net investment income -- (20,743,697) -- (37,501,376)
From accumulated net realized gains -- -- (1,169,215) --
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations (20,095,559) 63,033,748 (35,027,127) 119,800,553
---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (33,812,856) -- (65,856,992) --
From net investment income -- (69,630,812) -- (133,434,611)
From accumulated net realized gains -- -- (5,233,037) --
---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (33,812,856) (69,630,812) (71,090,029) (133,434,611)
---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares issued to shareholders due
to reinvestment of distributions 605,326 607,703 2,526,080 1,483,854
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from capital share transactions 605,326 607,703 2,526,080 1,483,854
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares (53,303,089) (5,989,361) (103,591,076) (12,150,204)
---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the beginning of
period 909,608,363 915,597,724 1,753,392,305 1,765,542,509
---------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $856,305,274 $909,608,363 $1,649,801,229 $1,753,392,305
---------------------------------------------------------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment income
at the end of period $ (5,912,870) $ (1,329,743) $ (9,112,188) $ (3,968,873)
---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
32
QUALITY PREFERRED INCOME 3 (JHP)
---------------------------------
SIX MONTHS
ENDED YEAR ENDED
6/30/07 12/31/06
-----------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 14,682,757 $ 30,871,981
Net realized gain (loss) from:
Investments (1,526,174) (2,688,895)
Interest rate swaps 764,196 1,379,809
Futures (4,923,424) --
Foreign currencies (6,504) 208
Change in net unrealized appreciation (depreciation) of:
Investments (11,715,300) 3,328,270
Interest rate swaps (254,768) (567,278)
Futures (421,500) --
Foreign currencies (237) 516
Distributions to FundPreferred shareholders:
From and in excess of net investment income (4,144,688) --
From net investment income -- (7,912,599)
From accumulated net realized gains -- --
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations (7,545,642) 24,412,012
-----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (12,689,123) --
From net investment income -- (25,661,097)
From accumulated net realized gains -- --
-----------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to
Common shareholders (12,689,123) (25,988,423)
-----------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares issued to shareholders due
to reinvestment of
distributions 309,350 259,052
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from capital share
transactions 309,350 259,052
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares (19,925,415) (1,317,359)
-----------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the beginning of
period 336,540,305 337,857,664
-----------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $316,614,890 $336,540,305
===============================================================================================
Undistributed (Over-distribution of) net investment income
at the end of period $ (3,032,223) $ (881,169)
===============================================================================================
See accompanying notes to financial statements.
33
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The funds (the "Funds") covered in this report and their corresponding Common
share New York Stock Exchange symbols are Nuveen Quality Preferred Income Fund
(JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred
Income Fund 3 (JHP). The Funds are registered under the Investment Company Act
of 1940, as amended, as non-diversified, closed-end management investment
companies.
Each Fund seeks to provide high current income consistent with capital
preservation by investing primarily in a portfolio of preferred securities, debt
securities including convertible debt securities and convertible preferred
securities.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities and instruments, other than futures, are generally
valued at the last sales price on the exchange on which such securities or
instruments are primarily traded. Securities or instruments traded on an
exchange for which there are no transactions on a given day or securities or
instruments not listed on an exchange are valued at the mean of the closing bid
and asked prices. Securities traded on Nasdaq are valued at the Nasdaq Official
Closing Price. Futures contracts are valued using the closing settlement price
or, in the absence of such a price, at the mean of the bid and asked prices.
Prices of the other derivative instruments and fixed-income securities are
generally provided by an independent pricing service approved by the Funds'
Board of Trustees. When price quotes are not readily available, the pricing
service or, in the absence of a pricing service for a particular investment, the
Board of Trustees of the Funds, or its designee, may establish fair market value
using a wide variety of market data including yields or prices of investments of
comparable quality, type of issue, coupon, maturity and rating, market quotes or
indications of value from security dealers, evaluations of anticipated cash
flows or collateral, general market conditions and other information and
analysis, including the obligor's credit characteristics considered relevant by
the pricing service or the Board of Trustees' designee. If the pricing service
is unable to supply a price for a derivative investment the Fund may use a
market quote provided by a major broker/dealer in such investments. If it is
determined that the market price for an investment, derivative instrument or
futures contract 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 June 30, 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.
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
Distributions to Common shareholders are declared monthly. Real Estate
Investment Trust ("REIT") distributions received by the Funds are generally
comprised of ordinary income, long-term and short-term capital gains, and a
return of REIT capital. The actual character of amounts received during the
period are not known until after the fiscal year-end.
34
For the fiscal year ended December 31, 2006, the character of distributions to
the Funds from the REITs was as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
------------------------------------------------------------------------------------------------------------
Ordinary income 79.98% 79.26% 77.67%
Long-term and short-term capital gains 19.92 20.62 22.24
Return of REIT capital 0.10 0.12 0.09
------------------------------------------------------------------------------------------------------------
For the fiscal year ended December 31, 2006, the Funds applied the actual
character of distributions reported by the REITs in which the Funds invest to
their receipts from the REITs. If a REIT held in the portfolio of investments
did not report the actual character of its distributions during the period, the
Fund treated the distributions as ordinary income.
For the six months ended June 30, 2007, each Fund applied the actual percentages
for the fiscal year ended December 31, 2006, described above, to its receipts
from the REITs and treated as income in the Statement of Operations only the
amount of ordinary income so calculated. The Funds adjust that estimated
breakdown of income type (and consequently their net investment income) as
necessary early in the following calendar year when REITs inform their
shareholders of the actual breakdown of income type.
The actual character of distributions made by the Funds during the fiscal year
ended December 31, 2006, is reflected in the accompanying financial statements.
The distributions made by the Funds during the six months ended June 30, 2007,
are provisionally classified as being "From and in excess of net investment
income", and those distributions will be classified as being from net investment
income, net realized capital gains and/or a return of capital for tax purposes
after the fiscal year end. For purposes of calculating "Undistributed
(Over-distribution of) net investment income" as of June 30, 2007, the
distribution amounts provisionally classified as "From and in excess of net
investment income" were treated as being entirely from net investment income.
Consequently, the financial statements at June 30, 2007, reflect an
over-distribution of net investment income.
FundPreferred Shares
The Funds have issued and outstanding FundPreferred shares, $25,000 stated value
per share, as a means of effecting financial leverage. Each Fund's FundPreferred
shares are issued in more than one Series. The dividend rate paid by the Funds
on each Series is determined every seven days, pursuant to a dutch auction
process overseen by the auction agent, and is payable at the end of each rate
period. The number of FundPreferred shares outstanding, by Series and in total,
for each Fund is as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------------------------
Number of shares:
Series M 3,520 4,800 3,320
Series T 3,520 4,800 --
Series T2 -- 4,000 --
Series W 3,520 4,800 --
Series TH 3,520 4,800 3,320
Series TH2 -- 4,000 --
Series F 3,520 4,800 --
---------------------------------------------------------------------------------------------------------------------------
Total 17,600 32,000 6,640
---------------------------------------------------------------------------------------------------------------------------
Interest Rate Swap Transactions
The Funds are authorized to invest in interest rate swap transactions. The
Funds' use of interest rate swap transactions is intended to mitigate the
negative impact that an increase in short-term interest rates could have on
Common share net earnings as a result of leverage. Interest rate swap
transactions involve each Fund's agreement with the counterparty to pay or
receive a fixed rate payment in exchange for the counterparty paying or
receiving a variable rate payment that is intended to approximate each Fund's
variable rate payment obligation on FundPreferred shares or any variable rate
borrowing. The payment obligation is based on the notional amount of the
interest rate swap contract. Interest rate swaps do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to the swap counterparty on such transactions is limited to
the net amount of interest payments that each Fund is to receive. Interest rate
swap positions are valued daily. Although there are economic
35
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
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.
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.
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 dividend income denominated in
foreign currencies are translated into U.S. dollars on the respective dates of
such transactions. The gains or losses resulting from changes in foreign
exchange rates are included with net realized and unrealized gain (loss) 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
36
INVOLVE FUTURE CLAIMS THAT MAY BE MADE AGAINST THE FUNDS THAT HAVE NOT YET
OCCURRED. HOWEVER, THE FUNDS HAVE NOT HAD PRIOR CLAIMS OR LOSSES PURSUANT TO
THESE CONTRACTS AND EXPECT THE RISK OF LOSS TO BE REMOTE.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
Transactions in Common shares were as follows:
QUALITY PREFERRED QUALITY PREFERRED QUALITY PREFERRED
INCOME (JTP) INCOME 2 (JPS) INCOME 3 (JHP)
------------------------ ------------------------ ------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
6/30/07 12/31/06 6/30/07 12/31/06 6/30/07 12/31/06
---------------------------------------------------------------------------------------------------------------------------------
Shares issued to shareholders due to reinvestment
of distributions 43,198 43,337 173,392 101,627 21,811 18,314
---------------------------------------------------------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases and sales (including maturities but excluding short-term investments
and derivative transactions) during the six months ended June 30, 2007, were as
follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------------------------
Purchases $293,218,660 $466,415,431 $111,378,572
Sales and maturities 278,902,695 516,726,250 119,488,437
---------------------------------------------------------------------------------------------------------------------------
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis based on the
information currently available to the Funds. Differences between amounts for
financial statement and federal income tax purposes are primarily due to
recognition of premium amortization, timing differences in the recognition of
income and timing differences in recognizing certain gains and losses on
investment transactions. To the extent that differences arise that are permanent
in nature, such amounts are reclassified within the capital accounts on the
Statement of Assets and Liabilities presented in the annual report, based on
their federal tax basis treatment; temporary differences do not require
reclassification. Temporary and permanent differences do not impact the net
asset values of the Funds.
At June 30, 2007, the cost of investments was as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------------------------
Cost of investments $1,311,958,578 $2,456,427,333 $489,143,074
---------------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation and gross unrealized depreciation of investments
at June 30, 2007, were as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 12,941,657 $ 29,851,408 $ 3,372,025
Depreciation (30,598,468) (58,977,774) (10,665,823)
---------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $(17,656,811) $(29,126,366) $ (7,293,798)
---------------------------------------------------------------------------------------------------------------------------
37
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
The tax components of undistributed net ordinary income and net long-term
capital gains at July 31, 2006, the Funds' last tax year end, were as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------------------------
Undistributed net ordinary income * $ -- $ 2,296,771 $ --
Undistributed net long-term capital gains -- 6,399,647 --
---------------------------------------------------------------------------------------------------------------------------
* 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' last tax year ended
July 31, 2006, was designated for purposes of the dividends paid deduction as
follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------------------------
Distributions from net ordinary income * $88,059,972 $166,262,070 $33,448,703
Distributions from net long-term capital gains -- 22,350,529 1,834,281
Tax return of capital -- -- 327,326
---------------------------------------------------------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
At July 31, 2006, the Funds' last tax year end, Quality Preferred Income 3 (JHP)
had unused capital loss carryforwards of $16,197,047 available for federal
income tax purposes to be applied against future capital gains, if any. If not
applied, the carryforwards will expire in the year 2012.
Quality Preferred Income 3 (JHP) elected to defer net realized losses from
investments incurred from November 1, 2005 through July 31, 2006 ("post-October
losses") in accordance with federal income tax regulations. Post-October losses
of $931,735 were treated as having arisen on the first day of the current
taxable year.
Calculation of certain of the amounts presented above (namely, undistributed net
ordinary income for tax purposes) involves the application of complex aspects of
the Internal Revenue Code to certain securities held by the Funds. In
calculating the amount of taxable income derived from these securities,
management made assumptions as to the correct tax treatment of certain of those
securities and made estimates about the tax characteristics of income received
from those securities, based on information currently available to the Funds.
The use of these assumptions and estimates will not affect the qualification of
the Funds as regulated investment companies under Subchapter M of the Internal
Revenue Code, nor is it expected that these assumptions and estimates will be
used in computing taxable income for purposes of preparing the federal and state
income and excise tax returns.
5. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Each Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by the
Adviser, and a specific fund-level component, based only on the amount of assets
within each individual fund. This pricing structure enables Nuveen fund
shareholders to benefit from growth in the assets within each individual fund as
well as from growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly, for each Fund is based upon the
average daily Managed Assets of each Fund as follows:
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
-----------------------------------------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
-----------------------------------------------------------------------------------------------------------------
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the tables below. As
of June 30, 2007, the complex-level fee rate was .1828%.
38
Effective August 20, 2007, the complex-level fee schedule is as follows:
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL(1) EFFECTIVE RATE AT BREAKPOINT LEVEL
------------------------------------------------------------------------------------------------
$55 billion .2000%
$56 billion .1996
$57 billion .1989
$60 billion .1961
$63 billion .1931
$66 billion .1900
$71 billion .1851
$76 billion .1806
$80 billion .1773
$91 billion .1691
$125 billion .1599
$200 billion .1505
$250 billion .1469
$300 billion .1445
------------------------------------------------------------------------------------------------
Prior to August 20, 2007, the complex-level fee schedule was as follows:
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL(1) EFFECTIVE RATE AT BREAKPOINT LEVEL
------------------------------------------------------------------------------------------------
$55 billion .2000%
$56 billion .1996
$57 billion .1989
$60 billion .1961
$63 billion .1931
$66 billion .1900
$71 billion .1851
$76 billion .1806
$80 billion .1773
$91 billion .1698
$125 billion .1617
$200 billion .1536
$250 billion .1509
$300 billion .1490
------------------------------------------------------------------------------------------------
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
preferred stock issued by or borrowings by the Nuveen funds) of
Nuveen-sponsored funds in the U.S.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with Spectrum Asset Management, Inc. ("Spectrum"),
under which Spectrum manages the investment portfolios of the Funds. Spectrum is
compensated for its services to the Funds from the management fees paid to the
Adviser. Spectrum also receives compensation on certain portfolio transactions
for providing brokerage services to the Funds.
The Funds pay no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its Officers, all of whom receive remuneration
for their services to the Funds from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised funds.
39
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
For the first eight years of Quality Preferred Income's (JTP) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
YEAR ENDING YEAR ENDING
JUNE 30, JUNE 30,
---------------------------------------------------------------------------------------------------------
2002 * .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
---------------------------------------------------------------------------------------------------------
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income (JTP) for any
portion of its fees and expenses beyond June 30, 2010.
For the first eight years of Quality Preferred Income 2's (JPS) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
YEAR ENDING YEAR ENDING
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------------------------------------------------------
2002 * .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
-------------------------------------------------------------------------------------------------------
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income 2 (JPS) for any
portion of its fees and expenses beyond September 30, 2010.
For the first eight years of Quality Preferred Income 3's (JHP) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily
Managed Assets, for fees and expenses in the amounts and for the time periods
set forth below:
YEAR ENDING YEAR ENDING
DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------------------------------------------
2002 * .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
-----------------------------------------------------------------------------------------------------
* From the commencement of operations.
The Adviser has not agreed to reimburse Quality Preferred Income 3 (JHP) for any
portion of its fees and expenses beyond December 31, 2010.
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 an investor
group majority-led by Madison Dearborn Partners, LLC. Madison Dearborn Partners,
LLC is a private equity investment firm based in Chicago, Illinois. The investor
group includes affiliates of Merrill Lynch, Wachovia, Citigroup, Deutsche Bank
and Morgan Stanley. It is anticipated that Merrill Lynch and its affiliates will
be indirect "affiliated persons" (as that term is defined in the Investment
Company Act of 1940) of the Funds. One important implication of this is that the
Funds will not be able to buy or sell securities to or from Merrill Lynch, but
the portfolio management team and Fund management do not expect that this will
significantly impact the ability of the Funds to pursue their investment
objectives and policies. Under the terms of the merger, each outstanding share
of Nuveen Investments' common stock (other than dissenting shares) will be
converted into the right to receive a specified amount of cash, without
interest. The merger is expected to be completed by the end of the year, subject
to customary conditions, including obtaining the approval of Nuveen Investments
shareholders, obtaining necessary fund and client consents sufficient to satisfy
the terms of the Merger Agreement, and expiration of certain regulatory waiting
periods. The obligations of Madison Dearborn Partners, LLC to consummate the
merger are not conditioned on its obtaining financing.
40
The consummation of the merger will be deemed to be an "assignment" (as defined
in the 1940 Act) of the investment management agreement between each Fund and
the Adviser, and will result in the automatic termination of each Fund's
agreement. Prior to the consummation of the merger, it is anticipated that the
Board of Trustees of each Fund will consider a new investment management
agreement with the Adviser. If approved by the Board, the new agreement would be
presented to the Fund's shareholders for approval, and, if so approved by
shareholders, would take effect upon consummation of the merger. There can be no
assurance that the merger described above will be consummated as contemplated or
that necessary shareholder approvals will be obtained.
6. NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 48
Effective June 29, 2007, the Funds adopted Financial Accounting Standards Board
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48).
FIN 48 provides guidance regarding how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Funds' tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Management of
the Funds has concluded that there are no significant uncertain tax positions
that require recognition in the Funds' financial statements. Consequently, the
adoption of FIN 48 had no impact on the net assets or results of operations of
the Funds.
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The changes to current generally accepted accounting principles from the
application of this standard relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. As of June 30, 2007, the Funds do not believe the adoption of SFAS
No. 157 will impact the financial statement amounts; however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements included within the Statement of
Operations for the period.
7. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Funds declared Common share distributions which were paid on August 1, 2007,
to shareholders of record on July 15, 2007, as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------------------------------------------------------------------------------
Distributions per share $.0860 $.0910 $.0885
---------------------------------------------------------------------------------------------------------------------------
41
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations
-------------------------------------------------------------------------
Distributions
from Net Distributions
Beginning Investment from Capital
Common Net Income to Gains to
Share Net Realized/ FundPreferred FundPreferred
Net Asset Investment Unrealized Share- Share-
Value Income(a) Gain (Loss) holders+ holders+ Total
---------------------------------------------------------------------------------------------------------------------------
QUALITY PREFERRED INCOME (JTP)
---------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2007(f) $14.10 $ .63 $(.76) $(.17)**** $ -- $ (.31)
2006 14.20 1.28 .02 (.32) -- .98
2005 14.92 1.30 (.68) (.21) -- .41
8/1/04-12/31/04 14.40 .60 .47 (.05) -- 1.02
Year Ended 7/31:
2004(b) 14.10 1.37 .26 (.08) -- 1.55
2003 14.12 1.31 .16 (.09) -- 1.38
2002(c) 14.33 .06 (.25) -- -- (.19)
QUALITY PREFERRED INCOME 2 (JPS)
---------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2007(f) 14.66 .67 (.80) (.16)**** (.01) (.30)
2006 14.77 1.33 (.01) (.31) -- 1.01
2005 15.66 1.34 (.69) (.18) (.02) .45
8/1/04-12/31/04 15.32 .60 .50 (.04) (.01) 1.05
Year Ended 7/31:
2004(b) 14.97 1.42 .37 (.08) -- 1.71
2003(d) 14.33 1.02 .79 (.07) -- 1.74
QUALITY PREFERRED INCOME 3 (JHP)
---------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2007(f) 14.22 .62 (.75) (.18)**** -- (.31)
2006 14.29 1.31 .05 (.33) -- 1.03
2005 15.15 1.32 (.70) (.21) (.01) .40
8/1/04-12/31/04 14.71 .60 .46 (.05) -- 1.01
Year Ended 7/31:
2004(b) 14.38 1.38 .40 (.08) (.01) 1.69
2003(e) 14.33 .67 .22 (.04) -- .85
---------------------------------------------------------------------------------------------------------------------------
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(f) $ (.53)**** $ -- $ -- $ (.53) $ -- $13.27 $ 13.12
2006 (1.08) -- -- (1.08) -- 14.10 14.84
2005 (1.13) -- -- (1.13) -- 14.20 12.40
8/1/04-12/31/04 (.50) -- -- (.50) -- 14.92 14.00
Year Ended 7/31: --
2004(b) (1.25) -- -- (1.25) -- 14.40 13.96
2003 (1.25) -- -- (1.25) (.15) 14.10 14.59
2002(c) -- -- -- -- (.02) 14.12 15.15
QUALITY PREFERRED INCOME 2 (JPS)
---------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2007(f) (.55)**** ( .04) (.59) -- 13.77 13.79
2006 (1.12) -- -- (1.12) -- 14.66 15.12
2005 (1.16) (.18) -- (1.34) -- 14.77 12.80
8/1/04-12/31/04 (.53) (.18) -- (.71) -- 15.66 14.40
Year Ended 7/31:
2004(b) (1.32) (.04) -- (1.36) -- 15.32 14.61
2003(d) (.95) -- -- (.95) (.15) 14.97 14.65
QUALITY PREFERRED INCOME 3 (JHP)
---------------------------------------------------------------------------------------------------------------------------
Year ended 12/31:
2007(f) (.54)**** -- -- (.54) -- 13.37 13.35
2006 (1.09) -- (.01) (1.10) -- 14.22 14.92
2005 (1.17) (.09) -- (1.26) -- 14.29 12.92
8/1/04-12/31/04 (.51) (.06) -- (.57) -- 15.15 14.44
Year Ended 7/31:
2004(b) (1.24) (.12) -- (1.36) -- 14.71 14.34
2003(e) (.62) -- -- (.62) (.18) 14.38 14.36
---------------------------------------------------------------------------------------------------------------------------
* 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.
**** Represents distributions paid "From and in excess of net investment
income" for the six months ended June 30, 2007.
+ 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:
Ratio of Net Interest Expense to Average Net
Assets Applicable to Common Shares
--------------------------------------------
QUALITY PREFERRED INCOME
(JTP)
Year Ended 7/31:
2003 .80%
2002(c) --
QUALITY PREFERRED INCOME 2
(JPS)
Year Ended 7/31:
2003(d) .58*
QUALITY PREFERRED INCOME 3
(JHP)
Year Ended 7/31:
2003(e) .51*
42
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
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
(8.19)% (2.35)% $ 856,305 1.50%* 8.55%* 1.02%* 9.03%* 21%
29.51 7.26 909,608 1.50 8.70 1.02 9.18 34
(3.69) 2.89 915,598 1.49 8.47 1.02 8.94 19
3.79 7.10 961,583 1.49* 9.15* 1.02* 9.62* 8
4.20 11.17 927,892 1.51 8.87 1.04 9.33 18
4.95 9.15 907,746 2.38 8.84 1.91 9.31 45
1.00 (1.47) 880,006 .96* 4.51* .64* 4.83* 1
------------------------------------------------------------------------------------------------------------------
(4.98) (2.07) 1,649,801 1.42* 8.79* .95* 9.26* 19
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
------------------------------------------------------------------------------------------------------------------
(7.05) (2.33) 316,615 1.55* 8.42* 1.07* 8.90* 23
25.00 7.49 336,540 1.56 8.81 1.08 9.29 39
(2.16) 2.88 337,858 1.54 8.48 1.07 8.96 16
4.64 6.81 358,197 1.54* 9.03* 1.07* 9.50* 7
9.36 11.93 347,900 1.55 8.75 1.08 9.22 17
(.19) 4.62 339,499 1.97* 7.14* 1.53* 7.58* 57
------------------------------------------------------------------------------------------------------------------
FundPreferred Shares at End of Period
---------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Per Coverage
(000) Share Per Share
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
$440,000 $25,000 $73,654
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 76,556
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 72,683
166,000 25,000 75,684
166,000 25,000 75,882
166,000 25,000 78,945
166,000 25,000 77,395
166,000 25,000 76,129
---
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) The Funds changed their method of presentation for net interest expense on
interest rate swap transactions. The effect of this reclassification for
the fiscal year ended July 31, 2004, was as follows:
QUALITY QUALITY QUALITY
PREFERRED PREFERRED PREFERRED
INCOME INCOME 2 INCOME 3
(JTP) (JPS) (JHP)
---------------------------------------------------
Increase of Net Investment Income per share with a
corresponding
decrease in Net Realized/Unrealized Investment Gain
(Loss) $.14 $.11 $.11
Decrease in each of the Ratios of Expenses to Average Net
Assets Applicable to Common Shares with a corresponding
increase in each of the Ratios of Net Investment Income
to Average Net Assets Applicable to Common Shares .94% .71% .73%
(c) For the period June 25, 2002 (commencement of operations) through July 31,
2002.
(d) For the period September 24, 2002 (commencement of operations) through
July 31, 2003.
(e) For the period December 18, 2002 (commencement of operations) through July
31, 2003.
(f) For the six months ended June 30, 2007.
See accompanying notes to financial statements.
43
Annual Investment
Management Agreement
APPROVAL PROCESS
The Board Members are responsible for overseeing the performance of the
investment adviser to the Funds and determining whether to continue the advisory
arrangements. At the annual review meeting held on May 21, 2007 (the "May
Meeting"), the Board Members of the Funds, including the Independent Board
Members, unanimously approved the continuance of the Investment Management
Agreement between each Fund (a "Fund") and Nuveen Asset Management ("NAM" or the
"Adviser"), and the Sub-Advisory Agreements between NAM and Spectrum Asset
Management, Inc. (the "Sub-Adviser"). NAM and the Sub-Adviser are each a "Fund
Adviser." The foregoing Investment Management Agreements with NAM and
Sub-Advisory Agreements with the Sub-Adviser are hereafter referred to as
"Original Investment Management Agreements" and "Original Sub-Advisory
Agreements," respectively.
Subsequent to the May Meeting, Nuveen Investments, Inc. ("Nuveen"), the parent
company of NAM, entered into a merger agreement providing for the acquisition of
Nuveen by Windy City Investments, Inc., a corporation formed by investors led by
Madison Dearborn Partners, LLC ("MDP"), a private equity investment firm (the
"Transaction"). Each Original Investment Management Agreement and Original
Sub-Advisory Agreement, as required by Section 15 of the Investment Company Act
of 1940 (the "1940 Act") provides for its automatic termination in the event of
its "assignment" (as defined in the 1940 Act). Any change in control of the
adviser is deemed to be an assignment. The consummation of the Transaction will
result in a change of control of NAM as well as its affiliated sub-advisers and
therefore cause the automatic termination of each Original Investment Management
Agreement and Original Sub-Advisory Agreement, as required by the 1940 Act.
Accordingly, in anticipation of the Transaction, at a meeting held on July 31,
2007 (the "July Meeting"), the Board Members, including the Independent Board
Members, unanimously approved new Investment Management Agreements (the "New
Investment Management Agreements") with NAM on behalf of each Fund and new
Sub-Advisory Agreements (the "New Sub-Advisory Agreements") between NAM and the
Sub-Adviser on behalf of each Fund to take effect immediately after the
Transaction or shareholder approval of the new advisory contracts, whichever is
later. The 1940 Act also requires that each New Investment Management Agreement
and New Sub-Advisory Agreement be approved by the respective Fund's shareholders
in order for it to become effective. Accordingly, to ensure continuity of
advisory services, the Board Members, including the Independent Board Members,
unanimously approved Interim Investment Management Agreements and Interim
Sub-Advisory Agreements to take effect upon the closing of the Transaction if
shareholders have not yet approved the New Investment Management Agreements and
New Sub-Advisory Agreements.
Because the information provided and considerations made at the annual review
continue to be relevant with respect to the evaluation of the New Investment
Management Agreements and New Sub-Advisory Agreements, the Board considered the
foregoing as part of its deliberations of the New Investment Management
Agreements and New Sub-Advisory Agreements. Accordingly, as indicated, the
discussions immediately below outline the materials and information presented to
the Board in connection with the Board's prior annual review and the analysis
undertaken and the conclusions reached by Board Members when determining to
continue the Original Investment Management Agreements and Original Sub-Advisory
Agreements.
I. APPROVAL OF THE ORIGINAL INVESTMENT MANAGEMENT AGREEMENTS AND ORIGINAL SUB-
ADVISORY AGREEMENTS
During the course of the year, the Board received a wide variety of materials
relating to the services provided by the Fund Advisers and the performance of
the Funds (as applicable). At each of its quarterly meetings, the Board reviewed
investment performance (as applicable) and various matters relating to the
operations of the Funds and other Nuveen funds, including the compliance
program, shareholder services, valuation, custody, distribution and other
information relating to the nature, extent and quality of services provided by
the Fund Adviser. Between the regularly scheduled quarterly meetings, the Board
Members received information on particular matters as the need arose.
44
In preparation for their considerations at the May Meeting, the Independent
Board Members received extensive materials, well in advance of the meeting,
which outlined or are related to, among other things:
- the nature, extent and quality of services provided by the Fund Adviser;
- the organization and business operations of the Fund Adviser, including the
responsibilities of various departments and key personnel;
- each Fund's past performance as well as the Fund's performance compared to
funds with similar investment objectives based on data and information
provided by an independent third party and to recognized and/or customized
benchmarks (as appropriate);
- the profitability of the Fund Adviser and certain industry profitability
analyses for unaffiliated advisers;
- the expenses of the Fund Adviser in providing the various services;
- the advisory fees and total expense ratios of each Fund, including comparisons
of such fees and expenses with those of comparable, unaffiliated funds based
on information and data provided by an independent third party (the "Peer
Universe") as well as compared to a subset of funds within the Peer Universe
(the "Peer Group") of the respective Fund (as applicable);
- the advisory fees the Fund Adviser assesses to other types of investment
products or clients;
- the soft dollar practices of the Fund Adviser, if any; and
- from independent legal counsel, a legal memorandum describing among other
things, applicable laws, regulations and duties in reviewing and approving
advisory contracts.
At the May Meeting, NAM made a presentation to, and responded to questions from,
the Board. At the May Meeting, the Independent Board Members met privately with
their legal counsel to review the Board's duties in reviewing advisory contracts
and considering the renewal of the advisory contracts (which include the
sub-advisory contracts). The Independent Board Members, in consultation with
independent counsel, reviewed the factors set out in judicial decisions and
Securities and Exchange Commission ("SEC") directives relating to the renewal of
advisory contracts. As outlined in more detail below, the Board Members
considered all factors they believed relevant with respect to each Fund,
including, but not limited to, the following: (a) the nature, extent and quality
of the services to be provided by the Fund Adviser; (b) the investment
performance of the Fund and the Fund Adviser (as applicable); (c) the costs of
the services to be provided and profits to be realized by the Fund Adviser and
its affiliates; (d) the extent to which economies of scale would be realized;
and (e) whether fee levels reflect those economies of scale for the benefit of
the Fund's investors. In addition, as noted, the Board Members met regularly
throughout the year to oversee the Funds. In evaluating the advisory contracts,
the Board Members also relied upon their knowledge of the respective Fund
Adviser, its services and the Funds resulting from their meetings and other
interactions throughout the year. It is with this background that the Board
Members considered each advisory contract.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In considering the renewal of the Original Investment Management Agreements and
Original Sub-Advisory Agreements, the Board Members considered the nature,
extent and quality of the respective Fund Adviser's services. The Board Members
reviewed materials outlining, among other things, the Fund Adviser's
organization and business; the types of services that the Fund Adviser or its
affiliates provide or are expected to provide to the Funds; the performance
record of the Fund (as described in further detail below); and at the annual
review, any initiatives Nuveen had taken for the applicable fund product line.
As noted, at the annual review, the Board Members were already familiar with the
organization, operations and personnel of each respective Fund Adviser due to
the Board Members' experience in governing the respective Funds and working with
such Fund Advisers on matters relating to the Funds. At the May Meeting, the
Board Members also recognized NAM's investment in additional qualified personnel
throughout the various groups in the organization and recommended to NAM that it
continue to review staffing needs as necessary. The Board Members recognized
NAM's investment of resources and efforts to continue to enhance and refine its
investment processes.
45
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
With respect to the Sub-Adviser, the Board Members also received and reviewed an
evaluation of the Sub-Adviser from NAM at the annual review. Such evaluation
outlined, among other things, the Sub-Adviser's organizational history, client
base, product mix, investment team and any changes thereto, investment process
and any changes to its investment strategy, and the Funds' investment objectives
and performance (as applicable). At the May Meeting, the Board Members noted
that NAM recommended the renewal of the applicable Original Sub-Advisory
Agreements and considered the basis for such recommendations and any
qualifications in connection therewith. In its review of the Sub-Adviser, the
Board Members also considered, among other things, the experience of the
investment personnel, the quality of the Sub-Adviser's investment processes in
making portfolio management decisions and any additional refinements and
improvements adopted to the portfolio management processes and Fund performance.
In addition to advisory services, the Independent Board Members considered the
quality of administrative and non-advisory services provided by NAM and noted
that NAM and its affiliates provide the Funds with a wide variety of services
and officers and other personnel as are necessary for the operations of the
Funds, including:
- product management;
- fund administration;
- oversight by shareholder services and other fund service providers;
- administration of Board relations;
- regulatory and portfolio compliance; and
- legal support.
As the Funds operate in a highly regulated industry and given the importance of
compliance, the Board Members considered, in particular, NAM's compliance
activities for the Funds and enhancements thereto. In this regard, the Board
Members recognized the quality of NAM's compliance team. The Board Members also
considered NAM's ability and procedures to monitor the Sub-Adviser's
performance, business practices and compliance policies and procedures. The
Board Members further noted NAM's negotiations with other service providers and
the corresponding reduction in certain service providers' fees at the May
Meeting.
In addition to the foregoing services, the Board Members also noted the
additional services that NAM or its affiliates provide to Nuveen's closed-end
funds, including, in particular, its secondary market support activities. The
Board Members recognized Nuveen's continued commitment to supporting the
secondary market for the common shares of its closed-end funds through a variety
of programs designed to raise investor and analyst awareness and understanding
of closed-end funds. These efforts include:
- maintaining shareholder communications;
- providing advertising for the Nuveen closed-end funds;
- maintaining its closed-end fund website;
- maintaining continual contact with financial advisers;
- providing educational symposia;
- conducting research with investors and financial analysis regarding closed-end
funds; and
- evaluating secondary market performance.
With respect to the Nuveen closed-end funds that utilize leverage through the
issuance of preferred shares ("Preferred Shares"), the Board Members noted
Nuveen's continued support for the holders of Preferred Shares by, among other
things:
- maintaining an in-house trading desk;
- maintaining a product manager for the Preferred Shares;
- developing distribution for Preferred Shares with new market participants;
46
- maintaining an orderly auction process;
- managing leverage and risk management of leverage; and
- maintaining systems necessary to test compliance with rating agency criteria.
With respect to the Sub-Adviser, the Board Members noted that the sub-advisory
agreements were essentially agreements for portfolio management services only
and the Sub-Adviser was not expected to supply other significant administrative
services to the Funds.
Based on their review, the Board Members found that, overall, the nature, extent
and quality of services provided (and expected to be provided) to the Funds
under the respective Original Investment Management Agreement or Original
Sub-Advisory Agreement, as applicable, were satisfactory.
B. THE INVESTMENT PERFORMANCE OF THE FUNDS AND FUND ADVISERS
At the May Meeting, the Board considered the investment performance for each
Fund, including the Fund's historic performance as well as its performance
compared to funds with similar investment objectives (the "Performance Peer
Group") based on data provided by an independent third party (as described
below). The Board Members also reviewed the respective Fund's historic
performance compared to recognized and/or customized benchmarks (as applicable).
In evaluating the performance information during the annual review at the May
Meeting, in certain instances, the Board Members noted that the closest
Performance Peer Group for a fund may not adequately reflect such fund's
investment objectives and strategies, thereby limiting the usefulness of the
comparisons of such fund's performance with that of the Performance Peer Group.
These Performance Peer Groups include those for: the Nuveen Diversified Dividend
and Income Fund; the Nuveen Multi-Strategy Income and Growth Fund; the Nuveen
Multi-Strategy Income and Growth Fund 2; the Nuveen Tax-Advantaged Floating Rate
Fund; the Nuveen Real Estate Income Fund; the Nuveen Equity Premium Advantage
Fund; the Nuveen Equity Premium Income Fund; the Nuveen Equity Premium
Opportunity Fund; and the Nuveen Equity Premium and Growth Fund.
The Board Members reviewed performance information including, among other
things, total return information compared with the respective Fund's Performance
Peer Group as well as recognized and/or customized benchmarks (as appropriate)
for the one-, three- and five-year periods (as applicable) ending December 31,
2006. This information supplemented the performance information provided to the
Board at each of its quarterly meetings. Based on their review at the May
Meeting, the Board Members determined that the respective Fund's investment
performance over time had been satisfactory.
C. FEES, EXPENSES AND PROFITABILITY
1. Fees and Expenses
During the annual review, the Board evaluated the management fees and expenses
of each Fund reviewing, among other things, such Fund's advisory fees (net and
gross management fees) and total expense ratios (before and after expense
reimbursements and/or waivers) in absolute terms as well as comparisons to the
gross management fees (before waivers), net management fees (after waivers)
and total expense ratios (before and after waivers) of comparable funds in the
Peer Universe and the Peer Group. In reviewing the fee schedule for a Fund,
the Board Members considered the fund-level and complex-wide breakpoint
schedules (described in further detail below) and any fee waivers and
reimbursements provided by Nuveen. The Board Members further reviewed data
regarding the construction of Peer Groups as well as the methods of
measurement for the fee and expense analysis and the performance analysis. In
certain cases, due to the small number of peers in the Peer Universe, the Peer
Universe and Peer Group had significant overlap or even consisted entirely of
the same unaffiliated funds. In reviewing the comparisons of fee and expense
information, the Board Members recognized that in certain cases, the size of a
fund relative to peers, the small size and odd composition of the Peer Group
(including differences in objectives and strategies), expense anomalies,
timing of information used or other factors impacting the comparisons thereby
limited some of the usefulness of the comparative data. The Board Members also
47
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
considered the differences in the use of leverage. The Board Members also
noted the limited Peer Groups available for the Nuveen funds with
multi-sleeves of investments (e.g., the Nuveen Diversified Dividend and Income
Fund, the Nuveen Multi-Strategy Income and Growth Fund, the Nuveen
Multi-Strategy Income and Growth Fund 2 and the Nuveen Tax-Advantaged Total
Return Strategy Fund). Based on their review of the fee and expense
information provided, the Board Members determined that each Fund's net total
expense ratio was within an acceptable range compared to peers.
2. Comparisons with the Fees of Other Clients
At the annual review, the Board Members further reviewed data comparing the
advisory fees of NAM with fees NAM charges to other clients. Such clients
include NAM's separately managed accounts and funds that are not offered by
Nuveen but are sub-advised by one of Nuveen's investment management teams. In
general, the advisory fees charged for separate accounts are somewhat lower
than the advisory fees assessed to the Funds. The Board Members considered the
differences in the product types, including, but not limited to, the services
provided, the structure and operations, product distribution and costs
thereof, portfolio investment policies, investor profiles, account sizes and
regulatory requirements. The Board Members noted, in particular, that the
range of services provided to the Funds (as discussed above) is much more
extensive than that provided to separately managed accounts. As described in
further detail above, such additional services include, but are not limited
to: product management, fund administration, oversight of third party service
providers, administration of Board relations, and legal support. The Board
Members noted that the Funds operate in a highly regulated industry requiring
extensive compliance functions compared to other investment products. Given
the inherent differences in the products, particularly the extensive services
provided to the Funds, the Board Members believe such facts justify the
different levels of fees.
With respect to the Sub-Adviser, in considering the fees of the Sub-Adviser,
the Board Members also considered the pricing schedule or fees that the
Sub-Adviser charges for similar investment management services for other fund
sponsors or clients, as applicable. With respect to sub-advisers unaffiliated
with Nuveen, such as the Sub-Adviser, the Board Members noted that such fees
were the result of arm's-length negotiations.
3. Profitability of Fund Advisers
In conjunction with its review of fees, the Board Members also considered the
profitability of Nuveen for its advisory activities (which incorporated
Nuveen's wholly-owned affiliated sub-advisers) and its financial condition. At
the annual review, the Board Members reviewed the revenues and expenses of
Nuveen's advisory activities for the last three years, the allocation
methodology used in preparing the profitability data as well as the 2006
Annual Report for Nuveen. The Board Members noted this information
supplemented the profitability information requested and received during the
year to help keep them apprised of developments affecting profitability (such
as changes in fee waivers and expense reimbursement commitments). In this
regard, the Board Members noted the enhanced dialogue and information
regarding profitability with NAM during the year, including more frequent
meetings and updates from Nuveen's corporate finance group. The Board Members
considered Nuveen's profitability compared with other fund sponsors prepared
by three independent third party service providers as well as comparisons of
the revenues, expenses and profit margins of various unaffiliated management
firms with similar amounts of assets under management prepared by Nuveen.
In reviewing profitability, the Board Members recognized the subjective nature
of determining profitability which may be affected by numerous factors
including the allocation of expenses. Further, the Board Members recognized
the difficulties in making comparisons as the profitability of other advisers
generally is not publicly available and the profitability information that is
available for certain advisers or management firms may not be representative
of the industry and may be affected by, among other things, the adviser's
particular business mix, capital costs, types of funds managed and expense
allocations.
Notwithstanding the foregoing, the Board Members reviewed Nuveen's methodology
at the annual review and assumptions for allocating expenses across product
lines to determine profitability. Last year, the Board Members
48
also designated an Independent Board Member as a point person for the Board to
review the methodology determinations during the year and any refinements
thereto, which relevant information produced from such process was reported to
the full Board. In reviewing profitability, the Board Members recognized
Nuveen's increased investment in its fund business. Based on its review, the
Board Members concluded that Nuveen's level of profitability for its advisory
activities was reasonable in light of the services provided. With respect to
sub-advisers unaffiliated with Nuveen, such as the Sub-Adviser, the Board
Members also considered the Sub-Adviser's revenues from serving as Sub-Adviser
to the Funds, expenses (including the basis for allocating expenses) and
profitability margins (pre- and post-tax). Based on their review, the Board
Members were satisfied that the respective Fund Adviser's level of
profitability was reasonable in light of the services provided.
In evaluating the reasonableness of the compensation, the Board Members also
considered other amounts paid to a Fund Adviser by the Funds as well as any
indirect benefits (such as soft dollar arrangements, if any) the Fund Adviser
and its affiliates receive, or are expected to receive, that are directly
attributable to the management of the Funds, if any. See Section E below for
additional information on indirect benefits a Fund Adviser may receive as a
result of its relationship with the Funds. Based on their review of the
overall fee arrangement of each Fund, the Board Members determined that the
advisory fees and expenses of the Funds were reasonable.
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
With respect to economies of scale, the Board Members recognized the potential
benefits resulting from the costs of a Fund being spread over a larger asset
base. To help ensure the shareholders share in these benefits, the Board Members
reviewed and considered the breakpoints in the advisory fee schedules that
reduce advisory fees. In addition to advisory fee breakpoints, the Board also
approved a complex-wide fee arrangement in 2004. Pursuant to the complex-wide
fee arrangement, the fees of the funds in the Nuveen complex, including the
Funds, are reduced as the assets in the fund complex reach certain levels. In
evaluating the complex-wide fee arrangement, the Board Members noted that the
last complex-wide asset level breakpoint for the complex-wide fee schedule was
at $91 billion and that the Board Members anticipated further review and/or
negotiations prior to the assets of the Nuveen complex reaching such threshold.
Based on their review, the Board Members concluded that the breakpoint schedule
and complex-wide fee arrangement were acceptable and desirable in providing
benefits from economies of scale to shareholders, subject to further evaluation
of the complex-wide fee schedule as assets in the complex increase. See Section
II, Paragraph D -- "Approval of the New Investment Management Agreements and New
Sub-Advisory Agreements -Economies of Scale and Whether Fee Levels Reflect These
Economies of Scale" for information regarding subsequent modifications to the
complex-wide fee.
E. INDIRECT BENEFITS
In evaluating fees, the Board Members also considered any indirect benefits or
profits the respective Fund Adviser or its affiliates may receive as a result of
its relationship with each Fund. In this regard, the Board Members considered
the revenues received by affiliates of NAM for serving as agent at Nuveen's
preferred trading desk and for serving as a co-manager in the initial public
offering of new closed-end exchange traded funds.
In addition to the above, the Board Members considered whether the Fund Adviser
received any benefits from soft dollar arrangements whereby a portion of the
commissions paid by a Fund for brokerage may be used to acquire research that
may be useful to the Fund Adviser in managing the assets of the Funds and other
clients. With respect to NAM, the Board Members noted that NAM does not
currently have any soft dollar arrangements; however, to the extent certain bona
fide agency transactions that occur on markets that traditionally trade on a
principal basis and riskless principal transactions are considered as generating
"commissions," NAM intends to comply with the applicable safe harbor provisions.
With respect to the Sub-Adviser, the Board noted that the Sub-Adviser does not
pay excess brokerage commissions in order to receive research services but may
from time to time receive research generally provided to a broker's clients.
49
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
Based on their review, the Board Members concluded that any indirect benefits
received by a Fund Adviser as a result of its relationship with the Funds were
reasonable and within acceptable parameters.
F. OTHER CONSIDERATIONS
The Board Members did not identify any single factor discussed previously as
all-important or controlling in their considerations to continue an advisory
contract. The Board Members, including the Independent Board Members,
unanimously concluded that the terms of the Original Investment Management and
Original Sub-Advisory Agreements are fair and reasonable, that the respective
Fund Adviser's fees are reasonable in light of the services provided to each
Fund and that the Original Investment Management Agreements and the Original
Sub-Advisory Agreements be renewed.
II. APPROVAL OF THE NEW INVESTMENT MANAGEMENT AGREEMENTS AND NEW SUB-ADVISORY
AGREEMENTS
Following the May Meeting, the Board Members were advised of the potential
Transaction. As noted above, the completion of the Transaction would terminate
each of the Original Investment Management Agreements and Original Sub-Advisory
Agreements. Accordingly, at the July Meeting, the Board of each Fund, including
the Independent Board Members, unanimously approved the New Investment
Management Agreements and New Sub-Advisory Agreements on behalf of the
respective Funds. Leading up to the July Meeting, the Board Members had several
meetings and deliberations with and without Nuveen management present, and with
the advice of legal counsel, regarding the proposed Transaction as outlined
below.
On June 8, 2007, the Board Members held a special telephonic meeting to discuss
the proposed Transaction. At that meeting, the Board Members established a
special ad hoc committee comprised solely of Independent Board Members to focus
on the Transaction and to keep the Independent Board Members updated with
developments regarding the Transaction. On June 15, 2007, the ad hoc committee
discussed with representatives of NAM the Transaction and modifications to the
complex-wide fee schedule that would generate additional fee savings at
specified levels of complex-wide asset growth. Following the foregoing meetings
and several subsequent telephonic conferences among Independent Board Members
and independent counsel, and between Independent Board Members and
representatives of Nuveen, the Board met on June 18, 2007 to further discuss the
proposed Transaction. Immediately prior to and then again during the June 18,
2007 meeting, the Independent Board Members met privately with their independent
legal counsel. At that meeting, the Board met with representatives of MDP, of
Goldman Sachs, Nuveen's financial adviser in the Transaction, and of the Nuveen
Board to discuss, among other things, the history and structure of MDP, the
terms of the proposed Transaction (including the financing terms), and MDP's
general plans and intentions with respect to Nuveen (including with respect to
management, employees, and future growth prospects). On July 9, 2007, the Board
also met to be updated on the Transaction as part of a special telephonic Board
meeting. The Board Members were further updated at a special in-person Board
meeting held on July 19, 2007 (one Independent Board Member participated
telephonically). Subsequently, on July 27, 2007, the ad hoc committee held a
telephonic conference with representatives of Nuveen and MDP to further discuss,
among other things, the Transaction, the financing of the Transaction, retention
and incentive plans for key employees, the effect of regulatory restrictions on
transactions with affiliates after the Transaction, and current volatile market
conditions and their impact on the Transaction.
In connection with their review of the New Investment Management Agreements and
New Sub-Advisory Agreements, the Independent Board Members, through their
independent legal counsel, also requested in writing and received additional
information regarding the proposed Transaction and its impact on the provision
of services by NAM and its affiliates.
50
The Independent Board Members received, well in advance of the July Meeting,
materials which outlined, among other things:
- the structure and terms of the Transaction, including MDP's co-investor
entities and their expected ownership interests, and the financing
arrangements that will exist for Nuveen following the closing of the
Transaction;
- the strategic plan for Nuveen following the Transaction;
- the governance structure for Nuveen following the Transaction;
- any anticipated changes in the operations of the Nuveen funds following the
Transaction, including changes to NAM's and Nuveen's day-to-day management,
infrastructure and ability to provide advisory, distribution or other
applicable services to the Funds;
- any changes to senior management or key personnel who work on Fund related
matters (including portfolio management, investment oversight, and
legal/compliance) and any retention or incentive arrangements for such
persons;
- any anticipated effect on each Fund's expense ratio (including advisory fees)
following the Transaction;
- any benefits or undue burdens imposed on the Funds as a result of the
Transaction;
- any legal issues for the Funds as a result of the Transaction;
- the nature, quality and extent of services expected to be provided to the
Funds following the Transaction, changes to any existing services and policies
affecting the Funds, and cost-cutting efforts, if any, that may impact such
services or policies;
- any conflicts of interest that may arise for Nuveen or MDP with respect to the
Funds;
- the costs associated with obtaining necessary shareholder approvals and who
would bear those costs; and
- from legal counsel, a memorandum describing the applicable laws, regulations
and duties in approving advisory contracts, including, in particular, with
respect to a change of control.
Immediately preceding the July Meeting, representatives of MDP met with the
Board to further respond to questions regarding the Transaction. After the
meeting with MDP, the Independent Board Members met with independent legal
counsel in executive session. At the July Meeting, Nuveen also made a
presentation and responded to questions. Following the presentations and
discussions of the materials presented to the Board, the Independent Board
Members met again in executive session with their counsel. As outlined in more
detail below, the Independent Board Members considered all factors they believed
relevant with respect to each Fund, including the impact that the Transaction
could be expected to have on the following: (a) the nature, extent and quality
of services to be provided; (b) the investment performance of the Funds; (c) the
costs of the services and profits to be realized by Nuveen and its affiliates;
(d) the extent to which economies of scale would be realized; and (e) whether
fee levels reflect those economies of scale for the benefit of investors. As
noted above, during the past year, the Board Members had completed their annual
review of the respective Original Investment Management Agreements and Original
Sub-Advisory Agreements and many of the factors considered at such reviews were
applicable to their evaluation of the New Investment Management Agreements and
New Sub-Advisory Agreements. Accordingly, in evaluating such agreements, the
Board Members relied upon their knowledge and experience with the Fund Advisers
and considered the information received and their evaluations and conclusions
drawn at the reviews. While the Board reviewed many Nuveen funds at the July
Meeting, the Independent Board Members evaluated all information available to
them on a fund-by-fund basis, and their determinations were made separately in
respect of each Fund.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In evaluating the nature, quality and extent of the services expected to be
provided by the Fund Adviser under the applicable New Investment Management
Agreement or New Sub-Advisory Agreement, the Independent Board Members
considered, among other things, the expected impact, if any, of the Transaction
on the operations, facilities, organization and personnel of NAM and the
Sub-Adviser (if applicable); the potential implications of regulatory
restrictions on the Funds following the Transaction; the ability of NAM and its
affiliates to perform their
51
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
duties after the Transaction; and any anticipated changes to the current
investment and other practices of the Funds.
The Board noted that the terms of each New Investment Management Agreement,
including the fees payable thereunder, are substantially identical to those of
the Original Investment Management Agreement relating to the same Fund (with
both reflecting reductions to fee levels in the complex-wide fee schedule for
complex-wide assets in excess of $80 billion that have an effective date of
August 20, 2007). Similarly, the terms of each New Sub-Advisory Agreement,
including fees payable thereunder, are substantially identical to those of the
Original Sub-Advisory Agreement relating to the same Fund. The Board considered
that the services to be provided and the standard of care under the New
Investment Advisory Agreements and the New Sub-Advisory Agreements are the same
as the corresponding original agreements. The Board Members noted the
Transaction does not alter the allocation of responsibilities between the
Adviser and Sub-Adviser. The Sub-Adviser will continue to furnish an investment
program in respect of, make investment decisions for and place all orders for
the purchase and sale of securities for the portion of each Fund's investment
portfolio allocated by the Adviser to the Sub-Adviser, all on behalf of the
applicable Fund and subject to oversight of the Board and the Adviser. The Board
Members further noted that key personnel of the Adviser or Sub-Adviser who have
responsibility for the Funds in each area, including portfolio management,
investment oversight, fund management, fund operations, product management,
legal/compliance and board support functions, are expected to be the same
following the Transaction. The Board Members considered and are familiar with
the qualifications, skills and experience of such personnel. The Board also
considered certain information regarding any anticipated retention or incentive
plans designed to retain key personnel. Further, the Board Members noted that no
changes to Nuveen's infrastructure (including at the affiliated sub-adviser
level) or operations as a result of the Transaction were anticipated other than
potential enhancements as a result of an expected increase in the level of
investment in such infrastructure and personnel. The Board noted MDP's
representations that it does not plan to have a direct role in the management of
Nuveen, appointing new management personnel, or directly impacting individual
staffing decisions. The Board Members also noted that there were not any planned
"cost cutting" measures that could be expected to reduce the nature, extent or
quality of services. After consideration of the foregoing, the Board Members
concluded that no diminution in the nature, quality and extent of services
provided to the Funds and their shareholders by the respective Fund Advisers is
expected.
In addition to the above, the Board Members considered potential changes in the
operations of each Fund. In this regard, the Board Members considered the
potential effect of regulatory restrictions on the Funds' transactions with
future affiliated persons. During their deliberations, it was noted that, after
the Transaction, a subsidiary of Merrill Lynch is expected to have an ownership
interest in Nuveen at a level that will make Merrill Lynch an affiliated person
of Nuveen. The Board Members recognized that applicable law would generally
prohibit the Funds from engaging in securities transactions with Merrill Lynch
as principal, and would also impose restrictions on using Merrill Lynch for
agency transactions. They recognized that having MDP and Merrill Lynch as
affiliates may restrict the Nuveen funds' ability to invest in securities of
issuers controlled by MDP or issued by Merrill Lynch and its affiliates even if
not bought directly from MDP or Merrill Lynch as principal. They also recognized
that various regulations may require the Nuveen funds to apply investment
limitations on a combined basis with affiliates of Merrill Lynch. The Board
Members considered information provided by NAM regarding the potential impact on
the Nuveen funds' operations as a result of these regulatory restrictions. The
Board Members considered, in particular, the Nuveen funds that may be impacted
most by the restricted access to Merrill Lynch, including: municipal funds
(particularly certain state-specific funds), senior loan funds, taxable fixed
income funds, preferred security funds and funds that heavily use derivatives.
The Board Members considered such funds' historic use of Merrill Lynch as
principal in their transactions and information provided by NAM regarding the
expected impact resulting from Merrill Lynch's affiliation with Nuveen and
available measures that could be taken to minimize such impact. NAM informed the
Board Members that, although difficult to determine with certainty, its
management did not believe that MDP's or Merrill Lynch's status as an affiliate
of Nuveen would have a material adverse effect on any Nuveen fund's ability to
pursue its investment objectives and policies.
52
In addition to the regulatory restrictions considered by the Board, the Board
Members also considered potential conflicts of interest that could arise between
the Nuveen funds and various parties to the Transaction and discussed possible
ways of addressing such conflicts.
Based on its review along with its considerations regarding services at the
annual review, the Board concluded that the Transaction was not expected to
adversely affect the nature, quality or extent of services provided by the
respective Fund Adviser and that the expected nature, quality and extent of such
services supported approval of the New Investment Management Agreements and New
Sub-Advisory Agreements.
B. PERFORMANCE OF THE FUNDS
With respect to the performance of the Funds, the Board considered that the
portfolio management personnel responsible for the management of the Funds'
portfolios were expected to continue to manage the portfolios following the
completion of the Transaction.
In addition, the Board Members recently reviewed Fund performance at the May
Meeting, as described above, and determined such Funds' performance was
satisfactory or better. The Board Members further noted that the investment
policies and strategies were not expected to change as a result of the
Transaction.
In light of the foregoing factors, along with the prior findings regarding
performance at the annual review, the Board concluded that its findings with
respect to performance supported approval of the New Investment Management
Agreements and New Sub-Advisory Agreements.
C. FEES, EXPENSES AND PROFITABILITY
As described in more detail above, during the annual review, the Board Members
considered, among other things, the management fees and expenses of the Funds,
the breakpoint schedules, and comparisons of such fees and expenses with peers.
At the annual review, the Board Members determined that the respective Fund's
advisory fees and expenses were reasonable. In evaluating the profitability of
the Fund Adviser under the New Investment Management Agreements and New
Sub-Advisory Agreements, the Board Members considered their conclusions at their
prior reviews and whether the management fees or other expenses would change as
a result of the Transaction. As described above, the investment management fee
for NAM is composed of two components -- a fund-level component and complex-wide
level component. The fee schedule under the New Investment Management Agreements
to be paid to NAM is identical to that under the Original Investment Management
Agreements, including the modified complex-wide fee schedule. As noted above,
the Board recently approved a modified complex-wide fee schedule that would
generate additional fee savings on complex-wide assets above $80 billion. The
modifications have an effective date of August 20, 2007 and are part of the
Original Investment Management Agreements. Accordingly, the terms of the
complex-wide component under the New Investment Management Agreements are the
same as under the Original Investment Management Agreements. The Board Members
also noted that Nuveen has committed for a period of two years from the date of
closing of the Transaction that it will not increase gross management fees for
any Nuveen fund and will not reduce voluntary expense reimbursement levels for
any Nuveen fund from their currently scheduled prospective levels. Based on the
information provided, the Board Members did not expect that overall Fund
expenses would increase as a result of the Transaction.
In addition, the Board Members considered that additional fund launches were
anticipated after the Transaction which would result in an increase in total
assets under management in the complex and a corresponding decrease in overall
management fees under the complex-wide fee schedule. Taking into consideration
the Board's prior evaluation of fees and expenses at the annual renewal, and the
modification to the complex-wide fee schedule, the Board determined that the
management fees and expenses were reasonable.
While it is difficult to predict with any degree of certainty the impact of the
Transaction on Nuveen's profitability for its advisory activities (which
includes its affiliated sub-advisers), at the recent annual review, the Board
Members were satisfied that Nuveen's level of profitability for its advisory
activities was reasonable. During the year, the Board Members had noted the
enhanced dialogue regarding profitability and the appointment of an Independent
Board
53
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
Member as a point person to review methodology determinations and refinements in
calculating profitability. Given their considerations at the annual review and
the modifications to the complex-wide fee schedule, the Board Members were
satisfied that Nuveen's level of profitability for its advisory activities
continues to be reasonable.
With respect to the Sub-Adviser, the fees paid under the New Sub-Advisory
Agreements are the same as the Original Sub-Advisory Agreements. With respect to
sub-advisers unaffiliated with Nuveen, such as the Sub-Adviser, the Board
Members considered the Sub-Adviser's revenues from serving as Sub-Adviser to the
Funds, expenses (including the basis for allocating expenses) and profitability
margins (pre- and post-tax) at the annual review. The Transaction is not
anticipated to affect the profitability of the Sub-Adviser. At the annual
review, the Board Members were satisfied that the respective Fund Adviser's
level of profitability was reasonable in light of the services provided. Taking
into account the Board's prior evaluation and the fact that sub-advisory fees
will not change, the Board Members were satisfied that the respective Fund
Advisers' levels of profitability were reasonable in light of the services
provided.
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
The Board Members have been cognizant of economies of scale and the potential
benefits resulting from the costs of a Fund being spread over a larger asset
base. To help ensure that shareholders share in the benefits derived from
economies of scale, the Board adopted the complex-wide fee arrangement in 2004.
At the May Meeting, the Board Members reviewed the complex-wide fee arrangements
and noted that additional negotiations may be necessary or appropriate as the
assets in the complex approached the $91 billion threshold. In light of this
assessment coupled with the upcoming Transaction, at the June 15, 2007 meeting,
the ad hoc committee met with representatives of Nuveen to further discuss
modifications to the complex-wide fee schedule that would generate additional
savings for shareholders as the assets of the complex grow. The proposed terms
for the complex-wide fee schedule are expressed in terms of targeted cumulative
savings at specified levels of complex-wide assets, rather than in terms of
targeted marginal complex-wide fee rates. Under the modified schedule, the
schedule would generate additional fee savings beginning at complex-wide assets
of $80 billion in order to achieve targeted cumulative annual savings at $91
billion of $28 million on a complex-wide level (approximately $0.6 million
higher than those generated under the then current schedule) and generate
additional fee savings for asset growth above complex-wide assets of $91 billion
in order to achieve targeted annual savings at $125 billion of assets of
approximately $50 million on a complex-wide level (approximately $2.2 million
higher annually than that generated under the then current schedule). At the
July Meeting, the Board approved the modified complex-wide fee schedule for the
Original Investment Management Agreements and these same terms will apply to the
New Investment Management Agreements. Accordingly, the Board Members believe
that the breakpoint schedules and revised complex-wide fee schedule are
appropriate and desirable in ensuring that shareholders participate in the
benefits derived from economies of scale.
E. INDIRECT BENEFITS
During their recent annual review, the Board Members considered any indirect
benefits that the Fund Adviser may receive as a result of its relationship with
the Funds, as described above. As the policies and operations of the Fund
Advisers are not anticipated to change significantly after the Transaction, such
indirect benefits should remain after the Transaction. The Board Members further
considered any additional indirect benefits to be received by the Fund Adviser
or its affiliates after the Transaction. The Board Members noted that other than
benefits from its ownership interest in Nuveen and indirect benefits from fee
revenues paid by the Funds under the management agreements and other
Board-approved relationships, it was currently not expected that MDP or its
affiliates would derive any benefit from the Funds as a result of the
Transaction or transact any business with or on behalf of the Funds (other than
perhaps potential Fund acquisitions, in secondary market transactions, of
securities issued by MDP portfolio companies); or that Merrill Lynch or its
affiliates would derive any benefits from the Funds as a result of the
Transaction (noting that, indeed, Merrill Lynch would stand to experience the
discontinuation of principal transaction activity with the Nuveen funds and
likely would experience a noticeable reduction in the volume of agency
transactions with the Nuveen funds).
54
F. OTHER CONSIDERATIONS
In addition to the factors above, the Board Members also considered the
following with respect to the Funds:
- Nuveen would rely on the provisions of Section 15(f) of the 1940 Act. Section
15(f) provides, in substance, that when a sale of a controlling interest in an
investment adviser occurs, the investment adviser or any of its affiliated
persons may receive any amount or benefit in connection with the sale so long
as (i) during the three-year period following the consummation of a
transaction, at least 75% of the investment company's board of directors must
not be "interested persons" (as defined in the 1940 Act) of the investment
adviser or predecessor adviser and (ii) an "unfair burden" (as defined in the
1940 Act, including any interpretations or no-action letters of the SEC) must
not be imposed on the investment company as a result of the transaction
relating to the sale of such interest, or any express or implied terms,
conditions or understanding applicable thereto. In this regard, to help ensure
that an unfair burden is not imposed on the Nuveen funds, Nuveen has committed
for a period of two years from the date of the closing of the Transaction (i)
not to increase gross management fees for any Nuveen fund; (ii) not to reduce
voluntary expense reimbursement levels for any Nuveen fund from their
currently scheduled prospective levels during that period; (iii) that no
Nuveen fund whose portfolio is managed by a Nuveen affiliate shall use Merrill
Lynch as a broker with respect to portfolio transactions done on an agency
basis, except as may be approved in the future by the Compliance Committee of
the Board; and (iv) that each adviser/portfolio team affiliated with Nuveen
shall not cause the Funds (or sleeves thereof) and other Nuveen funds that the
team manages, as a whole, to enter into portfolio transactions with or through
the other minority owners of Nuveen, on either a principal or an agency basis,
to a significantly greater extent than both what one would expect an
investment team to use such firm in the normal course of business, and what
such team has historically done, without prior Board or Compliance Committee
approval (excluding the impact of proportionally increasing the use of such
other "minority owners" to fill the void necessitated by not being able to use
Merrill Lynch).
- The Funds would not incur any costs in seeking the necessary shareholder
approvals for the New Investment Management Agreements or New Sub-Advisory
Agreements (except for any costs attributed to seeking shareholder approvals
of Fund specific matters unrelated to the Transaction, such as approval of
Board Members or changes to investment policies, in which case a portion of
such costs will be borne by the applicable Funds).
- The reputation, financial strength and resources of MDP.
- The long-term investment philosophy of MDP and anticipated plans to grow
Nuveen's business to the benefit of the Nuveen funds.
- The benefits to the Nuveen funds as a result of the Transaction including: (i)
as a private company, Nuveen may have more flexibility in making additional
investments in its business; (ii) as a private company, Nuveen may be better
able to structure compensation packages to attract and retain talented
personnel; (iii) as certain of Nuveen's distribution partners are expected to
be equity or debt investors in Nuveen, Nuveen may be able to take advantage of
new or enhanced distribution arrangements with such partners; and (iv) MDP's
experience, capabilities and resources that may help Nuveen identify and
acquire investment teams or firms and finance such acquisitions.
- The historic premium and discount levels at which the shares of the Nuveen
funds have traded at specified dates with particular focus on the premiums and
discounts after the announcement of the Transaction, taking into consideration
recent volatile market conditions and steps or initiatives considered or
undertaken by NAM to address discount levels.
G. CONCLUSION
The Board Members did not identify any single factor discussed previously as
all-important or controlling. The Board Members, including the Independent Board
Members, unanimously concluded that the terms of the New Investment Management
Agreements and New Sub-Advisory Agreements are fair and reasonable, that the
fees therein are reasonable in light of the services to be provided to each Fund
and that the New Investment Management Agreements and New Sub-Advisory
Agreements should be approved and recommended to shareholders.
55
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
III. APPROVAL OF INTERIM CONTRACTS
As noted above, at the July Meeting, the Board Members, including the
Independent Board Members, unanimously approved the Interim Investment
Management Agreements and Interim Sub-Advisory Agreements. If necessary to
assure continuity of advisory services, the Interim Investment Management
Agreements and Interim Sub-Advisory Agreements will take effect upon the closing
of the Transaction if shareholders have not yet approved the New Investment
Management Agreements and New Sub-Advisory Agreements. The terms of each Interim
Investment Management Agreement and Interim Sub-Advisory Agreement are
substantially identical to those of the corresponding Original Investment
Management Agreement and New Investment Management Agreement and the Original
Sub-Advisory Agreement and New Sub-Advisory Agreement, respectively, except for
certain term and escrow provisions. In light of the foregoing, the Board
Members, including the Independent Board Members, unanimously determined that
the scope and quality of services to be provided to the Funds under the
respective Interim Investment Management Agreement and Interim Sub-Advisory
Agreement are at least equivalent to the scope and quality of services provided
under the applicable Original Investment Management Agreement and Original
Sub-Advisory Agreement.
56
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.
57
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
58
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.
59
NOTES
60
NOTES
61
NOTES
62
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 12-month period ended June 30, 2006, 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
The following federal income tax information is provided with respect to the
Funds' distributions paid during the taxable year ended July 31, 2007: Quality
Preferred Income, Quality Preferred Income 2 and Quality Preferred Income 3
hereby designate $16,253,938, $31,232,521 and $4,514,885, respectively, (or the
maximum amount eligible) as distributions qualifying for the 70% dividends
received deduction for corporations and $20,528,299, $38,893,434 and $6,071,401,
respectively, (or the maximum amount eligible) as qualified dividend income
distributions for individuals under the Jobs and Growth Tax Relief
Reconciliation Act of 2003. The actual qualified dividend income distributions
will be reported to shareholders on Form 1099-DIV which will be sent to
shareholders shortly after calendar year end. Quality Preferred Income, Quality
Preferred Income 2 and Qualified Preferred 3 hereby designate 46.71%, 44.24% and
44.98% (or the maximum amount eligible) of ordinary income distributions as
Interest-Related Dividends as defined in Internal Revenue Code Section 871(k)
for the taxable year ended July 31, 2007.
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.
63
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 $172 billion in assets, as of June 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.
ESA-E-0607D
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.
Not applicable to this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
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.
Not applicable to this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
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.
(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 to
this filing.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons: Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Quality Preferred Income Fund 2
By (Signature and Title)* /s/ Kevin J. McCarthy
---------------------------------------
Kevin J. McCarthy
Vice President and Secretary
Date: September 6, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
---------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: September 6, 2007
By (Signature and Title)* /s/ Stephen D. Foy
---------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: September 6, 2007
* Print the name and title of each signing officer under his or her signature.