N-CSR 1 c11339anvcsr.txt CERTIFIED SHAREHOLDER REPORT 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 811-21082 Nuveen Quality Preferred Income Fund -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Jessica R. Droeger Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (312) 917-7700 --------------------- Date of fiscal year end: December 31 ------------------- Date of reporting period: December 31, 2006 ----------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. ANNUAL REPORT DECEMBER 31, 2006 NUVEEN INVESTMENTS CLOSED-END FUNDS NUVEEN QUALITY PREFERRED INCOME FUND JTP NUVEEN QUALITY PREFERRED INCOME FUND 2 JPS NUVEEN QUALITY PREFERRED INCOME FUND 3 JHP HIGH CURRENT INCOME FROM A PORTFOLIO OF INVESTMENT-GRADE PREFERRED SECURITIES NUVEEN LOGO COVER PHOTO INSIDE COVER PHOTO NOW YOU CAN RECEIVE YOUR NUVEEN FUND REPORTS FASTER. NO MORE WAITING. SIGN UP TODAY TO RECEIVE NUVEEN FUND INFORMATION BY E-MAIL. It only takes a minute to sign up for E-Reports. Once enrolled, you'll receive an e-mail as soon as your Nuveen Investments Fund information is ready -- no more waiting for delivery by regular mail. Just click on the link within the e-mail to see the report, and save it on your computer if you wish. IT'S FAST, EASY & FREE: DELIVERY DIRECT TO YOUR E-MAIL IN-BOX WWW.INVESTORDELIVERY.COM OR WWW.NUVEEN.COM/ACCOUNTACCESS if you get your Nuveen Fund if you get your Nuveen Fund dividends and statements from dividends and statements directly your financial advisor or from Nuveen. brokerage account. (Be sure to have the address sheet that accompanied this report handy. You'll need it to complete the enrollment process.)
NUVEEN LOGO (TIMOTHY SCHWERTFEGER PHOTO) Timothy R. Schwertfeger Chairman of the Board CHAIRMAN'S LETTER TO SHAREHOLDERS Dear Shareholder: I am very pleased to report that over the twelve-month period covered by this report, your Fund continued to provide you with attractive monthly income from a diversified portfolio of quality preferred securities. For more information on your Fund's performance, please read the Portfolio Managers' Comments, the Distribution and Share Price Information, and the Performance Overview sections of this report. Portfolio diversification is a recognized way to try to reduce some of the risk that comes with investing. Since one part of your portfolio may be going up when another is going down, portfolio diversification may help smooth your investment returns over time. In addition to providing regular monthly income, an investment like your Fund may help you achieve and benefit from greater portfolio diversification. Your financial advisor can explain these potential advantages in more detail. I urge you to contact him or her soon for more information on this important investment strategy. "PORTFOLIO DIVERSIFICATION IS A RECOGNIZED WAY TO TRY TO REDUCE SOME OF THE RISK THAT COMES WITH INVESTING." As you look through this report, be sure to review the inside front cover. This contains information on how you can receive future Fund reports and other Fund information faster by using e-mails and the Internet. Sign up is quick and easy - just follow the step-by-step instructions. At Nuveen Investments, our mission continues to be to assist you and your financial advisor by offering investment services and products that can help you to secure your financial objectives. We are grateful that you have chosen us as a partner as you pursue your financial goals, and we look forward to continuing to earn your trust in the months and years ahead. Sincerely, (TIMOTHY SCHWERFEGER SIG) Timothy R. Schwertfeger Chairman of the Board February 15, 2007 Nuveen Investments Closed-End Funds (JTP, JPS, JHP) PORTFOLIO MANAGERS' COMMENTS The Nuveen Quality Preferred Income Funds are subadvised by a team of specialists at Spectrum Asset Management, Inc., an affiliate of Principal Capital(SM). Mark Lieb, Bernie Sussman and Phil Jacoby, who have more than 50 years of combined experience in the preferred securities markets, lead the team. Here Mark, Bernie and Phil talk about their management strategy and the performance of each Fund for the 12-month period ended December 31, 2006. WHAT WERE THE GENERAL ECONOMIC CONDITIONS AND MARKET TRENDS OVER THE COURSE OF 2006? In 2006, the U.S. economy benefited from increased flexibility stemming mainly from productivity advancements and globalization, which seems to be reducing the reliance on monetary policy actions to offset unexpected shocks. We began the year still in the midst of a Fed tightening cycle. The departing Federal Reserve Chairman, Alan Greenspan warned, "History cautions that people experiencing long periods of relative stability are prone to excess. We must thus remain vigilant against complacency, especially since several important economic challenges confront policymakers in the years ahead." By June, after two full years of raising the short-term fed funds rate at regular intervals, the Fed finally paused. The uncertainty of the Fed's actions throughout the remainder of year led to a fair amount of volatility in the long end of the bond market, as the 30-year Treasury bond traded as high as 5.31% in the spring only to rally for the entire summer and close the year at 4.81%, just 27 basis points cheaper than where it started in January. The bond rally in the second half of the year led to a U.S. Treasury yield curve inversion. The U.S. has experienced five yield curve inversions since the 1970s, with the average length of time being 12 months and the longest being 19 months. We do not think that this inversion will last too much longer because, according to the Fed, "economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market." Nonetheless, new Federal Reserve Chairman Bernanke still has lingering concerns over inflation risks even though the pressures seemed to moderate along with slowing aggregate demand around the globe. It seems that a soft landing for the U.S. economy is underway and this is making the bond market a bit anxious for a Fed rate cut (or two) next year. 4 There were some very good buying opportunities for the Funds during the year. We believed that some closed-end funds were underpriced, and confusion in the hybrid preferred market due to the National Association of Insurance Commissioners' (NAIC) classification of several preferred structures as common equity. Since about 25% of the hybrid capital securities market is comprised of insurance company buyers, the IPO market for institutional deals took a timeout in April thanks to the NAIC, only to come back strong later in the year as it became evident that the buyer base went significantly beyond insurance companies to hedge funds, dealer proprietary funds and traditional corporate bond managers. Even the $25 par market has found new buyer breadth as equity income and balanced funds are the latest institutional buyers competing with retail investors. Overall, new issuance in hybrid-preferred securities set a record in 2006 of over $74 billion - about 60% more than the issuance amount the previous year, which at the time was also a record year. WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2006? We generally maintained the 60/40 portfolio mix between the $25 par sector and the Capital Securities sector for each of the portfolios. We sold Dividends Received Deduction (DRD) tax-advantaged securities as spreads tightened from the cheap positioning that took place in 2005. These sale proceeds were reinvested roughly equally in fully taxable $25 par securities and in competitors' closed-end funds that were priced at discounts to their net asset values. In the Capital Security sector, we decreased concentrations in "Euro-listed" securities and purchased Yankee Tier 1 and secondary "enhanced equity" hybrid securities that offered more return potential with less duration risk. We also sold some high coupon, callable capital securities that had little potential upside and used the proceeds to purchase some IPOs of "enhanced equity" hybrids that were priced attractively, particularly in the late summer. These actions were part of an ongoing effort to support the earnings potential of the portfolios while maintaining credit quality and diversity. 5 HOW DID THE FUNDS PERFORM OVER THIS TWELVE-MONTH PERIOD? The performance of JTP, JPS and JHP, as well as the performance of a comparative index and benchmark, is shown in the following chart: TOTAL RETURN ON NET ASSET VALUE For the twelve-month period ended December 31, 2006 JTP 7.26% ------------------------------------------------------------------------------------------- JPS 7.09% ------------------------------------------------------------------------------------------- JHP 7.49% ------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index(1) 4.30% ------------------------------------------------------------------------------------------- Comparative Benchmark(2) 6.50% -------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 1 The Lehman Brothers Aggregate Bond Index is an unmanaged index that includes all investment-grade, publicly issued, fixed-rate, dollar denominated, nonconvertible debt issues and commercial mortgage backed securities with maturities of at least one year and outstanding par values of $150 million or more. Index returns do not include the effects of any sales charges or management fees. It is not possible to invest directly in an index. 2 Comparative benchmark performance is a blended return consisting of: 1) 55% of the Merrill Lynch Preferred Stock Hybrid Securities Index, an unmanaged index of investment-grade, exchange traded preferred stocks with outstanding market values of at least $30 million and at least one year to maturity; and 2) 45% of the Lehman Tier 1 Capital Securities Index, an unmanaged index that includes securities that can generally be viewed as hybrid fixed income securities that either receive regulatory capital treatment or a degree of "equity credit" from a rating agency. -------------------------------------------------------------------------------- Past performance does not guarantee future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that a shareholder may have to pay on Fund distributions or upon the sale of Fund shares. For more information, please see the individual Performance Overview pages in this report. For the twelve months ended December 31, 2006, all three funds outperformed the unleveraged, unmanaged Lehman Brothers Aggregate Bond Index and their comparative benchmark. One driver of the Funds' performance was our allocation to DRD-eligible securities. We continued to opportunistically increase the Funds' concentrations in DRDs due to the relative attractiveness of the sector. As the year progressed and spreads in this area tightened while spreads in other sectors widened, we took some profits in order to redeploy proceeds into competitor CEFs and newer hybrid issues. We also switched from $25 par securities and capital securities that were soon callable into relatively cheap bullet capital securities and perpetuals whose structures and pricing seemed attractive. We also benefited from the strong performance of the IPO market for floating rate DRD paper. While the added volatility in the "enhanced equity" hybrid and Tier 1 securities provided some trading opportunities for the Funds, it sometimes hurt our holdings in these sectors. We also made a decision to stop selling callable hybrid securities because it became unclear whether the issuers would have adequate incentive to call them. As a result, the portfolio duration drifted lower than the comparative benchmark and switches for lower yield and more duration became less attractive than holding the higher income, low duration securities. 6 DISTRIBUTION AND SHARE PRICE INFORMATION Each of these Funds uses financial leverage in an effort to enhance its dividend-paying capabilities. While this strategy adds volatility to a Fund's net asset value and share price, it generally enhances the amount of income the Fund has to distribute to its common shareholders. The extent of this benefit is tied in part to the short-term rates these Funds pay their FundPreferred(TM) shareholders. As short-term rates rose through this reporting period, the Funds paid higher dividends to their FundPreferred shareholders, marginally reducing the benefits of the Funds' use of financial leverage. JTP and JPS each paid steady monthly distributions over the course of the period. JHP declared a monthly distribution decrease in March. The distribution decreased from $0.0945 to $0.0910 per share. The following table provides information regarding JHP's distributions and total return performance for the fiscal year ended December 31, 2006. The distribution information is presented on a tax basis rather than on a generally accepted accounting principles (GAAP) basis. This information is intended to help you better understand whether the Fund's returns for the specified time period was sufficient to meet the Fund's distributions. Information regarding such distributions in the future will likely vary based on the Fund's investment activities and portfolio investment value changes at that time.
------------------------------------------------------------------------------- AS OF 12/31/2006 JHP ----------------------------------------------------------------------- Inception date 12/18/02 Calendar Year: Per share distribution: From net investment income $1.10 From short-term capital gains -- From long-term capital gains -- From return of capital $0.01 ------- Total per share distribution $1.11 ------- Distribution rate on NAV 7.81% One-year total return on NAV 7.49% Annualized since inception total return on NAV 8.36% -------------------------------------------------------------------------------
As of December 31, 2006, the Funds' shares were trading at premiums to their NAVs as shown in the accompanying table:
12/31/06 12-MONTH AVERAGE PREMIUM DISCOUNT ------------------------------------------------------------------------------- JTP 5.25% -2.34% ------------------------------------------------------------------------------- JPS 3.14% -2.87% ------------------------------------------------------------------------------- JHP 4.92% -1.09% -------------------------------------------------------------------------------
7 Nuveen Quality Preferred Income Fund JTP PERFORMANCE OVERVIEW As of December 31, 2006 (PORTFOLIO ALLOCATION PIE CHART) (as a % of total investments) -------------------------------------------------------------------------------- $25 Par (or similar) Preferred Securities 56.5% -------------------------------------------------------------------------------- Capital Preferred Securities 39.0% -------------------------------------------------------------------------------- Investment Companies 2.1% -------------------------------------------------------------------------------- Short-Term Investments 1.5% -------------------------------------------------------------------------------- Corporate Bonds 0.8% -------------------------------------------------------------------------------- Convertible Preferred Securities 0.1% --------------------------------------------------------------------------------
(2006 MONTHLY DISTRIBUTIONS PER SHARE BAR CHART) Jan 0.09 Feb 0.09 Mar 0.09 Apr 0.09 May 0.09 Jun 0.09 Jul 0.09 Aug 0.09 Sept 0.09 Oct 0.09 Nov 0.09 Dec 0.09
(SHARE PRICE PERFORMANCE CHART) Past performance is not predictive of future results.
1/01/06 12.53 12.71 12.95 13.07 12.92 13.15 13.33 13.35 13.53 13.55 13.30 13.45 13.66 13.29 13.15 12.68 12.75 12.89 13.04 12.93 12.81 12.95 13.28 12.95 12.87 12.87 12.94 13.05 13.06 13.02 13.62 13.76 13.95 14.03 13.99 14.11 14.05 13.89 13.93 14.08 14.33 14.32 14.30 14.34 14.62 14.08 14.47 14.41 14.36 14.47 14.53 14.76 14.71 14.74 14.84 12/31/06 14.84
FUND SNAPSHOT -------------------------------------------------------------------------------- Common Share Price $14.84 -------------------------------------------------------------------------------- Common Share Net Asset Value $14.10 -------------------------------------------------------------------------------- Premium/(Discount) to NAV 5.25% -------------------------------------------------------------------------------- Current Distribution Rate(1) 7.28% -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $909,608 --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (Inception 6/25/02)
-------------------------------------------------------------------------------- ON SHARE PRICE ON NAV -------------------------------------------------------------------------------- 1-Year 29.51% 7.26% -------------------------------------------------------------------------------- Since Inception 8.24% 7.95% --------------------------------------------------------------------------------
INDUSTRIES (as a % of total investments) -------------------------------------------------------------------------------- Commercial Banks 27.2% -------------------------------------------------------------------------------- Insurance 17.3% -------------------------------------------------------------------------------- Real Estate 17.0% -------------------------------------------------------------------------------- Diversified Financial Services 10.0% -------------------------------------------------------------------------------- Capital Markets 9.9% -------------------------------------------------------------------------------- Thrifts and Mortgage 3.6% -------------------------------------------------------------------------------- Short-Term Investments 1.5% -------------------------------------------------------------------------------- Other 13.5% --------------------------------------------------------------------------------
TOP FIVE ISSUERS (EXCLUDING SHORT-TERM INVESTMENTS) (as a % of total investments) -------------------------------------------------------------------------------- ING Group NV 3.0% -------------------------------------------------------------------------------- Banco Santander Central Hispano S.A. 2.7% -------------------------------------------------------------------------------- JPMorgan Chase & Company 2.6% -------------------------------------------------------------------------------- HSBC Holdings Public Limited Company 2.5% -------------------------------------------------------------------------------- Washington Mutual Incorporated 2.3% --------------------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Fund's cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital. 8 Nuveen Quality Preferred Income Fund 2 JPS PERFORMANCE OVERVIEW As of December 31, 2006 (PORTFOLIO ALLOCATION PIE CHART) (as of % of total investments) -------------------------------------------------------------------------------- $25 Par (or similar) Preferred Securities 57.5% -------------------------------------------------------------------------------- Capital Preferred Securities 39.4% -------------------------------------------------------------------------------- Investment Companies 1.9% -------------------------------------------------------------------------------- Corporate Bonds 0.6% -------------------------------------------------------------------------------- Short-Term Investments 0.5% -------------------------------------------------------------------------------- Convertible Preferred Securities 0.1% --------------------------------------------------------------------------------
(2006 MONTHLY DISTRIBUTIONS PER SHARE BAR CHART)
Jan 0.093 Feb 0.093 Mar 0.093 Apr 0.093 May 0.093 Jun 0.093 Jul 0.093 Aug 0.093 Sept 0.093 Oct 0.093 Nov 0.093 Dec 0.093
(SHARE PRICE PERFORMANCE CHART) Past performance is not predictive of future results.
1/01/06 13.02 13.39 13.68 13.89 13.87 14.09 14.12 13.90 13.98 13.93 13.55 13.74 13.96 13.65 13.70 13.24 13.40 13.64 13.47 13.48 13.25 13.34 13.64 13.40 13.44 13.59 13.64 13.80 13.82 13.85 14.09 14.24 14.19 13.91 14.22 14.29 14.45 14.43 14.43 14.56 14.65 14.53 14.42 14.70 14.88 14.43 14.90 14.78 14.81 14.92 14.90 15.05 15.04 15.08 15.12 12/31/06 15.12
FUND SNAPSHOT -------------------------------------------------------------------------------- Common Share Price $15.12 -------------------------------------------------------------------------------- Common Share Net Asset Value $14.66 -------------------------------------------------------------------------------- Premium/(Discount) to NAV 3.14% -------------------------------------------------------------------------------- Current Distribution Rate(1) 7.38% -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $1,753,392 --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (Inception 9/24/02)
-------------------------------------------------------------------------------- ON SHARE PRICE ON NAV -------------------------------------------------------------------------------- 1-Year 27.75% 7.09% -------------------------------------------------------------------------------- Since Inception 9.35% 9.34% --------------------------------------------------------------------------------
INDUSTRIES (as a % of total investments) -------------------------------------------------------------------------------- Commercial Banks 26.4% -------------------------------------------------------------------------------- Insurance 20.0% -------------------------------------------------------------------------------- Real Estate 15.4% -------------------------------------------------------------------------------- Capital Markets 9.9% -------------------------------------------------------------------------------- Diversified Financial Services 9.5% -------------------------------------------------------------------------------- Thrifts and Mortgage 3.9% -------------------------------------------------------------------------------- Short-Term Investments 0.5% -------------------------------------------------------------------------------- Other 14.4% --------------------------------------------------------------------------------
TOP FIVE ISSUERS (EXCLUDING SHORT-TERM INVESTMENTS) (as a % of total investments) -------------------------------------------------------------------------------- Wachovia Corporation 3.7% -------------------------------------------------------------------------------- ING Group NV 3.0% -------------------------------------------------------------------------------- Washington Mutual Incorporated 2.5% -------------------------------------------------------------------------------- Aegon NV 2.5% -------------------------------------------------------------------------------- Banco Santander Central Hispano S.A. 2.2% --------------------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Fund's cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital. 9 Nuveen Quality Preferred Income Fund 3 JHP PERFORMANCE OVERVIEW As of December 31, 2006 (PORTFOLIO ALLOCATION PIE CHART) (as a % of total investments) -------------------------------------------------------------------------------- $25 Par (or similar) Preferred Securities 61.8% -------------------------------------------------------------------------------- Capital Preferred Securities 34.7% -------------------------------------------------------------------------------- Investment Companies 2.0% -------------------------------------------------------------------------------- Short-Term Investments 0.8% -------------------------------------------------------------------------------- Corporate Bonds 0.7% --------------------------------------------------------------------------------
(2006 MONTHLY DISTRIBUTIONS PER SHARE BAR CHART)
Jan 0.0945 Feb 0.0945 Mar 0.091 Apr 0.091 May 0.091 Jun 0.091 Jul 0.091 Aug 0.091 Sept 0.091 Oct 0.091 Nov 0.091 Dec 0.091
(SHARE PRICE PERFORMANCE CHART) (Past performance is not predictive of future results.
1/01/06 13.17 13.41 13.71 13.73 13.65 13.77 14.14 14.02 14.08 13.98 13.51 13.39 13.49 13.16 13.29 12.88 13.11 13.24 13.19 13.10 12.98 12.82 13.15 13.08 13.01 13.02 12.99 13.03 13.10 13.11 13.45 14.00 14.14 14.33 14.27 14.38 14.78 14.44 14.66 14.78 14.76 14.55 14.25 14.34 14.60 14.44 14.82 14.92 14.81 14.76 14.84 14.92 14.87 14.85 14.92 12/31/06 14.92
FUND SNAPSHOT -------------------------------------------------------------------------------- Common Share Price $14.92 -------------------------------------------------------------------------------- Common Share Net Asset Value $14.22 -------------------------------------------------------------------------------- Premium/(Discount) to NAV 4.92% -------------------------------------------------------------------------------- Current Distribution Rate(1) 7.32% -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $336,540 --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (Inception 12/18/02)
-------------------------------------------------------------------------------- ON SHARE PRICE ON NAV -------------------------------------------------------------------------------- 1-Year 25.00% 7.49% -------------------------------------------------------------------------------- Since Inception 8.63% 8.36% --------------------------------------------------------------------------------
INDUSTRIES (as a % of total investments) -------------------------------------------------------------------------------- Commercial Banks 25.0% -------------------------------------------------------------------------------- Insurance 22.3% -------------------------------------------------------------------------------- Real Estate 16.0% -------------------------------------------------------------------------------- Capital Markets 12.1% -------------------------------------------------------------------------------- Diversified Financial Services 8.3% -------------------------------------------------------------------------------- Thrifts and Mortgage 3.3% -------------------------------------------------------------------------------- Short-Term Investments 0.8% -------------------------------------------------------------------------------- Other 12.2% --------------------------------------------------------------------------------
TOP FIVE ISSUERS (EXCLUDING SHORT-TERM INVESTMENTS) (as a % of total investments) -------------------------------------------------------------------------------- Wachovia Corporation 3.6% -------------------------------------------------------------------------------- ING Group NV 3.3% -------------------------------------------------------------------------------- Union Planters Corporation 2.5% -------------------------------------------------------------------------------- Public Storage Incorporated 2.4% -------------------------------------------------------------------------------- Bank of America Corporation 2.3% --------------------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Fund's cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital. 10 Report of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF TRUSTEES AND SHAREHOLDERS NUVEEN QUALITY PREFERRED INCOME FUND NUVEEN QUALITY PREFERRED INCOME FUND 2 NUVEEN QUALITY PREFERRED INCOME FUND 3 We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 (the "Funds") as of December 31, 2006, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of Nuveen Quality Preferred Income Fund, Nuveen Quality Preferred Income Fund 2 and Nuveen Quality Preferred Income Fund 3 at December 31, 2006, the results of their operations for the year then ended, changes in their net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein in conformity with U.S. generally accepted accounting principles. (ERNST & YOUNG LLP LOGO) Chicago, Illinois February 20, 2007 11 Nuveen Quality Preferred Income Fund (JTP) Portfolio of INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED SECURITIES - 0.1% (0.1% OF TOTAL INVESTMENTS) INSURANCE - 0.1% 37,500 XL Capital Ltd 6.500% A2 $ 886,125 ----------------------------------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE PREFERRED SECURITIES (COST $924,651) 886,125 ================================================================================================================ SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- $25 PAR (OR SIMILAR) PREFERRED SECURITIES - 82.9% (56.5% OF TOTAL INVESTMENTS) AUTOMOBILES - 0.0% 5,300 DaimlerChrysler, Series DCX (CORTS) 7.250% A3 $ 133,560 ----------------------------------------------------------------------------------------------------------------------------- CAPITAL MARKETS - 7.4% 40,358 Bear Stearns Capital Trust III 7.800% A2 1,027,111 296,187 BNY Capital Trust V, Series F 5.950% A1 7,324,705 244,295 Compass Capital Trust III 7.350% A3 6,129,362 2,700 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 68,445 5,200 Goldman Sachs Capital I (CORTS) 6.000% A1 126,308 15,000 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 368,100 100 Goldman Sachs Group Inc., Series 2003-06 (SATURNS) 6.000% AA- 2,447 13,200 Goldman Sachs Group Inc., Series 2004-04 (SATURNS) 6.000% A1 323,400 18,300 Goldman Sachs Group Inc., Series 2004-06 (SATURNS) 6.000% A1 444,690 25,000 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 603,500 5,700 Goldman Sachs Group Inc., Series GSG-1 (PPLUS) 6.000% AA- 138,909 7,000 Goldman Sachs Group Inc. (SATURNS) 5.750% AA- 165,830 108,549 Lehman Brothers Holdings Capital Trust III, Series 6.375% A2 2,723,494 K 75,000 Lehman Brothers Holdings Capital Trust IV, Series 6.375% A2 1,895,250 L 25,700 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 637,360 105,920 Lehman Brothers Holdings Capital Trust VI, Series 6.240% A2 2,668,125 N 46,700 Merrill Lynch Capital Trust II 8.000% A1 1,183,845 135,800 Merrill Lynch Preferred Capital Trust III 7.000% A1 3,469,690 94,200 Merrill Lynch Preferred Capital Trust IV 7.120% A1 2,422,824 173,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 4,471,986 6,400 Morgan Stanley (PPLUS) 7.050% Aa3 163,136 194,600 Morgan Stanley Capital Trust II 7.250% A1 4,942,840 213,256 Morgan Stanley Capital Trust III 6.250% A1 5,354,858 218,201 Morgan Stanley Capital Trust IV 6.250% A1 5,465,935 515,305 Morgan Stanley Capital Trust VI 6.600% A1 13,191,808 63,494 Morgan Stanley Capital Trust VII 6.600% A2 1,602,589 ----------------------------------------------------------------------------------------------------------------------------- Total Capital Markets 66,916,547 ---------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 9.9% 1,200 Abbey National PLC, Series C 7.375% A2 30,552 134,500 ABN AMRO Capital Fund Trust V 5.900% A 3,261,625 39,500 ABN AMRO Capital Fund Trust VII 6.080% A 987,500 104,900 ASBC Capital I 7.625% Baa1 2,646,627 8,100 BAC Capital Trust V 6.000% Aa3 201,447 8,400 BAC Capital Trust X 6.250% Aa3 210,504 41,879 Banco Santander, 144A 6.800% A2 1,052,210 289,115 Banco Santander, (3) 6.410% A2 7,331,956 7,100 BancorpSouth Capital Trust I 8.150% Baa2 177,997 84,500 Banesto Holdings, Series A, 144A 10.500% A2 2,556,125 64,300 Bank One Capital Trust VI 7.200% A1 1,631,291 16,500 BankNorth Capital Trust II 8.000% A3 415,470 17,717 Barclays Bank PLC, (3) 6.625% Aa3 471,272 202,200 Chittenden Capital Trust I 8.000% Baa1 5,107,572 190,000 Citizens Funding Trust I 7.500% Baa2 4,963,750 116,800 Cobank ABC, 144A, (3) 7.000% N/R 5,945,237 142,700 Comerica Capital Trust I 7.600% A3 3,598,894 9,200 Fleet Capital Trust IX 6.000% Aa3 229,724
12
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS (continued) 12,000 Fleet Capital Trust VIII 7.200% Aa3 $ 301,440 4,400 HSBC Finance Corporation 6.875% AA- 113,080 55,433 KeyCorp Capital Trust V 5.875% A3 1,328,729 597,900 National City Capital Trust II 6.625% A3 15,115,689 200,000 PFGI Capital Corporation 7.750% A- 5,243,760 6,350 PNC Capital Trust 6.125% A3 158,052 27,918 Royal Bank of Scotland Group PLC, Series L 5.750% A1 674,220 26,300 Royal Bank of Scotland Group PLC, Series M 6.400% A1 670,650 224,762 Royal Bank of Scotland Group PLC, Series N 6.350% A1 5,733,679 23,600 USB Capital Trust XI 6.600% A1 598,968 37,200 VNB Capital Trust I 7.750% Baa1 940,788 25,500 Wells Fargo Capital Trust IV 7.000% Aa2 640,050 7,236 Wells Fargo Capital Trust IX 5.625% Aa2 172,000 238,800 Wells Fargo Capital Trust V 7.000% Aa2 6,015,372 55,500 Wells Fargo Capital Trust VI 6.950% Aa2 1,390,275 21,900 Wells Fargo Capital Trust VII 5.850% Aa2 537,864 382,250 Zions Capital Trust B 8.000% Baa1 9,743,553 ----------------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 90,197,922 ---------------------------------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS - 0.0% 3,100 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 78,182 1,500 IBM Trust IV (CORTS) 7.000% A+ 37,740 ----------------------------------------------------------------------------------------------------------------------------- Total Computers & Peripherals 115,922 ---------------------------------------------------------------------------------------------------------------- CONSUMER FINANCE - 0.0% 14,000 SLM Corporation 6.000% A 341,740 ----------------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 9.7% 599,640 BAC Capital Trust XII 6.875% Aa3 15,767,534 43,976 CIT Group Incorporated (CORTS) 7.750% A3 1,169,762 350,130 Citigroup Capital Trust VIII 6.950% Aa2 8,816,273 15,900 Citigroup Capital XIV 6.875% Aa2 417,534 417,950 Citigroup Capital XV 6.500% Aa3 10,514,076 314,900 Deutsche Bank Capital Funding Trust VIII 6.375% A 8,148,038 8,300 General Electric Capital Corporation (CORTS) 6.000% AAA 205,591 10,800 General Electric Capital Corporation 6.450% AAA 279,828 6,200 General Electric Capital Corporation 4.500% AAA 141,794 1,015,058 ING Group N.V. 7.200% A 25,955,030 569,000 ING Group N.V. 7.050% A 14,446,910 7,200 JPMorgan Chase & Company (PCARS) 7.125% A2 179,784 20,400 JPMorgan Chase Trust, Series 2002-6, Class A 7.125% A1 528,156 (SATURNS) 59,200 Royal Bank of Scotland Public Limited Company, 6.750% A1 1,559,920 Series 2006Q ----------------------------------------------------------------------------------------------------------------------------- Total Diversified Financial Services 88,130,230 ---------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8% 95,900 AT&T Inc. 7.000% A 2,415,721 13,300 BellSouth Capital Funding (CORTS) 7.100% A 342,475 74,035 BellSouth Corporation (CORTS) 7.000% Aa3 1,862,721 29,900 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 747,799 4,500 BellSouth Corporation 7.125% A 113,040 7,400 BellSouth Inc. (CORTS) 7.000% A 190,180 2,700 BellSouth Telecommunications (PPLUS) 7.300% A 67,851 2,200 Verizon Communications (CORTS) 7.625% A 56,540 9,700 Verizon Communications, Series 2004-1 (SATURNS) 6.125% A+ 239,493 2,300 Verizon Global Funding Corporation Trust III, 6.250% A 57,040 Series III (CORTS) 23,900 Verizon New England Inc., Series B 7.000% A3 604,909 19,900 Verizon South Inc., Series F 7.000% A 503,072 ----------------------------------------------------------------------------------------------------------------------------- Total Diversified Telecommunication Services 7,200,841 ---------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES - 3.2% 77,740 DTE Energy Trust I 7.800% Baa3 1,970,709 109,205 Entergy Louisiana LLC 7.600% A- 2,742,138 2,000 Entergy Mississippi Inc. 7.250% A- 51,060 78,400 FPL Group Capital Inc. 6.600% A3 1,981,952 59,000 Georgia Power Capital Trust V 7.125% A3 1,483,260 3,600 Georgia Power Company 6.000% A 89,100 119,151 Georgia Power Company 5.900% A 2,883,454 2,000 Georgia Power Company 5.750% A 47,800
13 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES (continued) 251,073 Interstate Power and Light Company, Series B, (3) 8.375% Baa2 $ 7,896,246 24,000 National Rural Utilities Cooperative Finance 7.400% A3 608,400 Corporation 36,500 National Rural Utilities Cooperative Finance 6.100% A3 895,710 Corporation 15,025 National Rural Utilities Cooperative Finance 5.950% A3 362,854 Corporation 110,300 PPL Energy Supply LLC 7.000% BBB 2,878,146 11,000 Southern Company Capital Trust VI 7.125% BBB+ 277,530 191,400 Virginia Power Capital Trust 7.375% Baa2 4,896,012 ----------------------------------------------------------------------------------------------------------------------------- Total Electric Utilities 29,064,371 ---------------------------------------------------------------------------------------------------------------- FOOD PRODUCTS - 0.4% 46,200 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 4,562,250 ----------------------------------------------------------------------------------------------------------------------------- HOUSEHOLD DURABLES - 1.1% 372,482 Pulte Homes Inc. 7.375% BBB 9,707,812 ----------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES - 0.1% 21,700 General Electric Company, Series GE (CORTS) 6.800% AAA 554,869 ----------------------------------------------------------------------------------------------------------------------------- INSURANCE - 17.0% 641,900 Ace Ltd., Series C 7.800% Baa2 16,625,210 17,540 Aegon N.V. 6.875% A- 458,496 1,161,650 Aegon N.V., (3) 6.375% A- 30,168,048 21,500 AMBAC Financial Group Inc. 5.950% AA 522,880 2,800 AMBAC Financial Group Inc. 5.875% AA 67,368 4,700 Arch Capital Group Limited, Series B 7.785% Baa3 122,012 523,512 Arch Capital Group Limited 8.000% Baa3 13,846,892 216,000 Delphi Financial Group, Inc. 8.000% BBB 5,568,480 466,600 EverestRe Capital Trust II 6.200% Baa1 11,142,408 89,800 EverestRe Group Limited 7.850% Baa1 2,293,492 6,600 Financial Security Assurance Holdings 6.875% AA 165,726 4,600 Financial Security Assurance Holdings 6.250% AA 115,644 34,500 Lincoln National Capital Trust VI 6.750% A- 879,750 265,320 Markel Corporation 7.500% BBB- 6,896,993 296,700 PartnerRe Limited, Series C 6.750% BBB+ 7,536,180 77,700 PartnerRe Limited, Series D 6.500% BBB+ 1,958,040 80,600 PLC Capital Trust III 7.500% BBB+ 2,041,598 413,100 PLC Capital Trust IV 7.250% BBB+ 10,472,085 5,300 PLC Capital Trust V 6.125% BBB+ 131,864 3,000 Protective Life Corporation 7.250% BBB 78,270 7,500 Prudential Financial Inc. (CORTS) 6.000% A 185,100 264,265 Prudential PLC 6.750% A 6,775,755 252,902 RenaissanceRe Holdings Limited 6.600% BBB 6,304,847 112,942 RenaissanceRe Holdings Limited, Series A 8.100% BBB+ 2,843,880 61,100 RenaissanceRe Holdings Limited, Series B 7.300% BBB 1,566,299 9,268 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 220,578 9,100 Safeco Capital Trust III (CORTS) 8.072% Baa2 236,054 11,200 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 280,448 3,300 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 83,193 382,300 W.R. Berkley Corporation 6.750% BBB- 9,614,845 445,854 XL Capital Ltd, Series A 8.000% Baa1 11,257,814 156,900 XL Capital Ltd, Series B 7.625% Baa1 4,016,640 ----------------------------------------------------------------------------------------------------------------------------- Total Insurance 154,476,889 ---------------------------------------------------------------------------------------------------------------- IT SERVICES - 0.1% 31,500 Vertex Industries Inc. (PPLUS) 7.625% A 796,950 ----------------------------------------------------------------------------------------------------------------------------- MEDIA - 4.5% 127,800 CBS Corporation 7.250% BBB 3,206,502 138,300 Comcast Corporation 7.000% BBB+ 3,608,773 735,519 Comcast Corporation 7.000% BBB+ 19,008,606 596,232 Viacom Inc. 6.850% BBB 14,868,536 ----------------------------------------------------------------------------------------------------------------------------- Total Media 40,692,417 ---------------------------------------------------------------------------------------------------------------- MULTI-UTILITIES - 0.2% 98,100 Dominion CNG Capital Trust I 7.800% Baa2 2,487,816 -----------------------------------------------------------------------------------------------------------------------------
14
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 1.8% 532,332 Nexen Inc. 7.350% Baa3 $ 13,734,166 108,500 TransCanada Pipeline 8.250% A3 2,817,745 ----------------------------------------------------------------------------------------------------------------------------- Total Oil, Gas & Consumable Fuels 16,551,911 ---------------------------------------------------------------------------------------------------------------- PHARMACEUTICALS - 0.1% 21,000 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 531,825 13,800 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 355,350 ----------------------------------------------------------------------------------------------------------------------------- Total Pharmaceuticals 887,175 ---------------------------------------------------------------------------------------------------------------- REAL ESTATE - 22.3% 50,458 AMB Property Corporation, Series M 6.750% Baa2 1,299,798 196,300 AMB Property Corporation, Series P 6.850% Baa2 5,054,725 13,400 AvalonBay Communities, Inc., Series H 8.700% BBB 360,058 128,788 BRE Properties, Series B 8.080% BBB- 3,287,314 56,900 Developers Diversified Realty Corporation, Series 8.600% BBB- 1,444,691 F 47,300 Developers Diversified Realty Corporation, Series 8.000% BBB- 1,209,461 G 406,400 Developers Diversified Realty Corporation, Series 7.375% BBB- 10,265,664 H 29,600 Developers Diversified Realty Corporation 7.500% BBB- 752,136 156,300 Duke Realty Corporation, Series L 6.600% BBB 3,940,323 50,600 Duke Realty Corporation, Series N 7.250% BBB 1,336,159 157,779 Duke-Weeks Realty Corporation, Series B 7.990% BBB 7,800,199 1,112,100 Equity Office Properties Trust, Series G 7.750% BBB- 27,980,433 25,800 Equity Residential Properties Trust, Series D 8.600% BBB 664,350 12,000 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 335,400 279,400 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 7,155,434 989,210 HRPT Properties Trust, Series B 8.750% BBB- 25,432,586 82,000 New Plan Excel Realty Trust, Series D 7.800% BBB- 4,387,000 419,000 New Plan Excel Realty Trust, Series E 7.625% BBB- 10,894,000 10,000 Prologis Trust, Series F 6.750% BBB 254,250 107,400 Prologis Trust, Series G 6.750% BBB 2,740,848 56,700 PS Business Parks, Inc., Series I 6.875% BBB- 1,423,170 240,000 PS Business Parks, Inc., Series L 7.600% BBB- 6,163,200 328,400 PS Business Parks, Inc. 7.000% BBB- 8,357,780 64,800 Public Storage, Inc., Series C 6.600% BBB+ 1,616,112 91,300 Public Storage, Inc., Series D 6.180% BBB+ 2,213,112 2,900 Public Storage, Inc., Series E 6.750% BBB+ 73,660 59,400 Public Storage, Inc., Series F 6.450% BBB+ 1,476,090 366,596 Public Storage, Inc., Series K 7.250% BBB+ 9,531,496 17,100 Public Storage, Inc., Series T 7.625% BBB+ 427,158 40,780 Public Storage, Inc., Series U 7.625% BBB+ 1,018,684 347,600 Public Storage, Inc., Series V 7.500% BBB+ 8,846,420 7,871 Public Storage, Inc., Series X 6.450% BBB+ 198,507 107,100 Public Storage, Inc., Series Y 6.850% BBB+ 2,644,031 4,100 Public Storage, Inc. 7.125% BBB+ 106,600 17,100 Public Storage, Inc. 6.750% BBB+ 432,310 90,300 Realty Income Corporation, Series E 6.750% BBB- 2,277,258 94,000 Realty Income Corporation 7.375% BBB- 2,444,000 47,500 Regency Centers Corporation 7.450% BBB- 1,215,050 22,600 Regency Centers Corporation 7.250% BBB- 577,430 176,600 Simon Property Group, Inc., Series G 7.890% BBB 9,006,600 13,900 United Dominion Realty Trust 8.600% BBB- 353,894 323,633 Vornado Realty Trust, Series G 6.625% BBB- 8,042,280 40,200 Vornado Realty Trust, Series H 6.750% BBB- 1,007,010 90,600 Vornado Realty Trust, Series I 6.625% BBB- 2,256,846 505,200 Wachovia Preferred Funding Corporation 7.250% A2 14,191,068 2,300 Weingarten Realty Trust, Series E 6.950% A- 59,375 ----------------------------------------------------------------------------------------------------------------------------- Total Real Estate 202,553,970 ---------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 3.2% 12,900 Countrywide Capital Trust III (PPLUS) 8.050% BBB+ 333,465 799,020 Countrywide Capital Trust IV 6.750% BBB+ 19,983,490 295,700 Countrywide Capital Trust V 7.000% BBB+ 7,457,199 60,800 Harris Preferred Capital Corporation, Series A 7.375% A1 1,538,848 ----------------------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage Finance 29,313,002 ----------------------------------------------------------------------------------------------------------------
15 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES - 1.1% 159,700 United States Cellular Corporation 8.750% A- $ 4,129,842 212,610 United States Cellular Corporation 7.500% BBB 5,474,708 ----------------------------------------------------------------------------------------------------------------------------- Total Wireless Telecommunication Services 9,604,550 ---------------------------------------------------------------------------------------------------------------- TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES 754,290,744 (COST $740,397,508) ================================================================================================================
PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 1.3% (0.8% OF TOTAL INVESTMENTS) COMMERCIAL BANKS - 1.3% $ 2,600 Standard Chartered PLC, 144A 6.409% 1/30/57 BBB+ $ 2,584,096 8,600 Swedbank ForengingsSparbanken AB, 144A 7.500% 9/27/49 A1 9,219,914 ----------------------------------------------------------------------------------------------------------------------------- 11,200 Total Commercial Banks 11,804,010 ----------------------------------------------------------------------------------------------------------------------------- $ 11,200 TOTAL CORPORATE BONDS (COST $11,985,799) 11,804,010 =============================================================================================================================
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL PREFERRED SECURITIES - 57.3% (39.0% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 7.2% 4,950 ABN AMRO North America Holding Capital, 144A 6.523% 12/31/49 A- $ 5,187,026 2,500 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 2,602,538 4,500 BankBoston Capital Trust III 6.103% 6/15/27 Aa3 4,463,528 2,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 2,070,580 7,900 BT Preferred Capital Trust II 7.875% 2/25/27 A2 8,214,223 2,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 2,310,260 11,250 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 11,535,694 7,900 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A- 9,543,010 1,900 MUFG Capital Finance 2 4.850% 7/25/56 BBB 2,453,010 5,500 UBS Preferred Funding Trust I 8.622% 10/29/49 AA- 6,080,437 10,250 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 10,755,171 ------------------------------------------------------------------------------------------------------------------------------------ Total Capital Markets 65,215,477 -------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 28.7% 9,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 8,952,786 20,750 Abbey National Capital Trust I 8.963% 6/30/50 A 27,760,862 3,000 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 2,954,871 2,500 Bank One Capital III 8.750% 9/01/30 A1 3,289,110 1,500 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 1,564,373 7,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 8,064,655 1,200 BOI Capital Funding 3, 144A 6.107% 8/04/56 A2 1,180,709 3,000 Centura Capital Trust I, 144A 8.845% 6/01/27 A2 3,165,945 2,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 2,082,800 1,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 1,829,894 600 Den Norske Bank, 144A 7.729% 6/29/49 A2 647,979 1,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 1,040,770 1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 1,581,195 20,100 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 20,359,592 1,800 HBOS PLC, 144A 6.413% 9/29/49 A1 1,793,740 5,750 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 6,483,119 17,150 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 25,412,287 12,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A 13,359,396 2,000 KeyCorp Capital III 7.750% 7/15/29 A3 2,362,670 8,850 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 8,940,031 7,655 Nordbanken AB, 144A 8.950% 11/29/49 A 8,316,055 1,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 Baa1 1,045,810 8,000 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 8,380,096 2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 2,000,764 16,000 RBS Capital Trust B 6.800% 12/31/49 A1 16,203,840 17,500 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 18,637,850 1,400 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 1,453,767 5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 4,943,015 23,000 Summit Capital Trust I, Capital Securities 8.400% 3/15/27 Aa3 24,067,361 6,100 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 6,691,487 4,700 Unicredito Italiano Capital Trust, 144A 9.200% 4/05/51 A- 5,278,147
16
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL BANKS (continued) 2,000 Union Planters Capital Trust A 8.200% 12/15/26 A2 $ 2,083,320 4,000 Wachovia Capital Trust I, Capital Securities, 7.640% 1/15/27 A1 4,155,820 144A 14,868,546 14,900 Washington Mutual Preferred Funding Cayman, 7.250% 3/15/49 BBB Series A-1, 144A ------------------------------------------------------------------------------------------------------------------------------------ Total Commercial Banks 260,952,662 -------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 5.1% 1,500 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A+ 1,678,100 4,250 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 4,282,287 3,500 Fulton Capital Trust I 6.290% 2/01/36 A3 3,458,364 19,500 JPM Capital Trust II 7.950% 2/01/27 A1 20,292,656 7,400 JPMorgan Chase Capital Trust XVIII 6.950% 8/17/36 A2 8,030,628 8,100 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 8,444,250 ------------------------------------------------------------------------------------------------------------------------------------ Total Diversified Financial Services 46,186,285 -------------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 1.4% 11,250 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 13,155,469 ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 8.4% 7,570 Ace Capital Trust II 9.700% 4/01/30 Baa1 10,406,388 2,000 American General Capital II 8.500% 7/01/30 Aa3 2,598,034 5,800 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A- 6,156,712 1,100 Lincoln National Corporation, Capital Securities 7.000% 5/17/66 A- 1,167,885 2,500 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 2,446,483 6,200 MetLife Inc. 6.400% 12/15/66 A3 6,249,321 4,000 MIC Financing Trust I 8.375% 2/01/27 A+ 4,005,608 1,400 Nationwide Financial Services Capital Trust 7.899% 3/01/37 Baa1 1,670,085 6,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 6,226,986 3,000 Prudential PLC 6.500% 6/29/49 A 3,026,223 8,000 Sun Life Canada Capital Trust, Capital 8.526% 5/06/47 AA- 8,403,216 Securities, 144A 23,848,211 22,750 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- ------------------------------------------------------------------------------------------------------------------------------------ Total Insurance 76,205,152 -------------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 1.0% 4,000 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 4,006,768 5,860 KN Capital Trust III 7.630% 4/15/28 Baa3 5,458,660 ------------------------------------------------------------------------------------------------------------------------------------ Total Oil, Gas & Consumable Fuels 9,465,428 -------------------------------------------------------------------------------------------------------------------- REAL ESTATE - 2.7% 19,000 Firstar Realty LLC, 144A 8.875% 12/31/50 Aa3 24,563,438 ------------------------------------------------------------------------------------------------------------------------------------ ROAD & RAIL - 0.8% 7,600 Burlington Northern Santa Fe Funding Trust I 6.613% 12/15/55 BBB 7,577,094 ------------------------------------------------------------------------------------------------------------------------------------ THRIFTS & MORTGAGE FINANCE - 2.0% 4,000 Caisse Nationale Des Caisses d'Epargne et de 6.750% 1/27/49 A+ 4,013,048 Prevoyance 8,500 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 8,988,419 5,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 5,213,595 ------------------------------------------------------------------------------------------------------------------------------------ Total Thrifts & Mortgage Finance 18,215,062 -------------------------------------------------------------------------------------------------------------------- TOTAL CAPITAL PREFERRED SECURITIES (COST $514,154,040) 521,536,067 ==================================================================================================================== SHARES DESCRIPTION (1) VALUE ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT COMPANIES - 3.1% (2.1% OF TOTAL INVESTMENTS) 102,970 Blackrock Preferred and Corporate Income Strategies Fund $ 2,273,578 403,940 Blackrock Preferred Income Strategies Fund 8,171,706 308,754 Flaherty and Crumrine/Claymore Preferred 6,610,423 Securities Income Fund Inc. 3,718,639 173,121 Flaherty and Crumrine/Claymore Total Return Fund 7,042,522 Inc. 314,258 John Hancock Preferred Income Fund III ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENT COMPANIES (COST $25,727,887) 27,816,868 ====================================================================================================================
17 Nuveen Quality Preferred Income Fund (JTP) (continued) Portfolio of INVESTMENTS December 31, 2006
PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE ----------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 2.2% (1.5% OF TOTAL INVESTMENTS) $ 20,327 Repurchase Agreement with Fixed Income Clearing 4.580% 1/02/07 $ 20,326,839 Corporation, dated 12/29/06, repurchase price $20,337,183, collateralized by $17,700,000 U.S. Treasury Bonds, 6.250%, due 8/15/23, value $20,733,408 ========== -------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $20,326,839) 20,326,839 ==================================================================================================================== TOTAL INVESTMENTS (COST $1,313,516,724) - 146.9% 1,336,660,653 ==================================================================================================================== OTHER ASSETS LESS LIABILITIES - 1.5% 12,947,710 ==================================================================================================================== PREFERRED SHARES, AT LIQUIDATION VALUE - (48.4)% (440,000,000) ==================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 909,608,363 ====================================================================================================================
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2006:
FUND FIXED RATE UNREALIZED NOTIONAL PAY/RECEIVE FLOATING RATE FIXED RATE PAYMENT TERMINATION APPRECIATION COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION) ---------------------------------------------------------------------------------------------------------------------- Citigroup Inc. $110,000,000 Receive 1-Month USD-LIBOR 3.860% Monthly 8/29/07 $ 1,029,914 Citigroup Inc. 110,000,000 Receive 1-Month USD-LIBOR 4.350 Monthly 8/29/09 1,765,375 ---------------------------------------------------------------------------------------------------------------------- $ 2,795,289 ====================================================================================================================== USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be below investment grade. (3) Investment is eligible for the Dividends Received Deduction. N/R Not rated. 144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. CORTS Corporate Backed Trust Securities. PCARS Public Credit and Repackaged Securities. PPLUS PreferredPlus Trust. SATURNS Structured Asset Trust Unit Repackaging.
18 Nuveen Quality Preferred Income Fund 2 (JPS) Portfolio of INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE -------------------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED SECURITIES - 0.2% (0.1% OF TOTAL INVESTMENTS) INSURANCE - 0.2% 88,500 XL Capital Ltd 6.500% A2 $ 2,091,255 -------------------------------------------------------------------------------------------------------------------------------- TOTAL CONVERTIBLE PREFERRED SECURITIES (COST 2,091,255 $2,094,613) =================================================================================================================== SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE -------------------------------------------------------------------------------------------------------------------------------- $25 PAR (OR SIMILAR) PREFERRED SECURITIES - 82.7% (57.5% OF TOTAL INVESTMENTS) AUTOMOBILES - 0.0% 3,400 DaimlerChrysler AG (CORTS) 7.875% Baa1 $ 85,850 21,000 DaimlerChrysler Corp. (PPLUS) 7.250% A3 550,830 1,400 DaimlerChrysler, Series DCX (CORTS) 8.250% A3 35,630 4,300 DaimlerChrysler, Series DCX (CORTS) 7.500% A3 108,016 -------------------------------------------------------------------------------------------------------------------------------- Total Automobiles 780,326 ------------------------------------------------------------------------------------------------------------------- CAPITAL MARKETS - 4.8% 68,324 Bear Stearns Capital Trust III 7.800% A2 1,738,846 19,200 BNY Capital Trust IV, Series E 6.875% A1 484,032 45,288 BNY Capital Trust V, Series F 5.950% A1 1,119,972 399,525 Compass Capital Trust III 7.350% A3 10,024,082 28,800 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 730,080 8,300 Goldman Sachs Capital I (CORTS) 6.000% A1 201,607 6,500 Goldman Sachs Capital I, Series A (CORTS) 6.000% A1 159,510 3,500 Goldman Sachs Group Inc., Series 2003-11 5.625% Aa3 81,375 (SATURNS) 15,700 Goldman Sachs Group Inc., Series 2004-04 6.000% A1 384,650 (SATURNS) 4,600 Goldman Sachs Group Inc., Series 2004-06 6.000% A1 111,780 (SATURNS) 16,500 Goldman Sachs Group Inc., Series GSC-3 6.000% A1 398,310 (PPLUS) 7,900 Goldman Sachs Group Inc., Series GSC-4 Class 6.000% A1 190,785 A (PPLUS) 7,100 Goldman Sachs Group Inc., Series GSG-2 5.750% AA- 165,856 (PPLUS) 4,300 Goldman Sachs Group Inc. (SATURNS) 5.750% AA- 101,867 224,900 Lehman Brothers Holdings Capital Trust III, 6.375% A2 5,642,741 Series K 103,500 Lehman Brothers Holdings Capital Trust IV, 6.375% A2 2,615,445 Series L 60,300 Lehman Brothers Holdings Capital Trust V, 6.000% A2 1,495,440 Series M 121,700 Merrill Lynch Capital Trust II 8.000% A1 3,085,095 219,500 Merrill Lynch Preferred Capital Trust III 7.000% A1 5,608,225 142,300 Merrill Lynch Preferred Capital Trust IV 7.120% A1 3,659,956 241,000 Merrill Lynch Preferred Capital Trust V 7.280% A1 6,215,390 53,600 Morgan Stanley (PPLUS) 7.050% Aa3 1,366,264 168,008 Morgan Stanley Capital Trust II 7.250% A1 4,267,403 430,350 Morgan Stanley Capital Trust III 6.250% A1 10,806,089 332,589 Morgan Stanley Capital Trust IV 6.250% A1 8,331,354 495,300 Morgan Stanley Capital Trust VI 6.600% A1 12,679,680 99,411 Morgan Stanley Capital Trust VII 6.600% A2 2,509,134 3,200 Washington Mutual Capital Trust I, Series 7.650% Baa1 80,544 2001-22, Class A-1 (CORTS) -------------------------------------------------------------------------------------------------------------------------------- Total Capital Markets 84,255,512 ------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 11.5% 119,000 ABN AMRO Capital Fund Trust V 5.900% A 2,885,750 7,000 ABN AMRO Capital Fund Trust VII 6.080% A 175,000 159,760 ASBC Capital I 7.625% Baa1 4,030,745 144,900 BAC Capital Trust X 6.250% Aa3 3,631,194 21,695 Banco Santander, 144A 6.800% A2 545,087 245,856 Banco Santander, (3) 6.410% A2 6,234,908 17,900 BancorpSouth Capital Trust I 8.150% Baa2 448,753 731,000 Banesto Holdings, Series A, 144A 10.500% A2 22,112,750 204,700 Bank One Capital Trust VI 7.200% A1 5,193,239 67,200 BankNorth Capital Trust II 8.000% A3 1,692,096 27,412 Barclays Bank PLC, (3) 6.625% Aa3 729,159
19 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE -------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS (continued) 605,600 Capital One Capital II Corporation 7.500% Baa1 $ 15,878,105 122,800 Chittenden Capital Trust I 8.000% Baa1 3,101,928 476,000 Citizens Funding Trust I 7.500% Baa2 12,435,500 225,500 Cobank ABC, 144A, (3) 7.000% N/R 11,478,176 268,700 Comerica Capital Trust I 7.600% A3 6,776,614 374,795 HSBC Finance Corporation 6.875% AA- 9,632,232 8,667 KeyCorp Capital Trust V 5.875% A3 207,748 55,862 Keycorp Capital VIII 7.000% A3 1,468,126 1,053,500 National City Capital Trust II 6.625% A3 26,633,850 5,000 National Westminster Bank PLC 7.760% Aa3 126,950 289,600 PFGI Capital Corporation 7.750% A- 7,592,964 4,100 PNC Capital Trust 6.125% A3 102,049 1,200 Royal Bank of Scotland Group PLC, Series L 5.750% A1 28,980 596,876 Royal Bank of Scotland Group PLC, Series N 6.350% A1 15,226,307 63,900 USB Capital Trust VI 5.750% Aa3 1,523,376 522,050 USB Capital Trust XI 6.600% A1 13,249,629 92,300 VNB Capital Trust I 7.750% Baa1 2,334,267 38,900 Wells Fargo Capital Trust IV 7.000% Aa2 976,390 55,900 Wells Fargo Capital Trust IX 5.625% Aa2 1,328,743 308,100 Wells Fargo Capital Trust V 7.000% Aa2 7,761,039 41,100 Wells Fargo Capital Trust VI 6.950% Aa2 1,029,555 45,975 Wells Fargo Capital Trust VII 5.850% Aa2 1,129,146 578,650 Zions Capital Trust B 8.000% Baa1 14,749,789 -------------------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 202,450,144 ------------------------------------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS - 0.0% 4,200 IBM Corporation, Class A (CORTS) 5.625% A+ 98,364 11,700 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 295,074 -------------------------------------------------------------------------------------------------------------------------------- Total Computers & Peripherals 393,438 ------------------------------------------------------------------------------------------------------------------- CONSUMER FINANCE - 0.7% 480,800 HSBC Finance Corporation, (3) 6.360% A 12,462,336 24,350 SLM Corporation 6.000% A 594,384 -------------------------------------------------------------------------------------------------------------------------------- Total Consumer Finance 13,056,720 ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 9.7% 486,460 BAC Capital Trust XII 6.875% Aa3 12,791,466 40,900 CIT Group Incorporated (CORTS) 7.750% A3 1,087,940 586,725 Citigroup Capital Trust VIII 6.950% Aa2 14,773,736 177,275 Citigroup Capital XIV 6.875% Aa2 4,655,242 846,688 Citigroup Capital XV 6.500% Aa3 21,299,537 29,000 Citigroup Capital XVI 6.450% Aa3 730,800 12,000 Citigroup, Series CIT (CORTS) 6.750% A3 307,320 1,264,700 Deutsche Bank Capital Funding Trust VIII 6.375% A 32,724,113 4,900 General Electric Capital Corporation (CORTS) 6.000% AAA 121,373 145,762 General Electric Capital Corporation 6.450% AAA 3,776,693 1,523,600 ING Group N.V. 7.200% A 38,958,452 1,445,555 ING Group N.V. 7.050% A 36,702,641 2,700 ING Group N.V. 6.200% A 68,769 12,400 ING Group N.V. 6.125% A 315,580 11,600 JPMorgan Chase & Company (PCARS) 7.125% A2 289,652 52,900 JPMorgan Chase Trust, Series 2002-6, Class A 7.125% A1 1,369,581 (SATURNS) -------------------------------------------------------------------------------------------------------------------------------- Total Diversified Financial Services 169,972,895 ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 0.7% 116,999 AT&T Inc. 7.000% A 2,947,205 17,500 BellSouth Capital Funding (CORTS) 7.100% A 450,625 43,200 BellSouth Corporation (CORTS) 7.000% Aa3 1,086,912 18,200 BellSouth Corporation, Series 2001-3 7.125% A 455,182 (SATURNS) 16,200 BellSouth Corporation, Series BLS (CORTS) 7.000% A 405,972 42,800 BellSouth Corporation 7.125% A 1,075,136 38,100 BellSouth Inc. (CORTS) 7.000% A 979,170 31,300 BellSouth Telecommunications (PPLUS) 7.300% A 786,569 28,800 Verizon Communications (CORTS) 7.625% A 740,160 7,600 Verizon Communications (CORTS) 7.375% A 193,800 70,100 Verizon Global Funding Corporation (SATURNS) 7.500% A 1,774,231
20
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE -------------------------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES (continued) 22,100 Verizon New England Inc., Series B 7.000% A3 $ 559,351 13,000 Verizon South Inc., Series F 7.000% A 328,640 -------------------------------------------------------------------------------------------------------------------------------- Total Diversified Telecommunication Services 11,782,953 ------------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES - 5.0% 2,800 Consolidated Edison, Inc. 7.250% A2 71,484 27,400 DTE Energy Trust I 7.800% Baa3 694,590 4,200 Entergy Arkansas Inc. 6.700% AAA 105,630 57,650 Entergy Louisiana LLC 7.600% A- 1,447,592 1,299,100 Entergy Mississippi Inc. 7.250% A- 33,166,023 108,392 FPL Group Capital Inc. 6.600% A3 2,740,150 12,700 Georgia Power Capital Trust V 7.125% A3 319,278 1,700 Georgia Power Capital Trust VII 5.875% A3 41,242 59,500 Georgia Power Company 5.900% A 1,439,900 940,400 Interstate Power and Light Company, Series 8.375% Baa2 29,575,580 B, (3) 30,200 National Rural Utilities Cooperative Finance 7.400% A3 765,570 Corporation 7,700 National Rural Utilities Cooperative Finance 6.100% A3 188,958 Corporation 22,600 National Rural Utilities Cooperative Finance 5.950% A3 545,790 Corporation 336,800 PPL Energy Supply LLC 7.000% BBB 8,788,392 2,600 Southern Company Capital Trust I (CORTS) 8.190% BBB+ 70,200 3,900 Southern Company Capital Trust I (CORTS) 7.375% BBB+ 100,874 265,500 Virginia Power Capital Trust 7.375% Baa2 6,791,490 -------------------------------------------------------------------------------------------------------------------------------- Total Electric Utilities 86,852,743 ------------------------------------------------------------------------------------------------------------------- FOOD PRODUCTS - 0.5% 88,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 8,690,000 -------------------------------------------------------------------------------------------------------------------------------- HOUSEHOLD DURABLES - 0.7% 489,240 Pulte Homes Inc. 7.375% BBB 12,750,818 -------------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES - 0.0% 9,200 General Electric Company, Series GE (CORTS) 6.800% AAA 235,244 -------------------------------------------------------------------------------------------------------------------------------- INSURANCE - 17.9% 1,214,900 Ace Ltd., Series C 7.800% Baa2 31,465,910 73,618 Aegon N.V. 6.875% A- 1,924,375 2,334,600 Aegon N.V., (3) 6.375% A- 60,629,561 62,800 AMBAC Financial Group Inc. 5.950% AA 1,527,296 9,100 AMBAC Financial Group Inc. 5.875% AA 218,946 8,400 Arch Capital Group Limited, Series B 7.785% Baa3 218,064 989,383 Arch Capital Group Limited 8.000% Baa3 26,169,180 479,357 Delphi Financial Group, Inc. 8.000% BBB 12,357,823 1,702,521 EverestRe Group Limited 7.850% Baa1 43,482,385 64,400 Financial Security Assurance Holdings 6.875% AA 1,617,084 709,500 Financial Security Assurance Holdings 6.250% AA 17,836,830 54,300 Lincoln National Capital Trust VI 6.750% A- 1,384,650 12,500 Lincoln National Corporation 6.750% A- 323,125 531,300 Markel Corporation 7.500% BBB- 13,811,144 646,620 PartnerRe Limited, Series C 6.750% BBB+ 16,424,148 27,400 PartnerRe Limited, Series D 6.500% BBB+ 690,480 108,700 PLC Capital Trust III 7.500% BBB+ 2,753,371 453,940 PLC Capital Trust IV 7.250% BBB+ 11,507,379 21,500 PLC Capital Trust V 6.125% BBB+ 534,920 122,600 Protective Life Corporation 7.250% BBB 3,198,634 6,900 Prudential Financial Inc. (CORTS) 6.000% A 170,292 223,000 Prudential PLC 6.750% A 5,717,720 900 Prudential PLC 6.500% A- 22,896 291,285 RenaissanceRe Holdings Limited, Series A 8.100% BBB+ 7,334,556 145,800 RenaissanceRe Holdings Limited, Series B 7.300% BBB 3,737,583 13,468 RenaissanceRe Holdings Limited, Series C 6.080% BBB+ 320,538 24,000 Safeco Capital Trust I (CORTS) 8.750% Baa2 705,240 6,600 Safeco Capital Trust III (CORTS) 8.072% Baa2 171,204 2,600 Safeco Capital Trust IV (CORTS) 8.375% Baa2 73,164 2,600 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 65,104 8,500 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 214,285 711,146 W.R. Berkley Corporation 6.750% BBB- 17,885,322
21 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE -------------------------------------------------------------------------------------------------------------------------------- INSURANCE (continued) 572,200 XL Capital Ltd, Series A 8.000% Baa1 $ 14,448,050 607,617 XL Capital Ltd, Series B 7.625% Baa1 15,554,995 -------------------------------------------------------------------------------------------------------------------------------- Total Insurance 314,496,254 ------------------------------------------------------------------------------------------------------------------- IT SERVICES - 0.0% 16,400 Vertex Industries Inc. (PPLUS) 7.625% A 414,920 -------------------------------------------------------------------------------------------------------------------------------- MEDIA - 3.5% 178,000 CBS Corporation 7.250% BBB 4,466,020 4,100 Comcast Corporation 7.000% BBB+ 106,985 1,364,614 Comcast Corporation 7.000% BBB+ 35,266,811 841,900 Viacom Inc. 6.850% BBB 20,994,881 1,800 Walt Disney Company (CORTS) 6.875% A- 46,260 -------------------------------------------------------------------------------------------------------------------------------- Total Media 60,880,957 ------------------------------------------------------------------------------------------------------------------- MULTI-UTILITIES - 0.2% 119,400 Dominion CNG Capital Trust I 7.800% Baa2 3,027,984 -------------------------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 1.6% 908,811 Nexen Inc. 7.350% Baa3 23,447,324 147,400 TransCanada Pipeline 8.250% A3 3,827,978 -------------------------------------------------------------------------------------------------------------------------------- Total Oil, Gas & Consumable Fuels 27,275,302 ------------------------------------------------------------------------------------------------------------------- PHARMACEUTICALS - 0.0% 8,500 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 215,263 7,500 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 193,125 -------------------------------------------------------------------------------------------------------------------------------- Total Pharmaceuticals 408,388 ------------------------------------------------------------------------------------------------------------------- REAL ESTATE - 22.2% 201,379 AMB Property Corporation, Series P 6.850% Baa2 5,185,509 95,400 AvalonBay Communities, Inc., Series H 8.700% BBB 2,563,398 16,400 BRE Properties, Series B 8.080% BBB- 418,610 105,805 BRE Properties, Series C 6.750% BBB- 2,666,286 30,335 BRE Properties, Series D 6.750% BBB- 759,892 135,925 Developers Diversified Realty Corporation, 8.600% BBB- 3,451,136 Series F 639,813 Developers Diversified Realty Corporation, 8.000% BBB- 16,360,018 Series G 187,823 Developers Diversified Realty Corporation, 7.375% BBB- 4,744,409 Series H 40,467 Developers Diversified Realty Corporation 7.500% BBB- 1,028,266 298,900 Duke Realty Corporation, Series L 6.600% BBB 7,535,269 1,400 Duke Realty Corporation, Series N 7.250% BBB 36,969 220,650 Duke-Weeks Realty Corporation, Series B 7.990% BBB 10,908,384 151,846 Duke-Weeks Realty Corporation 6.950% BBB 3,944,959 5,600 Duke-Weeks Realty Corporation 6.625% BBB 141,512 537,700 Equity Office Properties Trust, Series G 7.750% BBB- 13,528,532 66,850 Equity Residential Properties Trust, Series 8.600% BBB 1,721,388 D 446,000 First Industrial Realty Trust, Inc., Series 8.625% BBB- 12,465,700 C 279,000 First Industrial Realty Trust, Inc., Series 7.250% BBB- 7,145,190 J 1,808,525 HRPT Properties Trust, Series B 8.750% BBB- 46,497,177 71,980 HRPT Properties Trust, Series C 7.125% BBB- 1,881,557 199,550 New Plan Excel Realty Trust, Series D 7.800% BBB- 10,675,925 771,600 New Plan Excel Realty Trust, Series E 7.625% BBB- 20,061,600 1,700 Prologis Trust, Series F 6.750% BBB 43,223 97,728 Prologis Trust, Series G 6.750% BBB 2,494,019 108,300 PS Business Parks, Inc., Series I 6.875% BBB- 2,718,330 110,700 PS Business Parks, Inc., Series K 7.950% BBB- 2,933,550 401,000 PS Business Parks, Inc., Series L 7.600% BBB- 10,297,680 5,500 PS Business Parks, Inc., Series O 7.375% BBB- 140,422 736,270 PS Business Parks, Inc. 7.000% BBB- 18,738,072 234,300 Public Storage, Inc., Series C 6.600% BBB+ 5,843,442 36,000 Public Storage, Inc., Series D 6.180% BBB+ 872,640 38,600 Public Storage, Inc., Series E 6.750% BBB+ 980,440 72,566 Public Storage, Inc., Series F 6.450% BBB+ 1,803,265 128,300 Public Storage, Inc., Series H 6.950% BBB+ 3,312,706 401,300 Public Storage, Inc., Series I 7.250% BBB+ 10,453,865 381,020 Public Storage, Inc., Series K 7.250% BBB+ 9,906,520 137,065 Public Storage, Inc., Series T 7.625% BBB+ 3,423,884 114,900 Public Storage, Inc., Series U 7.625% BBB+ 2,870,202
22
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE -------------------------------------------------------------------------------------------------------------------------------- REAL ESTATE (continued) 148,000 Public Storage, Inc., Series V 7.500% BBB+ $ 3,766,600 2,129 Public Storage, Inc., Series X 6.450% BBB+ 53,693 67,600 Public Storage, Inc., Series Y 6.850% BBB+ 1,668,875 41,400 Public Storage, Inc. 6.750% BBB+ 1,046,646 7,500 Public Storage, Inc. 7.125% BBB+ 195,000 204,997 Realty Income Corporation, Series E 6.750% BBB- 5,169,778 165,900 Realty Income Corporation 7.375% BBB- 4,313,400 325,223 Regency Centers Corporation 7.450% BBB- 8,319,204 245,800 Regency Centers Corporation 7.250% BBB- 6,280,190 326,041 Simon Property Group, Inc., Series G 7.890% BBB 16,628,091 82,000 United Dominion Realty Trust 8.600% BBB- 2,087,720 25,600 Vornado Realty Trust, Series F 6.750% BBB- 644,864 213,940 Vornado Realty Trust, Series G 6.625% BBB- 5,316,409 122,800 Vornado Realty Trust, Series H 6.750% BBB- 3,076,140 220,250 Vornado Realty Trust, Series I 6.625% BBB- 5,486,428 2,489,300 Wachovia Preferred Funding Corporation 7.250% A2 69,924,435 158,600 Weingarten Realty Trust, Series E 6.950% A- 4,094,259 -------------------------------------------------------------------------------------------------------------------------------- Total Real Estate 388,625,678 ------------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 2.3% 1,051,100 Countrywide Capital Trust IV 6.750% BBB+ 26,288,011 534,500 Countrywide Capital Trust V 7.000% BBB+ 13,479,449 17,700 Harris Preferred Capital Corporation, Series 7.375% A1 447,987 A -------------------------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage Finance 40,215,447 ------------------------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES - 1.4% 939,840 United States Cellular Corporation 8.750% A- 24,304,262 -------------------------------------------------------------------------------------------------------------------------------- TOTAL $25 PAR (OR SIMILAR) PREFERRED 1,450,869,985 SECURITIES (COST $1,413,112,611) =================================================================================================================== PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE ---------------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 0.9% (0.6% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 0.6% $ 10,000 Mizuho JGB Investment 9.870% 6/30/48 BBB+ $ 10,600,820 ---------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 0.3% 4,400 Swedbank ForengingsSparbanken AB, 144A 7.500% 9/27/49 A1 4,717,165 ---------------------------------------------------------------------------------------------------------------------------------- $ 14,400 TOTAL CORPORATE BONDS (COST $15,480,334) 15,317,985 ==================================================================================================================================
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE -------------------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED SECURITIES - 56.8% (39.4% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 8.9% 9,100 ABN AMRO North America Holding Capital, 144A 6.523% 12/31/49 A- $ 9,535,744 1,465 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 1,525,087 8,100 BankBoston Capital Trust III 6.103% 6/15/27 Aa3 8,034,350 1,200 BankBoston Capital Trust IV 5.950% 6/08/28 Aa3 1,171,508 4,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 4,141,160 500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 519,888 5,000 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 5,133,910 18,600 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 19,072,347 19,990 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A- 24,147,440 5,050 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A- 5,308,222 17,095 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 20,723,311 20,000 Mellon Capital Trust I, Series A 7.720% 12/01/26 A2 20,824,400 3,600 MUFG Capital Finance 2 4.850% 7/25/56 BBB 4,647,808 3,240 State Street Institutional Capital Trust, 7.940% 12/30/26 A1 3,372,030 144A 19,800 UBS Preferred Funding Trust I 8.622% 10/29/49 AA- 21,889,573 5,000 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 5,246,425 -------------------------------------------------------------------------------------------------------------------------------- Total Capital Markets 155,293,203 ------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 26.2% 19,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 18,900,326 37,250 Abbey National Capital Trust I 8.963% 6/30/50 A 49,835,768
23 Nuveen Quality Preferred Income Fund 2 (JPS) (continued) Portfolio of INVESTMENTS December 31, 2006
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS (continued) 7,100 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R $ 6,993,195 6,500 Bank One Capital III 8.750% 9/01/30 A1 8,551,686 5,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 5,214,575 36,000 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 40,323,276 2,000 Corestates Capital Trust I, 144A 8.000% 12/15/26 A1 2,082,800 3,700 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 3,982,710 1,700 Den Norske Bank, 144A 7.729% 6/29/49 A2 1,835,941 1,500 First Empire Capital Trust I 8.234% 2/01/27 Baa1 1,564,004 1,500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 1,581,195 32,010 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 32,423,409 6,500 HBOS PLC, 144A 6.413% 9/29/49 A1 6,477,393 2,400 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 2,705,998 6,250 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 9,261,038 32,000 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A 35,625,056 8,000 KeyCorp Capital III 7.750% 7/15/29 A3 9,450,680 4,000 KeyCorp Capital VII 5.700% 6/15/35 A3 3,749,228 13,500 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 13,637,336 25,000 M&I Capital Trust A 7.650% 12/01/26 A2 25,878,425 14,000 Nordbanken AB, 144A 8.950% 11/29/49 A 15,208,984 2,000 North Fork Capital Trust I, Capital 8.700% 12/15/26 Baa1 2,091,620 Securities 8,000 North Fork Capital Trust II 8.000% 12/15/27 Baa1 8,448,456 2,000 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 2,095,024 7,000 PNC Preferred Funding Trust 6.517% 3/15/49 A- 7,129,458 2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 2,000,764 12,100 RBS Capital Trust B 6.800% 12/31/49 A1 12,254,154 8,000 Reliance Capital Trust I, Series B 8.170% 5/01/28 N/R 8,520,160 500 Republic New York Capital II, Capital 7.530% 12/04/26 A1 519,203 Securities 17,500 Royal Bank of Scotland Group PLC 9.118% 3/31/49 A1 19,400,815 5,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 4,943,015 9,000 St. George Funding Company LLC, 144A 8.485% 12/31/47 A3 9,456,345 13,600 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 14,918,724 9,000 Unicredito Italiano Capital Trust, 144A 9.200% 4/05/51 A- 10,107,090 7,500 Union Planters Capital Trust A 8.200% 12/15/26 A2 7,812,450 240 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 26,430,000 28,300 Washington Mutual Preferred Funding Cayman, 7.250% 3/15/49 BBB 28,240,259 Series A-1, 144A ----------------------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 459,650,560 ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 4.0% 1,000 BNP Paribas Capital Trust, 144A 9.003% 12/29/49 A+ 1,118,733 2,750 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 2,770,892 6,800 Fulton Capital Trust I 6.290% 2/01/36 A3 6,719,107 22,085 JPM Capital Trust II 7.950% 2/01/27 A1 22,982,733 15,300 JPMorgan Chase Capital Trust XVIII 6.950% 8/17/36 A2 16,603,866 19,300 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 20,120,250 ----------------------------------------------------------------------------------------------------------------------------------- Total Diversified Financial Services 70,315,581 ------------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 2.0% 30,250 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB 35,373,594 ----------------------------------------------------------------------------------------------------------------------------------- INSURANCE - 10.8% 14,280 Ace Capital Trust II 9.700% 4/01/30 Baa1 19,630,545 28,000 American General Institutional Capital, 144A 8.125% 3/15/46 Aa3 35,946,176 9,600 Great West Life and Annuity Insurance 7.153% 5/16/46 A- 10,190,419 Company 1,400 Lincoln National Corporation, Capital 7.000% 5/17/66 A- 1,486,400 Securities 2,000 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 1,957,186 8,100 MetLife Inc. 6.400% 12/15/66 A3 8,164,436 6,000 MIC Financing Trust I 8.375% 2/01/27 A+ 6,008,412 1,200 Nationwide Financial Services Capital Trust 7.899% 3/01/37 Baa1 1,431,502 12,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 12,453,972 10,250 Prudential PLC 6.500% 6/29/49 A 10,339,595 37,000 Sun Life Canada Capital Trust, Capital 8.526% 5/06/47 AA- 38,864,874 Securities, 144A 40,500 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 42,455,057 ----------------------------------------------------------------------------------------------------------------------------------- Total Insurance 188,928,574 -------------------------------------------------------------------------------------------------------------------
24
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 0.8% 3,680 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 $ 3,686,227 10,750 KN Capital Trust III 7.630% 4/15/28 Baa3 10,013,754 ----------------------------------------------------------------------------------------------------------------------------------- Total Oil, Gas & Consumable Fuels 13,699,981 ------------------------------------------------------------------------------------------------------------------- ROAD & RAIL - 0.8% 14,400 Burlington Northern Santa Fe Funding Trust I 6.613% 12/15/55 BBB 14,356,598 ----------------------------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 3.3% 1,000 Caisse Nationale Des Caisses d'Epargne et de 6.750% 1/27/49 A+ 1,003,262 Prevoyance 12,811 Countrywide Capital Trust III, Series B 8.050% 6/15/27 BBB+ 14,488,101 11,825 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 12,504,476 13,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 13,555,347 15,600 Washington Mutual Preferred Funding Trust II 6.665% 3/15/57 BBB 15,670,122 ----------------------------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage Finance 57,221,308 ------------------------------------------------------------------------------------------------------------------- TOTAL CAPITAL PREFERRED SECURITIES (COST 994,839,399 $980,461,892) ===================================================================================================================
SHARES DESCRIPTION (1) VALUE -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT COMPANIES - 2.7% (1.9% OF TOTAL INVESTMENTS) 195,849 Blackrock Preferred and Corporate Income $ 4,324,346 Strategies Fund 671,322 Blackrock Preferred Income Strategies Fund 13,580,844 553,060 Flaherty and Crumrine/Claymore Preferred 11,841,015 Securities Income Fund Inc. 293,280 Flaherty and Crumrine/Claymore Total Return 6,299,654 Fund Inc. 542,319 John Hancock Preferred Income Fund III 12,153,365 -------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT COMPANIES (COST 48,199,224 $44,565,307) ===================================================================================================================
PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE -------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 0.7% (0.5% OF TOTAL INVESTMENTS) $ 13,051 Repurchase Agreement with Fixed Income 4.580% 1/02/07 $ 13,050,540 Clearing Corporation, dated 12/29/06, repurchase price $13,057,181, collateralized by $11,365,000 U.S. Treasury Bonds, 6.250%, due 8/15/23, value $13,312,722 ========== ------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $13,050,540) 13,050,540 =================================================================================================================== TOTAL INVESTMENTS (COST $2,468,765,297) - 144.0% 2,524,368,388 =================================================================================================================== OTHER ASSETS LESS LIABILITIES - 1.6% 29,023,917 =================================================================================================================== PREFERRED SHARES, AT LIQUIDATION VALUE - (45.6)% (800,000,000) =================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES - 100% $1,753,392,305 ===================================================================================================================
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2006:
FUND FIXED RATE UNREALIZED NOTIONAL PAY/RECEIVE FLOATING FIXED RATE PAYMENT TERMINATION APPRECIATION COUNTERPARTY AMOUNT FLOATING RATE RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION) ----------------------------------------------------------------------------------------------------------------------------- Citigroup Inc. $200,000,000 Receive 1-Month USD-LIBOR 3.375% Monthly 11/06/07 $ 3,401,228 Citigroup Inc. 200,000,000 Receive 1-Month USD-LIBOR 3.910 Monthly 11/06/09 5,922,798 ----------------------------------------------------------------------------------------------------------------------------- $ 9,324,026 ============================================================================================================================= USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be below investment grade. (3) Investment is eligible for the Dividends Received Deduction. N/R Not rated. 144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. CORTS Corporate Backed Trust Securities. PCARS Public Credit and Repackaged Securities. PPLUS PreferredPlus Trust. SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements. 25 Nuveen Quality Preferred Income Fund 3 (JHP) Portfolio of INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- $25 PAR (OR SIMILAR) PREFERRED SECURITIES - 91.2% (61.8% OF TOTAL INVESTMENTS) AUTOMOBILES - 0.1% 8,000 DaimlerChrysler AG (CORTS) 7.875% Baa1 $ 202,000 ----------------------------------------------------------------------------------------------------------------------------- CAPITAL MARKETS - 8.2% 21,206 Bear Stearns Capital Trust III 7.800% A2 539,693 8,500 BNY Capital Trust V, Series F 5.950% A1 210,205 59,900 Compass Capital Trust III 7.350% A3 1,502,891 39,900 CSFB USA, Series 2002-10 (SATURNS) 7.000% AA- 1,011,465 5,700 Goldman Sachs Group Inc., Series GSC-3 (PPLUS) 6.000% A1 137,598 Goldman Sachs Group Inc., Series GSC-4 Class A 7,100 (PPLUS) 6.000% A1 171,465 5,300 Goldman Sachs Group Inc. (SATURNS) 5.750% AA- 125,557 Lehman Brothers Holdings Capital Trust III, Series 357,800 K 6.375% A2 8,977,202 200 Lehman Brothers Holdings Capital Trust V, Series M 6.000% A2 4,960 11,700 Merrill Lynch Capital Trust II 8.000% A1 296,595 70,800 Merrill Lynch Preferred Capital Trust III 7.000% A1 1,808,940 20,400 Merrill Lynch Preferred Capital Trust IV 7.120% A1 524,688 84,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 2,176,676 41,900 Morgan Stanley (PPLUS) 7.050% Aa3 1,068,031 80,100 Morgan Stanley Capital Trust II 7.250% A1 2,034,540 187,741 Morgan Stanley Capital Trust III 6.250% A1 4,714,177 75,700 Morgan Stanley Capital Trust VI 6.600% A1 1,937,920 18,600 Morgan Stanley Capital Trust VII 6.600% A2 469,464 ----------------------------------------------------------------------------------------------------------------------------- Total Capital Markets 27,712,067 ---------------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 15.1% 108,898 ABN AMRO Capital Fund Trust VII 6.080% A 2,722,450 38,300 ASBC Capital I 7.625% Baa1 966,309 55,900 BAC Capital Trust V 6.000% Aa3 1,390,233 10,200 BAC Capital Trust VIII 6.000% Aa3 253,266 3,800 BAC Capital Trust X 6.250% Aa3 95,228 188,983 Banco Santander, 144A 6.800% A2 4,748,198 28,135 Banco Santander, (3) 6.410% A2 713,504 3,800 BancorpSouth Capital Trust I 8.150% Baa2 95,266 244,100 Banesto Holdings, Series A, 144A 10.500% A2 7,384,025 33,200 Bank One Capital Trust VI 7.200% A1 842,284 6,300 BankNorth Capital Trust II 8.000% A3 158,634 32,400 Capital One Capital II Corporation 7.500% Baa1 849,489 24,800 Chittenden Capital Trust I 8.000% Baa1 626,448 40,500 Citizens Funding Trust I 7.500% Baa2 1,058,063 44,500 Cobank ABC, 144A, (3) 7.000% N/R 2,265,095 57,500 Comerica Capital Trust I 7.600% A3 1,450,150 35,816 Fleet Capital Trust VIII 7.200% Aa3 899,698 141,700 HSBC Finance Corporation 6.875% AA- 3,641,690 160,500 Keycorp Capital Trust IX 6.750% Baa1 4,037,586 5,733 KeyCorp Capital Trust V 5.875% A3 137,420 245,100 National City Capital Trust II 6.625% A3 6,196,447 16,500 National Westminster Bank PLC, Series B 7.875% Aa3 411,345 12,200 PNC Capital Trust 6.125% A3 303,658 22,200 Royal Bank of Scotland Group PLC, Series M 6.400% A1 566,100 104,465 Royal Bank of Scotland Group PLC, Series N 6.350% A1 2,664,902 16,100 USB Capital Trust XI 6.600% A1 408,618 19,700 VNB Capital Trust I 7.750% Baa1 498,213 16,000 Wells Fargo Capital Trust IX 5.625% Aa2 380,320 51,000 Wells Fargo Capital Trust V 7.000% Aa2 1,284,690 6,800 Wells Fargo Capital Trust VI 6.950% Aa2 170,340 65,925 Wells Fargo Capital Trust VII 5.850% Aa2 1,619,118 80,800 Zions Capital Trust B 8.000% Baa1 2,059,592 ----------------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 50,898,379 ---------------------------------------------------------------------------------------------------------------- COMPUTERS & PERIPHERALS - 0.0% 3,900 IBM Inc., Trust Certificates, Series 2001-2 7.100% A+ 98,358 -----------------------------------------------------------------------------------------------------------------------------
26
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- CONSUMER FINANCE - 0.6% 77,100 HSBC Finance Corporation, (3) 6.360% A $ 1,998,432 ----------------------------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 9.1% 377,415 BAC Capital Trust XII 6.875% Aa3 9,924,126 45,900 CIT Group Incorporated (CORTS) 7.750% A3 1,220,940 13,800 Citigroup Capital XIV 6.875% Aa2 362,388 55,729 Citigroup Capital XV 6.500% Aa3 1,401,935 2,300 Citigroup, Series CIT (CORTS) 6.750% A3 58,903 4,300 General Electric Capital Corporation (CORTS) 6.000% AAA 106,511 12,550 General Electric Capital Corporation 6.450% AAA 325,171 504,300 ING Group N.V. 7.200% A 12,894,948 142,900 ING Group N.V. 7.050% A 3,628,231 JPMorgan Chase Trust, Series 2002-6, Class A 25,800 (SATURNS) 7.125% A1 667,962 Royal Bank of Scotland Public Limited Company, 6,300 Series 2006Q 6.750% A1 166,005 ----------------------------------------------------------------------------------------------------------------------------- Total Diversified Financial Services 30,757,120 ---------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 0.8% 32,500 AT&T Inc. 7.000% A 818,675 3,200 BellSouth Capital Funding (CORTS) 7.100% A 82,400 4,600 BellSouth Corporation (CORTS) 7.000% Aa3 115,736 6,900 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A 172,569 9,000 BellSouth Corporation, Series BLS (CORTS) 7.000% A 225,540 15,700 BellSouth Inc. (CORTS) 7.000% A 403,490 9,400 BellSouth Telecommunications (PPLUS) 7.300% A 236,222 25,600 Verizon Communications (CORTS) 7.625% A 657,920 ----------------------------------------------------------------------------------------------------------------------------- Total Diversified Telecommunication Services 2,712,552 ---------------------------------------------------------------------------------------------------------------- ELECTRIC UTILITIES - 2.5% 55,200 Entergy Louisiana LLC 7.600% A- 1,386,072 203,447 Entergy Mississippi Inc. 7.250% A- 5,194,002 23,800 FPL Group Capital Inc. 6.600% A3 601,664 National Rural Utilities Cooperative Finance 5,200 Corporation 7.400% A3 131,820 National Rural Utilities Cooperative Finance 2,300 Corporation 6.100% A3 56,442 National Rural Utilities Cooperative Finance 33,018 Corporation 5.950% A3 797,385 8,900 Virginia Power Capital Trust 7.375% Baa2 227,662 ----------------------------------------------------------------------------------------------------------------------------- Total Electric Utilities 8,395,047 ---------------------------------------------------------------------------------------------------------------- FOOD PRODUCTS - 0.5% 17,000 Dairy Farmers of America Inc., 144A, (3) 7.875% BBB- 1,678,750 ----------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES - 0.0% 1,400 General Electric Company, Series GE (CORTS) 6.800% AAA 35,798 ----------------------------------------------------------------------------------------------------------------------------- INSURANCE - 20.9% 194,400 Ace Ltd., Series C 7.800% Baa2 5,034,960 15,686 Aegon N.V. 6.875% A- 410,032 406,738 Aegon N.V., (3) 6.375% A- 10,562,985 32,400 AMBAC Financial Group Inc. 5.950% AA 787,968 94,800 AMBAC Financial Group Inc. 5.875% AA 2,280,888 195,649 Arch Capital Group Limited 8.000% Baa3 5,174,916 138,700 Delphi Financial Group, Inc. 8.000% BBB 3,575,686 45,867 EverestRe Capital Trust II 6.200% Baa1 1,095,304 294,716 EverestRe Group Limited 7.850% Baa1 7,527,047 151,100 Financial Security Assurance Holdings 6.250% AA 3,798,654 174,900 PartnerRe Limited, Series C 6.750% BBB+ 4,442,460 3,000 PartnerRe Limited, Series D 6.500% BBB+ 75,600 57,100 PLC Capital Trust III 7.500% BBB+ 1,446,343 46,400 PLC Capital Trust IV 7.250% BBB+ 1,176,240 4,500 PLC Capital Trust V 6.125% BBB+ 111,960 324,300 Protective Life Corporation 7.250% BBB 8,460,987 53,244 Prudential PLC 6.750% A 1,365,176 37,303 RenaissanceRe Holdings Limited, Series A 8.100% BBB+ 939,290 60,401 RenaissanceRe Holdings Limited, Series B 7.300% BBB 1,548,380 6,500 Safeco Capital Trust IV (CORTS) 8.375% Baa2 182,910 33,000 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 826,320 7,000 W.R. Berkley Corporation 6.750% BBB- 176,050 65,100 XL Capital Ltd, Series A 8.000% Baa1 1,643,775 294,200 XL Capital Ltd, Series B 7.625% Baa1 7,531,520 ----------------------------------------------------------------------------------------------------------------------------- Total Insurance 70,175,451 ----------------------------------------------------------------------------------------------------------------
27 Nuveen Quality Preferred Income Fund 3 (JHP) (continued) Portfolio of INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- MEDIA - 3.8% 1,700 CBS Corporation 7.250% BBB $ 42,653 323,000 Comcast Corporation 7.000% BBB+ 8,428,297 15,400 Comcast Corporation 7.000% BBB+ 397,995 156,400 Viacom Inc. 6.850% BBB 3,900,225 ----------------------------------------------------------------------------------------------------------------------------- Total Media 12,769,170 ---------------------------------------------------------------------------------------------------------------- MULTI-UTILITIES - 0.1% 17,900 Dominion CNG Capital Trust I 7.800% Baa2 453,944 ----------------------------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 1.8% 195,200 Nexen Inc. 7.350% Baa3 5,036,160 34,700 TransCanada Pipeline 8.250% A3 901,159 ----------------------------------------------------------------------------------------------------------------------------- Total Oil, Gas & Consumable Fuels 5,937,319 ---------------------------------------------------------------------------------------------------------------- PHARMACEUTICALS - 0.1% 8,600 Bristol-Myers Squibb Company (CORTS) 6.250% A+ 217,795 4,300 Bristol-Myers Squibb Company Trust (CORTS) 6.800% A+ 110,725 ----------------------------------------------------------------------------------------------------------------------------- Total Pharmaceuticals 328,520 ---------------------------------------------------------------------------------------------------------------- REAL ESTATE - 23.7% 10,700 AvalonBay Communities, Inc., Series H 8.700% BBB 287,509 29,200 BRE Properties, Series C 6.750% BBB- 735,840 8,029 BRE Properties, Series D 6.750% BBB- 201,126 Developers Diversified Realty Corporation, Series 26,700 F 8.600% BBB- 677,913 Developers Diversified Realty Corporation, Series 171,200 G 8.000% BBB- 4,377,584 Developers Diversified Realty Corporation, Series 32,000 H 7.375% BBB- 808,320 112,900 Duke Realty Corporation, Series L 6.600% BBB 2,846,209 136,700 Duke Realty Corporation, Series N 7.250% BBB 3,609,741 149,000 Duke-Weeks Realty Corporation 6.950% BBB 3,871,020 61,444 Equity Office Properties Trust, Series G 7.750% BBB- 1,545,931 20,800 Equity Residential Properties Trust, Series D 8.600% BBB 535,600 223,471 First Industrial Realty Trust, Inc., Series C 8.625% BBB- 6,246,014 145,900 First Industrial Realty Trust, Inc., Series J 7.250% BBB- 3,736,499 247,207 HRPT Properties Trust, Series B 8.750% BBB- 6,355,692 129,611 HRPT Properties Trust, Series C 7.125% BBB- 3,388,032 21,000 New Plan Excel Realty Trust, Series D 7.800% BBB- 1,123,500 36,300 New Plan Excel Realty Trust, Series E 7.625% BBB- 943,800 20,000 Prologis Trust, Series G 6.750% BBB 510,400 8,300 PS Business Parks, Inc., Series F 8.750% BBB- 207,417 120,000 PS Business Parks, Inc., Series L 7.600% BBB- 3,081,600 136,000 PS Business Parks, Inc. 7.000% BBB- 3,461,200 16,500 Public Storage, Inc., Series F 6.450% BBB+ 410,025 2,100 Public Storage, Inc., Series H 6.950% BBB+ 54,222 194,262 Public Storage, Inc., Series K 7.250% BBB+ 5,050,812 31,100 Public Storage, Inc., Series T 7.625% BBB+ 776,878 15,200 Public Storage, Inc., Series U 7.625% BBB+ 379,696 17,000 Public Storage, Inc., Series V 7.500% BBB+ 432,650 3,700 Public Storage, Inc., Series X 6.450% BBB+ 93,314 77,300 Public Storage, Inc., Series Y 6.850% BBB+ 1,908,344 3,000 Public Storage, Inc. 7.125% BBB+ 78,000 115,500 Public Storage, Inc. 6.750% BBB+ 2,919,990 53,800 Realty Income Corporation, Series E 6.750% BBB- 1,356,771 5,900 Realty Income Corporation 7.375% BBB- 153,400 30,972 Regency Centers Corporation 7.450% BBB- 792,264 84,500 Regency Centers Corporation 7.250% BBB- 2,158,975 68,600 Simon Property Group, Inc., Series G 7.890% BBB 3,498,600 37,900 United Dominion Realty Trust 8.600% BBB- 964,934 61,800 Vornado Realty Trust, Series G 6.625% BBB- 1,535,730 7,500 Vornado Realty Trust, Series I 6.625% BBB- 186,825 262,800 Wachovia Preferred Funding Corporation 7.250% A2 7,382,052 39,900 Weingarten Realty Trust, Series E 6.950% A- 1,030,019 ----------------------------------------------------------------------------------------------------------------------------- Total Real Estate 79,714,448 ---------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 2.7% 241,430 Countrywide Capital Trust IV 6.750% BBB+ 6,038,164 117,700 Countrywide Capital Trust V 7.000% BBB+ 2,968,253 3,300 Harris Preferred Capital Corporation, Series A 7.375% A1 83,523 ----------------------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage Finance 9,089,940 ----------------------------------------------------------------------------------------------------------------
28
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES - 1.2% 157,500 United States Cellular Corporation 8.750% A- $ 4,072,950 ----------------------------------------------------------------------------------------------------------------------------- TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES (COST $302,534,553) 307,030,245 ================================================================================================================
PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE ----------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 1.0% (0.7% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 1.0% $ 3,000 Mizuho JGB Investment 9.870% 6/30/48 BBB+ $ 3,180,246 ----------------------------------------------------------------------------------------------------------------------------- $ 3,000 TOTAL CORPORATE BONDS (COST $3,191,356) 3,180,246 =============================================================================================================================
PRINCIPAL AMOUNT (000)/ RATINGS SHARES DESCRIPTION (1) COUPON MATURITY (2) VALUE ---------------------------------------------------------------------------------------------------------------------- CAPITAL PREFERRED SECURITIES - 51.3% (34.7% OF TOTAL INVESTMENTS) CAPITAL MARKETS - 8.7% 1,800 ABN AMRO North America Holding Capital, 144A 6.523% 12/31/49 A- $ 1,886,191 1,000 Bank of New York Capital I, Series B 7.970% 12/31/26 A1 1,041,015 1,700 BankBoston Capital Trust III 6.103% 6/15/27 Aa3 1,686,222 1,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 1,035,290 500 BT Preferred Capital Trust II 7.875% 2/25/27 A2 519,888 250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 256,696 3,750 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 3,845,231 2,900 Dresdner Funding Trust I, 144A 8.151% 6/30/31 A- 3,503,130 2,000 First Hawaiian Capital Trust I, Series B 8.343% 7/01/27 A- 2,102,266 8,485 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 10,285,889 700 MUFG Capital Finance 2 4.850% 7/25/56 BBB 903,740 2,000 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 2,098,570 ---------------------------------------------------------------------------------------------------------------------- Total Capital Markets 29,164,128 --------------------------------------------------------------------------------------------------------- COMMERCIAL BANKS - 21.7% 2,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 AA- 1,989,508 1,500 Abbey National Capital Trust I 8.963% 6/30/50 A 2,006,810 1,900 AgFirst Farm Credit Bank 7.300% 12/15/53 N/R 1,871,418 1,500 BankBoston Capital Trust II, Series B 7.750% 12/15/26 Aa3 1,559,867 500 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 521,458 6,200 Barclays Bank PLC, 144A 8.550% 6/15/49 Aa3 6,944,564 900 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 968,767 400 Den Norske Bank, 144A 7.729% 6/29/49 A2 431,986 1,000 First Empire Capital Trust I 8.234% 2/01/27 Baa1 1,042,669 500 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 527,065 6,200 HBOS Capital Funding LP, Notes 6.850% 3/23/49 A1 6,280,073 300 HBOS PLC, 144A 6.413% 9/29/49 A1 298,957 1,430 HSBC USA Capital Trust II, 144A 8.380% 5/15/27 A 1,501,918 2,500 KBC Bank Fund Trust III, 144A 9.860% 5/02/50 A 2,783,208 2,500 Lloyds TSB Bank PLC, Subordinated Note 6.900% 11/22/49 Aa2 2,525,433 4,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 Baa1 4,183,240 3,150 Peoples Heritage Capital Trust I, Series B 9.060% 2/01/27 A3 3,299,663 5,000 PNC Institutional Capital Trust B, 144A 8.315% 5/15/27 A3 5,245,025 1,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 1,000,382 4,500 RBS Capital Trust B 6.800% 12/31/49 A1 4,557,330 2,500 St. George Funding Company LLC, 144A 8.485% 12/31/47 A3 2,626,763 2,660 Swedbank ForeningsSparbanken AB, 144A 9.000% 9/17/50 A2 2,917,927 4,600 Union Planters Capital Trust A 8.200% 12/15/26 A2 4,791,636 70 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 7,708,750 Washington Mutual Preferred Funding Cayman, Series 5,600 A-1, 144A 7.250% 3/15/49 BBB 5,588,178 ---------------------------------------------------------------------------------------------------------------------- Total Commercial Banks 73,172,595 --------------------------------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 3.2% 1,000 BNP Paribas Capital Trust 7.200% 12/31/49 A+ 1,007,597 1,300 Fulton Capital Trust I 6.290% 2/01/36 A3 1,284,535 6,000 JPMorgan Chase Capital Trust XVIII 6.950% 8/17/36 A2 6,511,320 1,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 1,876,500 ---------------------------------------------------------------------------------------------------------------------- Total Diversified Financial Services 10,679,952 ---------------------------------------------------------------------------------------------------------
29 Nuveen Quality Preferred Income Fund 3 (JHP) (continued) Portfolio of INVESTMENTS December 31, 2006
PRINCIPAL AMOUNT (000)/ SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE --------------------------------------------------------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 1.8% 5,260 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 BBB $ 6,150,913 --------------------------------------------------------------------------------------------------------------------------- INSURANCE - 12.1% 3,450 Ace Capital Trust II 9.700% 4/01/30 Baa1 4,742,674 2,600 Great West Life and Annuity Insurance Company 7.153% 5/16/46 A- 2,759,905 1,500 Lincoln National Corporation, Capital Securities 7.000% 5/17/66 A- 1,592,571 750 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 BBB+ 733,945 1,200 MetLife Inc. 6.400% 12/15/66 A3 1,209,546 10,000 MIC Financing Trust I 8.375% 2/01/27 A+ 10,014,019 400 Nationwide Financial Services Capital Trust 7.899% 3/01/37 Baa1 477,167 2,000 Oil Insurance Limited, 144A 7.550% 12/30/49 Baa1 2,075,662 1,500 Prudential PLC 6.500% 6/29/49 A 1,513,112 Sun Life Canada Capital Trust, Capital Securities, 7,000 144A 8.526% 5/06/47 AA- 7,352,814 8,000 Zurich Capital Trust I, 144A 8.376% 6/01/37 A- 8,386,184 --------------------------------------------------------------------------------------------------------------------------- Total Insurance 40,857,599 ----------------------------------------------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS - 0.9% 3,000 KN Capital Trust III 7.630% 4/15/28 Baa3 2,794,536 --------------------------------------------------------------------------------------------------------------------------- ROAD & RAIL - 0.8% 2,785 Burlington Northern Santa Fe Funding Trust I 6.613% 12/15/55 BBB 2,776,606 --------------------------------------------------------------------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE - 2.1% 4,225 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 4,467,773 2,600 Washington Mutual Preferred Funding Trust II 6.665% 3/15/57 BBB 2,611,687 --------------------------------------------------------------------------------------------------------------------------- Total Thrifts & Mortgage Finance 7,079,460 ----------------------------------------------------------------------------------------------------------- TOTAL CAPITAL PREFERRED SECURITIES (COST $173,064,729) 172,675,789 ===========================================================================================================
SHARES DESCRIPTION (1) VALUE ---------------------------------------------------------------------------------------------------------------------- INVESTMENT COMPANIES - 2.9% (2.0% OF TOTAL INVESTMENTS) Blackrock Preferred and Corporate Income 40,981 Strategies Fund $ 904,860 141,978 Blackrock Preferred Income Strategies Fund 2,872,215 Flaherty and Crumrine/Claymore Preferred 110,083 Securities Income Fund Inc. 2,356,877 Flaherty and Crumrine/Claymore Total Return Fund 63,742 Inc. 1,369,178 107,629 John Hancock Preferred Income Fund III 2,411,966 ---------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT COMPANIES (COST $9,196,819) 9,915,096 =========================================================================================================
PRINCIPAL AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE ----------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 1.2% (0.8% OF TOTAL INVESTMENTS) $ 4,053 Repurchase Agreement with Fixed Income Clearing 4.580% 1/02/07 $ 4,052,634 Corporation, dated 12/29/06, repurchase price $4,054,696, collateralized by $3,530,000 U.S. Treasury Bonds, 6.250%, due 8/15/23, value $4,134,968 ========== -------------------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (COST $4,052,634) 4,052,634 ==================================================================================================================== TOTAL INVESTMENTS (COST $492,040,091) - 147.6% 496,854,010 ==================================================================================================================== OTHER ASSETS LESS LIABILITIES - 1.7% 5,686,295 ==================================================================================================================== PREFERRED SHARES, AT LIQUIDATION VALUE - (49.3)% (166,000,000) ==================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 336,540,305 ====================================================================================================================
30 INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2006:
FUND FIXED RATE UNREALIZED NOTIONAL PAY/RECEIVE FIXED RATE PAYMENT TERMINATION APPRECIATION COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION) ------------------------------------------------------------------------------------------------------------------ Citigroup Inc. $42,000,000 Receive 1-Month USD-LIBOR 3.255% Monthly 2/06/08 $ 979,663 Citigroup Inc. 42,000,000 Receive 1-Month USD-LIBOR 3.815 Monthly 2/06/10 1,481,925 JPMorgan 21,000,000 Receive 1-Month USD-LIBOR 5.318 Monthly 5/06/07 3,941 ------------------------------------------------------------------------------------------------------------------ $ 2,465,529 ================================================================================================================== USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate)
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by Standard & Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be below investment grade. (3) Investment is eligible for the Dividends Received Deduction. N/R Not rated. 144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. CORTS Corporate Backed Trust Securities. PPLUS PreferredPlus Trust. SATURNS Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements. 31 Statement of ASSETS AND LIABILITIES December 31, 2006
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) ----------------------------------------------------------------------------------------------------------------- ASSETS Investments, at value (cost $1,313,516,724, $2,468,765,297 and $492,040,091, respectively) $1,336,660,653 $2,524,368,388 $496,854,010 Cash 272,000 493,500 148,050 Unrealized appreciation on interest rate swaps 2,795,289 9,324,026 2,465,529 Receivables: Dividends 2,213,476 3,448,271 992,738 Interest 8,845,489 14,971,036 2,390,803 Investments sold 5,115 2,827,893 135,337 Reclaims -- 41,338 7,211 Other assets 93,420 171,670 21,742 ----------------------------------------------------------------------------------------------------------------- Total assets 1,350,885,442 2,555,646,122 503,015,420 ----------------------------------------------------------------------------------------------------------------- LIABILITIES Accrued expenses: Management fees 622,490 1,115,733 241,192 Other 354,112 606,817 125,715 FundPreferred share dividends payable 300,477 531,267 108,208 ----------------------------------------------------------------------------------------------------------------- Total liabilities 1,277,079 2,253,817 475,115 ----------------------------------------------------------------------------------------------------------------- FundPreferred shares, at liquidation value 440,000,000 800,000,000 166,000,000 ----------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares $ 909,608,363 $1,753,392,305 $336,540,305 ----------------------------------------------------------------------------------------------------------------- Common shares outstanding 64,505,441 119,643,469 23,661,035 ----------------------------------------------------------------------------------------------------------------- Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 14.10 $ 14.66 $ 14.22 ----------------------------------------------------------------------------------------------------------------- NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: ----------------------------------------------------------------------------------------------------------------- Common shares, $.01 par value per share $ 645,054 $ 1,196,435 $ 236,610 Paid-in surplus 903,151,933 1,687,575,110 331,523,615 Undistributed (Over-distribution of) net investment income (1,329,743) (3,968,873) (881,169) Accumulated net realized gain (loss) from investments and derivative transactions (18,799,499) 3,659,864 (1,618,715) Net unrealized appreciation (depreciation) of investments and derivative transactions 25,940,618 64,929,769 7,279,964 ----------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares $ 909,608,363 $1,753,392,305 $336,540,305 ----------------------------------------------------------------------------------------------------------------- Authorized shares: Common Unlimited Unlimited Unlimited FundPreferred Unlimited Unlimited Unlimited -----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 32 Statement of OPERATIONS Year Ended December 31, 2006
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) ------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Dividends (net of foreign tax withheld of $0, $712 and $0, respectively) $ 52,851,992 $103,603,604 $22,137,235 Interest 38,848,142 72,155,803 12,316,060 ------------------------------------------------------------------------------------------------------------ Total investment income 91,700,134 175,759,407 34,453,295 ------------------------------------------------------------------------------------------------------------ EXPENSES Management fees 11,584,235 21,193,520 4,420,593 FundPreferred shares - auction fees 1,100,000 2,000,000 415,000 FundPreferred shares - dividend disbursing agent fees 28,500 39,977 13,500 Shareholders' servicing agent fees and expenses 11,644 15,728 2,712 Custodian's fees and expenses 285,735 491,198 125,009 Trustees' fees and expenses 28,737 53,370 10,580 Professional fees 59,625 100,089 30,566 Shareholders' reports - printing and mailing expenses 190,198 347,825 71,118 Stock exchange listing fees 23,557 43,686 9,823 Investor relations expense 143,086 264,356 54,369 Other expenses 44,073 54,420 24,504 ------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 13,499,390 24,604,169 5,177,774 Custodian fee credit (17,272) (7,934) (2,264) Expense reimbursement (4,283,386) (8,104,950) (1,594,196) ------------------------------------------------------------------------------------------------------------ Net expenses 9,198,732 16,491,285 3,581,314 ------------------------------------------------------------------------------------------------------------ Net investment income 82,501,402 159,268,122 30,871,981 ------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments 132,407 (990,466) (2,688,895) Foreign currencies 563 1,066 208 Interest rate swaps 2,298,167 5,781,508 1,379,809 Change in net unrealized appreciation (depreciation) of: Investments (940,681) (5,130,313) 3,328,270 Foreign currencies 1,400 2,652 516 Interest rate swaps (215,813) (1,630,640) (567,278) ------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) 1,276,043 (1,966,193) 1,452,630 ------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS From net investment income (20,743,697) (37,501,376) (7,912,599) From accumulated net realized gains -- -- -- ------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to FundPreferred shareholders (20,743,697) (37,501,376) (7,912,599) ------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations $ 63,033,748 $119,800,553 $24,412,012 ------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 33 Statement of CHANGES IN NET ASSETS
QUALITY PREFERRED INCOME (JTP) QUALITY PREFERRED INCOME 2 (JPS) ------------------------------- --------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/06 12/31/05 12/31/06 12/31/05 --------------------------------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ 82,501,402 $ 83,656,560 $ 159,268,122 $ 160,397,786 Net realized gain (loss) from: Investments 132,407 10,256,942 (990,466) 29,542,155 Foreign currencies 563 -- 1,066 -- Futures -- -- -- 626,810 Interest rate swaps 2,298,167 (1,997,325) 5,781,508 (1,219,301) Change in net unrealized appreciation (depreciation) of: Investments (940,681) (58,087,700) (5,130,313) (120,450,106) Foreign currencies 1,400 -- 2,652 -- Futures -- -- -- 313,500 Interest rate swaps (215,813) 6,484,892 (1,630,640) 9,852,715 Distributions to FundPreferred shareholders: From net investment income (20,743,697) (13,746,475) (37,501,376) (21,967,419) From accumulated net realized gains -- -- -- (2,969,505) --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from operations 63,033,748 26,566,894 119,800,553 54,126,635 --------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (69,630,812) (72,552,099) (133,434,611) (138,788,080) From accumulated net realized gains -- -- -- (22,079,378) Tax return of capital -- -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Decrease in net assets applicable to Common shares from distributions to Common shareholders (69,630,812) (72,552,099) (133,434,611) (160,867,458) --------------------------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Net proceeds from Common shares issued to shareholders due to reinvestment of distributions 607,703 -- 1,483,854 -- --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from capital share transactions 607,703 -- 1,483,854 -- --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares (5,989,361) (45,985,205) (12,150,204) (106,740,823) --------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the beginning of year 915,597,724 961,582,929 1,765,542,509 1,872,283,332 --------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the end of year $909,608,363 $915,597,724 $1,753,392,305 $1,765,542,509 --------------------------------------------------------------------------------------------------------------------------------- Undistributed (Over-distribution of) net investment income at the end of year $ (1,329,743) $ 8,725,182 $ (3,968,873) $ 12,953,839 ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 34
QUALITY PREFERRED INCOME 3 (JHP) --------------------------------- YEAR ENDED YEAR ENDED 12/31/06 12/31/05 ----------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ 30,871,981 $ 31,177,398 Net realized gain (loss) from: Investments (2,688,895) 2,801,561 Foreign currencies 208 -- Futures -- -- Interest rate swaps 1,379,809 (22,484) Change in net unrealized appreciation (depreciation) of: Investments 3,328,270 (21,236,219) Foreign currencies 516 -- Futures -- -- Interest rate swaps (567,278) 2,007,568 Distributions to FundPreferred shareholders: From net investment income (7,912,599) (4,959,898) From accumulated net realized gains -- (324,959) ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from operations 24,412,012 9,442,967 ----------------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (25,661,097) (27,602,875) From accumulated net realized gains -- (2,179,859) Tax return of capital (327,326) -- ----------------------------------------------------------------------------------------------- Decrease in net assets applicable to Common shares from distributions to Common shareholders (25,988,423) (29,782,734) ----------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Net proceeds from Common shares issued to shareholders due to reinvestment of distributions 259,052 -- ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from capital share transactions 259,052 -- ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares (1,317,359) (20,339,767) ----------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the beginning of year 337,857,664 358,197,431 ----------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the end of year $336,540,305 $337,857,664 ----------------------------------------------------------------------------------------------- Undistributed (Over-distribution of) net investment income at the end of year $ (881,169) $ 1,949,002 -----------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 35 Notes to FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES The funds (the "Funds") covered in this report and their corresponding Common share New York Stock Exchange symbols are Nuveen Quality Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred Income Fund 3 (JHP). The Funds are registered under the Investment Company Act of 1940, as amended, as non-diversified, closed-end management investment companies. Each Fund seeks to provide high current income consistent with capital preservation by investing primarily in a portfolio of preferred securities, debt securities including convertible debt securities and convertible preferred securities. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with U.S. generally accepted accounting principles. Investment Valuation Exchange-listed securities and instruments, other than futures, are generally valued at the last sales price on the exchange on which such securities or instruments are primarily traded. Securities or instruments traded on an exchange for which there are no transactions on a given day or securities or instruments not listed on an exchange are valued at the mean of the closing bid and asked prices. Securities traded on Nasdaq are valued at the Nasdaq Official Closing Price. Futures contracts are valued using the closing settlement price or, in the absence of such a price, at the mean of the bid and asked prices. Prices of the other derivative instruments and fixed-income securities are generally provided by an independent pricing service approved by the Funds' Board of Trustees. When price quotes are not readily available, the pricing service or, in the absence of a pricing service for a particular investment, the Board of Trustees of the Funds, or its designee, may establish fair market value using a wide variety of market data including yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor's credit characteristics considered relevant by the pricing service or the Board of Trustee's designee. If the pricing service is unable to supply a price for a derivative investment the Fund may use a market quote provided by a major broker/dealer in such investments. If it is determined that the market price for an investment is unavailable or inappropriate, the Board of Trustees of the Funds, or its designee, may establish fair value in accordance with procedures established in good faith by the Board of Trustees. Short-term investments are valued at amortized cost, which approximates market value. Investment Transactions Investment transactions are recorded on a trade date basis. Realized gains and losses from investment transactions are determined on the specific identification method. Investments purchased on a when-issued/delayed delivery basis may have extended settlement periods. Any investments so purchased are subject to market fluctuation during this period. The Funds have instructed the custodian to segregate assets with a current value at least equal to the amount of the when issued/delayed delivery purchase commitments. At December 31, 2006, there were no such outstanding purchase commitments in any of the Funds. Investment Income Dividend income is recorded on the ex-dividend date or, for foreign securities, when information is available. Interest income, which includes the amortization of premiums and accretion of discounts for financial reporting purposes, is recorded on an accrual basis. Federal Income Taxes Each Fund is a separate taxpayer for Federal Income tax purposes. Each Fund intends to distribute substantially all net investment income and net capital gains to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required. 36 Dividends and Distributions to Common Shareholders Distributions to Common shareholders are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Distributions to Common shareholders are declared monthly. Real Estate Investment Trust ("REIT") distributions received by the Funds are generally comprised of ordinary income, long-term and short-term capital gains, and a return of REIT capital. The actual character of amounts received during the period are not known until after the fiscal year-end. For the fiscal year ended December 31, 2006, the character of distributions to the Funds from the REITs was as follows:
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, 2005, 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 77.28% 74.67% 78.86% Long-term and short-term capital gains 22.72 25.33 21.14 Return of REIT capital -- -- -- ------------------------------------------------------------------------------------------------------------
For the fiscal years ended December 31, 2006 and December 31, 2005, the Funds applied the actual character of distributions reported by the REITs in which the Funds invest to their receipts from the REITs. If a REIT held in the portfolio of investments did not report the actual character of its distributions during the period, the Fund treated the distributions as ordinary income. The actual character of distributions made by the Funds during the fiscal years ended December 31, 2006 and December 31, 2005, are reflected in the accompanying financial statements. 37 Notes to FINANCIAL STATEMENTS (continued) FundPreferred Shares The Funds have issued and outstanding FundPreferred shares, $25,000 stated value per share, as a means of effecting financial leverage. Each Fund's FundPreferred shares are issued in more than one Series. The dividend rate paid by the Funds on each Series is determined every seven days, pursuant to a dutch auction process overseen by the auction agent, and is payable at the end of each rate period. The number of FundPreferred shares outstanding, by Series and in total, for each Fund is as follows:
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 certain derivative financial instruments. The Funds' use of interest rate swap transactions is intended to mitigate the negative impact that an increase in short-term interest rates could have on Common share net earnings as a result of leverage. Interest rate swap transactions involve each Fund's agreement with the counterparty to pay or receive a fixed rate payment in exchange for the counterparty paying or receiving a variable rate payment that is intended to approximate each Fund's variable rate payment obligation on FundPreferred shares or any variable rate borrowing. The payment obligation is based on the notional amount of the interest rate swap contract. Interest rate swaps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the net amount of interest payments that each Fund is to receive. Interest rate swap positions are valued daily. Although there are economic advantages of entering into interest rate swap transactions, there are also additional risks. The Funds help manage the credit risks associated with interest rate swap transactions by entering into agreements only with counterparties the Adviser believes have the financial resources to honor their obligations and by having the Adviser continually monitor the financial stability of the swap counterparties. Futures Contracts The Funds are authorized to invest in futures contracts. Upon entering into a futures contract, a Fund is required to deposit with the broker an amount of cash or liquid securities equal to a specified percentage of the contract amount. This is known as the "initial margin." Subsequent payments ("variation margin") are made or received by a Fund each day, depending on the daily fluctuation of the value of the contract. During the period the futures contract is open, changes in the value of the contract are recognized as an unrealized gain or loss by "marking-to-market" on a daily basis to reflect the changes in market value of the contract. When the contract is closed or expired, a Fund records a realized gain or loss equal to the difference between the value of the contract on the closing date and the value of the contract when originally entered into. Cash held by the broker to cover initial margin requirements on open futures contracts is noted in the Statement of Assets and Liabilities. Additionally, the Statement of Assets and Liabilities reflects a receivable or payable for the variation margin when applicable. As of December 31, 2006, there were no outstanding futures contracts in any of the funds. Risks of investments in futures contracts include the possible adverse movement of the securities or indices underlying the contracts, the possibility that there may not be a liquid secondary market for the contracts and/or that a change in the value of the contract may not correlate with a change in the value of the underlying securities or indices. 38 Foreign Currency Translation To the extent that a Fund invests in securities that are denominated in a currency other than U.S. dollars, the Fund will be subject to currency risk, which is the risk that an increase in the U.S. dollar relative to the foreign currency will reduce returns or portfolio value. Generally, when the U.S. dollar rises in value against a foreign currency, the Fund's investments in securities denominated in that currency will lose value because its currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value. Investments and other assets and liabilities denominated in foreign currencies are converted into U.S. dollars on a spot (i.e. cash) basis at the spot rate prevailing in the foreign currency exchange market at the time of valuation. Purchases and sales of investments and dividend income denominated in foreign currencies are translated into U.S. dollars on the respective dates of such transactions. The gains or losses resulting from changes in foreign exchange rates on investments and derivative transactions, if any, are included with Net realized gain (loss) from foreign currencies and Change in net unrealized appreciation (depreciation) of foreign currencies in the Statement of Operations. Foreign Currency Transactions The Funds are authorized to engage in foreign currency exchange transactions. The Funds may engage in foreign currency forward, options and futures contracts. To the extent that the Funds invest in contracts that are denominated in a currency other than U.S. dollars, the Funds will be subject to currency risk, which is the risk that an increase in the U.S. dollar relative to the foreign currency will reduce returns or portfolio value. Generally, when the U.S. dollar rises in value against a foreign currency, the Funds' investments denominated in that currency will lose value because its currency is worth fewer U.S. dollars; the opposite effect occurs if the U.S. dollar falls in relative value. Investments and other assets and liabilities denominated in foreign currencies are converted into U.S. dollars on a spot (i.e. cash) basis at the spot rate prevailing in the foreign currency exchange market at the time of valuation. Purchases and sales of investments and dividend income denominated in foreign currencies are translated into U.S. dollars on the respective dates of such transactions. The books and records of the Funds are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at 4:00 p.m. Eastern time. Investments and income and expenses are translated on the respective dates of such transactions. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date of the transactions, foreign currency transactions, and the difference between the amounts of interest and dividends recorded on the books of a Fund and the amounts actually received. Repurchase Agreements In connection with transactions in repurchase agreements, it is the Funds' policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral may be delayed or limited. Custodian Fee Credit Each Fund has an arrangement with the custodian bank whereby certain custodian fees and expenses are reduced by credits earned on each Fund's cash on deposit with the bank. Such deposit arrangements are an alternative to overnight investments. Indemnifications Under the Funds' organizational documents, their Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnifications to other parties. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets applicable to Common shares from operations during the reporting period. Actual results may differ from those estimates. 2. FUND SHARES Transactions in Common shares were as follows:
QUALITY PREFERRED QUALITY PREFERRED QUALITY PREFERRED INCOME (JTP) INCOME 2 (JPS) INCOME 3 (JHP) ------------------------ ------------------------ ------------------------ YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED 12/31/06 12/31/05 12/31/06 12/31/05 12/31/06 12/31/05 -------------------------------------------------------------------------------------------------------------------------- Shares issued to shareholders due to reinvestment of distributions 43,337 -- 101,627 -- 18,314 -- --------------------------------------------------------------------------------------------------------------------------
39 Notes to FINANCIAL STATEMENTS (continued) 3. INVESTMENT TRANSACTIONS Purchases and sales (including maturities but excluding short-term investments and derivative transactions) during the fiscal year ended December 31, 2006, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) -------------------------------------------------------------------------------------------------------------------- Purchases $461,711,543 $871,839,318 $195,635,351 Sales and maturities 450,972,246 831,402,132 188,830,416 --------------------------------------------------------------------------------------------------------------------
4. INCOME TAX INFORMATION The following information is presented on an income tax basis based on the information currently available to the Funds. Differences between amounts for financial statement and federal income tax purposes are primarily due to recognition of premium amortization, timing differences in the recognition of income and timing differences in recognizing certain gains and losses on investment transactions. To the extent that differences arise that are permanent in nature, such amounts are reclassified within the capital accounts on the Statement of Assets and Liabilities presented in the annual report, based on their Federal tax basis treatment; temporary differences do not require reclassification. Temporary and permanent differences do not impact the net asset values of the Funds. At December 31, 2006, the cost of investments was as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) -------------------------------------------------------------------------------------------------------------------- Cost of investments $1,315,110,584 $2,474,342,201 $492,730,977 --------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation and gross unrealized depreciation of investments at December 31, 2006, were as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) -------------------------------------------------------------------------------------------------------------------- Gross unrealized: Appreciation $ 36,415,452 $ 84,993,974 $11,224,835 Depreciation (14,865,383) (34,967,787) (7,101,802) -------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments $ 21,550,069 $ 50,026,187 $ 4,123,033 --------------------------------------------------------------------------------------------------------------------
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. 40 The tax character of distributions paid during the tax years ended July 31, 2006 and July 31, 2005, was designated for purposes of the dividends paid deduction as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 JULY 31, 2006 (JTP) (JPS) (JHP) -------------------------------------------------------------------------------------------------------------------- Distributions from net ordinary income * $88,059,972 $166,262,070 $33,448,703 Distributions from net long-term capital gains ** -- 22,350,529 1,834,281 Tax return of capital -- -- 327,326 --------------------------------------------------------------------------------------------------------------------
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 JULY 31, 2005 (JTP) (JPS) (JHP) -------------------------------------------------------------------------------------------------------------------- Distributions from net ordinary income * $86,458,729 $168,985,896 $32,675,994 Distributions from net long-term capital gains -- 19,485,262 1,415,750 --------------------------------------------------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends, interest and net short-term capital gains, if any. ** The Funds designated as a long-term capital gain dividend, pursuant to the Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the earnings and profits of the Funds related to net capital gain to zero for the tax year ended December 31, 2006. At July 31, 2006, the Funds' last tax year end, Quality Preferred Income 3 (JHP) had unused capital loss carryforwards of $16,197,047 available for federal income tax purposes to be applied against future capital gains, if any. If not applied, the carryforwards will expire in the year 2012. Quality Preferred Income 3 (JHP) elected to defer net realized losses from investments incurred from November 1, 2005 through July 31, 2006 ("post-October losses") in accordance with Federal income tax regulations. Post-October losses of $931,735 were treated as having arisen on the first day of the current fiscal year. Calculation of certain of the amounts presented above (namely, undistributed net ordinary income for tax purposes) involves the application of complex aspects of the Internal Revenue Code to certain securities held by the Funds. In calculating the amount of taxable income derived from these securities, management made assumptions as to the correct tax treatment of certain of those securities and made estimates about the tax characteristics of income received from those securities, based on information currently available to the Funds. The use of these assumptions and estimates will not affect the qualification of the Funds as regulated investment companies under Subchapter M of the Internal Revenue Code, nor is it expected that these assumptions and estimates will be used in computing taxable income for purposes of preparing the federal and state income and excise tax returns. 5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES Each Fund's management fee is separated into two components - a complex-level component, based on the aggregate amount of all fund assets managed by Nuveen Asset Management (the "Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc. ("Nuveen"), and a specific fund-level component, based only on the amount of assets within each individual fund. This pricing structure enables Nuveen fund shareholders to benefit from growth in the assets within each individual fund as well as from growth in the amount of complex-wide assets managed by the Adviser. The annual fund-level fee, payable monthly, for each Fund is based upon the average daily Managed Assets of each Fund as follows:
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 ---------------------------------------------------------------------------------------------
41 Notes to FINANCIAL STATEMENTS (continued) The annual complex-level fee, payable monthly, which is additive to the fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the aggregate amount of total fund assets managed as stated in the table below. As of December 31, 2006, the complex-level fee rate was .1845%.
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE -------------------------------------------------------------------------------- For the first $55 billion .2000% For the next $1 billion .1800 For the next $1 billion .1600 For the next $3 billion .1425 For the next $3 billion .1325 For the next $3 billion .1250 For the next $5 billion .1200 For the next $5 billion .1175 For the next $15 billion .1150 For Managed Assets over $91 billion (2) .1400 --------------------------------------------------------------------------------
(1) The complex-level fee component of the management fee for the funds is calculated based upon the aggregate Managed Assets ("Managed Assets" means the average daily net assets of each fund including assets attributable to preferred stock issued by or borrowings by the Nuveen funds) of Nuveen-sponsored funds in the U.S. (2) With respect to the complex-wide Managed Assets over $91 billion, the fee rate or rates that will apply to such assets will be determined at a later date. In the unlikely event that complex-wide Managed Assets reach $91 billion prior to a determination of the complex-level fee rate or rates to be applied to Managed Assets in excess of $91 billion, the complex-level fee rate for such complex-wide Managed Assets shall be .1400% until such time as a different rate or rates is determined. The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Adviser has entered into Sub-Advisory Agreements with Spectrum Asset Management, Inc. ("Spectrum"), under which Spectrum manages the investment portfolios of the Funds. Spectrum is compensated for its services to the Funds from the management fees paid to the Adviser. Spectrum also receives compensation on certain portfolio transactions for providing brokerage services to the Funds. The Funds pay no compensation directly to those of its Trustees who are affiliated with the Adviser or to its Officers, all of whom receive remuneration for their services to the Funds from the Adviser or its affiliates. The Board of Trustees has adopted a deferred compensation plan for independent Trustees that enables Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from certain Nuveen advised Funds. Under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of select Nuveen advised funds. For the first eight years of Quality Preferred Income's (JTP) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily Managed Assets, for fees and expenses in the amounts and for the time periods set forth below:
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. 42 For the first eight years of Quality Preferred Income 2's (JPS) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily Managed Assets, for fees and expenses in the amounts and for the time periods set forth below:
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. 6. NEW ACCOUNTING PRONOUNCEMENTS Financial Accounting Standards Board Interpretation No. 48 On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Recent SEC guidance allows funds to delay implementing FIN 48 into NAV calculations until the fund's last NAV calculation in the first required financial statement reporting period. As a result, the Funds must begin to incorporate FIN 48 into their NAV calculations on June 29, 2007. At this time, management is continuing to evaluate the implications of FIN 48 and does not expect the adoption of FIN 48 will have a significant impact on the net assets or results of operations of the Funds. Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157 In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements." This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of this standard relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of December 31, 2006, the Funds do not believe the adoption of SFAS No. 157 will impact the financial statement amounts; however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements included within the Statement of Operations for the period. 7. SUBSEQUENT EVENT Distributions to Common Shareholders The Funds declared Common share distributions which were paid on February 1, 2007, to shareholders of record on January 15, 2007, as follows:
QUALITY QUALITY QUALITY PREFERRED PREFERRED PREFERRED INCOME INCOME 2 INCOME 3 (JTP) (JPS) (JHP) -------------------------------------------------------------------------------- Distributions per share $.0900 $.0930 $.0910 --------------------------------------------------------------------------------
43 Financial HIGHLIGHTS 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: 2006 $ 14.20 $ 1.28 $ .02 $ (.32) $ -- $ .98 2005 14.92 1.30 (.68) (.21) -- .41 8/1/04-12/31/04 14.40 .60 .47 (.05) -- 1.02 Year Ended 7/31: 2004(b) 14.10 1.37 .26 (.08) -- 1.55 2003 14.12 1.31 .16 (.09) -- 1.38 2002(c) 14.33 .06 (.25) -- -- (.19) QUALITY PREFERRED INCOME 2 (JPS) ----------------------------------------------------------------------------------------------------- Year ended 12/31: 2006 14.77 1.33 (.01) (.31) -- 1.01 2005 15.66 1.34 (.69) (.18) (.02) .45 8/1/04-12/31/04 15.32 .60 .50 (.04) (.01) 1.05 Year Ended 7/31: 2004(b) 14.97 1.42 .37 (.08) -- 1.71 2003(d) 14.33 1.02 .79 (.07) -- 1.74 QUALITY PREFERRED INCOME 3 (JHP) ----------------------------------------------------------------------------------------------------- Year ended 12/31: 2006 14.29 1.31 .05 (.33) -- 1.03 2005 15.15 1.32 (.70) (.21) (.01) .40 8/1/04-12/31/04 14.71 .60 .46 (.05) -- 1.01 Year Ended 7/31: 2004(b) 14.38 1.38 .40 (.08) (.01) 1.69 2003(e) 14.33 .67 .22 (.04) -- .85 ----------------------------------------------------------------------------------------------------- Less Distributions ------------------------------------------ Tax Net Return of Offering Investment Capital Capital Costs and Ending Income to Gains to to FundPreferred Common Common Common Common Share Share Ending Share- Share- Share- Underwriting Net Asset Market holders holders holders Total Discounts Value Value --------------------- -------------------------------------------------------------------------------- QUALITY PREFERRED INCOME (JTP) --------------------- Year ended 12/31: 2006 $ (1.08) $ -- $ -- $(1.08) $ -- $ 14.10 $ 14.84 2005 (1.13) -- -- (1.13) -- 14.20 12.40 8/1/04-12/31/04 (.50) -- -- (.50) -- 14.92 14.00 Year Ended 7/31: -- 2004(b) (1.25) -- -- (1.25) -- 14.40 13.96 2003 (1.25) -- -- (1.25) (.15) 14.10 14.59 2002(c) -- -- -- -- (.02) 14.12 15.15 QUALITY PREFERRED INCOME 2 (JPS) --------------------- -------------------------------------------------------------------------------- Year ended 12/31: 2006 (1.12) -- -- (1.12) -- 14.66 $ 15.12 2005 (1.16) (.18) -- (1.34) -- 14.77 12.80 8/1/04-12/31/04 (.53) (.18) -- (.71) -- 15.66 14.40 Year Ended 7/31: 2004(b) (1.32) (.04) -- (1.36) -- 15.32 14.61 2003(d) (.95) -- -- (.95) (.15) 14.97 14.65 QUALITY PREFERRED INCOME 3 (JHP) --------------------- -------------------------------------------------------------------------------- Year ended 12/31: 2006 (1.09) -- (.01) (1.10) -- 14.22 $ 14.92 2005 (1.17) (.09) -- (1.26) -- 14.29 12.92 8/1/04-12/31/04 (.51) (.06) -- (.57) -- 15.15 14.44 Year Ended 7/31: 2004(b) (1.24) (.12) -- (1.36) -- 14.71 14.34 2003(e) (.62) -- -- (.62) (.18) 14.38 14.36 --------------------- --------------------------------------------------------------------------------
* Annualized. ** Total Return on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. Total Return on Common Share Net Asset Value is the combination of changes in Common Share net asset value, reinvested dividend income at net asset value and reinvested capital gains distributions at net asset value, if any. Total returns are not annualized. *** After custodian fee credit and expense reimbursement, where applicable. + The amounts shown are based on Common share equivalents. ++ - Ratios do not reflect the effect of dividend payments to FundPreferred shareholders. - Income ratios reflect income earned on assets attributable to FundPreferred shares. - For the periods presented below each ratio includes the effect of the interest expense paid on interest rate swap transactions as follows:
Ratio of Net Interest Expense to Average Net Assets Applicable to Common Shares ---------------------------------------- QUALITY PREFERRED INCOME (JTP) Year Ended 7/31: 2003 .80% 2002(c) -- QUALITY PREFERRED INCOME 2 (JPS) Year Ended 7/31: 2003(d) .58* QUALITY PREFERRED INCOME 3 (JHP) Year Ended 7/31: 2003(e) .51*
(a) Per share Net Investment Income is calculated using the average daily shares method. (b) 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. 44
Ratios/Supplemental Data ---------------------------------------------------------------------------------------- Ratios to Average Net Assets Ratios to Average Net Assets Applicable to Common Shares Applicable to Common Shares Total Returns Before Credit/Reimbursement After Credit/Reimbursement*** ----------------- ----------------------------- ----------------------------- Based on Common Ending Net Based Share Assets on Net Applicable Net Net Portfolio Market Asset to Common Investment Investment Turnover Value** Value** Shares (000) Expenses++ Income++ Expenses++ Income++ Rate ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- 29.51% 7.26% $ 909,608 1.50% 8.70% 1.02% 9.18% 34% (3.69) 2.89 915,598 1.49 8.47 1.02 8.94 19 3.79 7.10 961,583 1.49* 9.15* 1.02* 9.62* 8 4.20 11.17 927,892 1.51 8.87 1.04 9.33 18 4.95 9.15 907,746 2.38 8.84 1.91 9.31 45 1.00 (1.47) 880,006 .96* 4.51* .64* 4.83* 1 ----------------------------------------------------------------------------------------------------------------- 27.75 7.09 1,753,392 1.42 8.72 .95 9.19 34 (2.06) 3.01 1,765,543 1.40 8.32 .94 8.78 17 3.34 6.94 1,872,283 1.40* 8.69* .94* 9.14* 6 8.98 11.60 1,830,878 1.41 8.64 .95 9.10 19 4.02 11.22 1,789,809 1.99* 7.59* 1.54* 8.04* 35 ----------------------------------------------------------------------------------------------------------------- 25.00 7.49 336,540 1.56 8.81 1.08 9.29 39 (2.16) 2.88 337,858 1.54 8.48 1.07 8.96 16 4.64 6.81 358,197 1.54* 9.03* 1.07* 9.50* 7 9.36 11.93 347,900 1.55 8.75 1.08 9.22 17 (.19) 4.62 339,499 1.97* 7.14* 1.53* 7.58* 57 ----------------------------------------------------------------------------------------------------------------- FundPreferred Shares at End of Period --------------------------------------- Aggregate Liquidation Amount and Market Asset Outstanding Value Per Coverage (000) Share Per Share --- --------------------------------------- --- --------------------------------------- $ 440,000 $ 25,000 $ 76,682 440,000 25,000 77,023 440,000 25,000 79,635 440,000 25,000 77,721 440,000 25,000 76,577 -- -- -- --- --------------------------------------- 800,000 25,000 79,794 800,000 25,000 80,173 800,000 25,000 83,509 800,000 25,000 82,215 800,000 25,000 80,932 --- --------------------------------------- 166,000 25,000 75,684 166,000 25,000 75,882 166,000 25,000 78,945 166,000 25,000 77,395 166,000 25,000 76,129 ---
See accompanying notes to financial statements. 45 Board Members AND OFFICERS The management of the Funds, including general supervision of the duties performed for the Funds by the Adviser, is the responsibility of the Board Members of the Funds. The number of board members of the Fund is currently set at ten. None of the board members who are not "interested" persons of the Funds has ever been a director or employee of, or consultant to, Nuveen or its affiliates. The names and business addresses of the board members and officers of the Funds, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below.
NUMBER OF PORTFOLIOS PRINCIPAL OCCUPATION(S) IN FUND COMPLEX NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY AND ADDRESS WITH THE FUNDS OR APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER ------------------------------------------------------------------------------------------------------------------------------- BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS: ------------------------------------------------------------------------------------------------------------------------------- Timothy R. Chairman of the 1994 Chairman (since 1996) and Director 172 Schwertfeger(1) Board and Board of Nuveen Investments, Inc., Nuveen 3/28/49 Member Investments, LLC; Chairman and 333 W. Wacker Drive Director (since 1997) of Nuveen Chicago, IL 60606 Asset Management; Chairman and Director of Rittenhouse Asset Management, Inc. (since 1999); Chairman of Nuveen Investments Advisers Inc. (since 2002); formerly, Chairman and Director (1996-2004) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); formerly, Director (1996-2006) of Institutional Capital Corporation. BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS: ------------------------------------------------------------------------------------------------------------------------------- Robert P. Bremner Lead Independent 1997 Private Investor and Management 172 8/22/40 Board member Consultant. 333 W. Wacker Drive Chicago, IL 60606 ------------------------------------------------------------------------------------------------------------------------------- Lawrence H. Brown Board member 1993 Retired (since 1989) as Senior Vice 172 7/29/34 President of The Northern Trust 333 W. Wacker Drive Company; Director (since 2002) Chicago, IL 60606 Community Advisory Board for Highland Park and Highwood, United Way of the North Shore; Director (since 2006) of the Michael Rolfe Pancreatic Cancer Foundation. ------------------------------------------------------------------------------------------------------------------------------- Jack B. Evans Board member 1999 President, The Hall-Perrine 172 10/22/48 Foundation, a private philanthropic 333 W. Wacker Drive corporation (since 1996); Director Chicago, IL 60606 and Vice Chairman, United Fire Group, a publicly held company; Adjunct Faculty Member, University of Iowa; Director, Gazette Companies; Life Trustee of Coe College and Iowa College Foundation; formerly, Director, Alliant Energy; formerly, Director, Federal Reserve Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., a regional financial services firm. ------------------------------------------------------------------------------------------------------------------------------- William C. Hunter Board member 2004 Dean, Tippie College of Business, 172 3/6/48 University of Iowa (since July 333 W. Wacker Drive 2006); formerly, Dean and Chicago, IL 60606 Distinguished Professor of Finance, School of Business at the University of Connecticut (2003-2006); previously, Senior Vice President and Director of Research at the Federal Reserve Bank of Chicago (1995-2003); Director (since 1997), Credit Research Center at Georgetown University; Director (since 2004) of Xerox Corporation; Director, SS&C Technologies, Inc. (May 2005- October 2005). ------------------------------------------------------------------------------------------------------------------------------- David J. Kundert Board member 2005 Director, Northwestern Mutual 170 10/28/42 Wealth Management Company; Retired 333 W. Wacker Drive (since 2004) as Chairman, JPMorgan Chicago, IL 60606 Fleming Asset Management, President and CEO, Banc One Investment Advisors Corporation, and President, One Group Mutual Funds; prior thereto, Executive Vice President, Banc One Corporation and Chairman and CEO, Banc One Investment Management Group; Board of Regents, Luther College; member of the Wisconsin Bar Association; member of Board of Directors, Friends of Boerner Botanical Gardens; member of Board of Directors, Milwaukee Repertory Theater.
46
NUMBER OF PORTFOLIOS PRINCIPAL OCCUPATION(S) IN FUND COMPLEX NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY AND ADDRESS WITH THE FUNDS OR APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER ------------------------------------------------------------------------------------------------------------------------------- BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED): ------------------------------------------------------------------------------------------------------------------------------- William J. Schneider Board member 1997 Chairman of Miller-Valentine 172 9/24/44 Partners Ltd., a real estate 333 W. Wacker Drive investment company; formerly, Chicago, IL 60606 Senior Partner and Chief Operating Officer (retired, 2004) of Miller-Valentine Group; formerly, Vice President, Miller-Valentine Realty; Board Member, Chair of the Finance Committee and member of the Audit Committee of Premier Health Partners, the not-for-profit company of Miami Valley Hospital; Vice President, Dayton Philharmonic Orchestra Association; Board Member, Regional Leaders Forum, which promotes cooperation on economic development issues; Director, Dayton Development Coalition; formerly, Member, Community Advisory Board, National City Bank, Dayton, Ohio and Business Advisory Council, Cleveland Federal Reserve Bank. ------------------------------------------------------------------------------------------------------------------------------- Judith M. Stockdale Board member 1997 Executive Director, Gaylord and 172 12/29/47 Dorothy Donnelley Foundation (since 333 W. Wacker Drive 1994); prior thereto, Executive Chicago, IL 60606 Director, Great Lakes Protection Fund (from 1990 to 1994). ------------------------------------------------------------------------------------------------------------------------------- Carole E. Stone Board Member 2007 Director, Chicago Board Options 172 6/28/47 Exchange (since 2006); Chair New 333 West Wacker Drive York Racing Association Oversight Chicago, IL 60606 Board (since 2005); Commissioner, New York State Commission on Public Authority Reform (since 2005); formerly Director, New York State Division of the Budget (2000-2004), Chair, Public Authorities Control Board (2000-2004) and Director, Local Government Assistance Corporation (2000-2004). ------------------------------------------------------------------------------------------------------------------------------- Eugene S. Sunshine Board member 2005 Senior Vice President for Business 172 1/22/50 and Finance, Northwestern 333 W. Wacker Drive University (since 1997); Director Chicago, IL 60606 (since 2003), Chicago Board Options Exchange; Chairman (since 1997), Board of Directors, Rubicon, a pure captive insurance company owned by Northwestern University; Director (since 1997), Evanston Chamber of Commerce and Evanston Inventure, a business development organization; Director (since 2006), Pathways, a provider of therapy and related information for physically disabled infants and young children; formerly, Director (2003-2006), National Mentor Holdings, a privately-held, national provider of home and community-based services.
47 Board Members AND OFFICERS (CONTINUED)
NUMBER OF PORTFOLIOS NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER ------------------------------------------------------------------------------------------------------------------------------- OFFICERS OF THE FUND: ------------------------------------------------------------------------------------------------------------------------------- Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), 172 9/9/56 Administrative Assistant Secretary and Associate 333 W. Wacker Drive Officer General Counsel, formerly, Vice Chicago, IL 60606 President and Assistant General Counsel, of Nuveen Investments, LLC; Managing Director (2002-2004), General Counsel (1998-2004) and Assistant Secretary, formerly, Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); Managing Director (since 2002) and Assistant Secretary and Associate General Counsel, formerly, Vice President (since 1997), of Nuveen Asset Management; Managing Director (since 2004) and Assistant Secretary (since 1994) of Nuveen Investments, Inc.; Assistant Secretary of NWQ Investment Management Company, LLC. (since 2002); Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Managing Director, Associate General Counsel and Assistant Secretary of Rittenhouse Asset Management, Inc.; Assistant Secretary of Symphony Asset Management LLC (since 2003), Tradewinds NWQ Global Investors, LLC and Santa Barbara Asset Management, LLC; (since 2006); Chartered Financial Analyst. ------------------------------------------------------------------------------------------------------------------------------- Julia L. Antonatos Vice President 2004 Managing Director (since 2005), 172 9/22/63 formerly, Vice President (since 333 W. Wacker Drive 2002); formerly, Assistant Vice Chicago, IL 60606 President (since 2000) of Nuveen Investments, LLC; Chartered Financial Analyst. ------------------------------------------------------------------------------------------------------------------------------- Michael T. Atkinson Vice President 2000 Vice President (since 2002), 172 2/3/66 and Assistant formerly, Assistant Vice President 333 W. Wacker Drive Secretary (since 2000) of Nuveen Investments, Chicago, IL 60606 LLC. ------------------------------------------------------------------------------------------------------------------------------- Peter H. D'Arrigo Vice President 1999 Vice President and Treasurer of 172 11/28/67 Nuveen Investments, LLC and of 333 W. Wacker Drive Nuveen Investments, Inc. (since Chicago, IL 60606 1999); Vice President and Treasurer of Nuveen Asset Management (since 2002) and of Nuveen Investments Advisers Inc. (since 2002); Assistant Treasurer of NWQ Investment Management Company, LLC. (since 2002); Vice President and Treasurer of Nuveen Rittenhouse Asset Management, Inc. (since 2003); Treasurer of Symphony Asset Management LLC (since 2003) and Santa Barbara Asset Management, LLC (since 2006); Assistant Treasurer, Tradewinds NWQ Global Investors, LLC (since 2006); formerly, Vice President and Treasurer (1999-2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); Chartered Financial Analyst. ------------------------------------------------------------------------------------------------------------------------------- John N. Desmond Vice President 2005 Vice President, Director of 172 8/24/61 Investment Operations, Nuveen 333 W. Wacker Drive Investments, LLC (since January Chicago, IL 60606 2005); formerly, Director, Business Manager, Deutsche Asset Management (2003- 2004), Director, Business Development and Transformation, Deutsche Trust Bank Japan (2002-2003); previously, Senior Vice President, Head of Investment Operations and Systems, Scudder Investments Japan, (2000-2002), Senior Vice President, Head of Plan Administration and Participant Services, Scudder Investments (1995-2002).
48
NUMBER OF PORTFOLIOS NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER ------------------------------------------------------------------------------------------------------------------------------- OFFICERS OF THE FUNDS (CONTINUED) ------------------------------------------------------------------------------------------------------------------------------- Jessica R. Droeger Vice President 1998 Vice President (since 2002), 172 9/24/64 and Secretary Assistant Secretary and Assistant 333 W. Wacker Drive General Counsel (since 1998) Chicago, IL 60606 formerly, Assistant Vice President (since 1998) of Nuveen Investments, LLC; Vice President (2002-2004) and Assistant Secretary (1998-2004) formerly, Assistant Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); Vice President and Assistant Secretary (since 2005) of Nuveen Asset Management. ------------------------------------------------------------------------------------------------------------------------------- Lorna C. Ferguson Vice President 1998 Managing Director (since 2004), 172 10/24/45 formerly, Vice President of Nuveen 333 W. Wacker Drive Investments, LLC, Managing Director Chicago, IL 60606 (2004) formerly, Vice President (1998-2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); Managing Director (since 2005) of Nuveen Asset Management. ------------------------------------------------------------------------------------------------------------------------------- William M. Fitzgerald Vice President 1995 Managing Director (since 2002), 172 3/2/64 formerly, Vice President of Nuveen 333 W. Wacker Drive Investments, LLC; Managing Director Chicago, IL 60606 (1997-2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); Managing Director (since 2001) of Nuveen Asset Management; Vice President (since 2002) of Nuveen Investments Advisers Inc.; Chartered Financial Analyst. ------------------------------------------------------------------------------------------------------------------------------- Stephen D. Foy Vice President 1998 Vice President (since 1993) and 172 5/31/54 and Controller Funds Controller (since 1998) of 333 W. Wacker Drive Nuveen Investments, LLC; formerly, Chicago, IL 60606 Vice President and Funds Controller (1998-2004) of Nuveen Investments, Inc.; Certified Public Accountant. ------------------------------------------------------------------------------------------------------------------------------- Walter M. Kelly Chief Compliance 2003 Vice President and Assistant 172 2/24/70 Officer and Vice Secretary (since 2006) formerly, 333 West Wacker Drive President Assistant Vice President and Chicago, IL 60606 Assistant General Counsel (since 2003) of Nuveen Investments, LLC; Vice President (since 2006) and Assistant Secretary (since 2003) formerly, Assistant Vice President of Nuveen Asset Management; previously, Associate (2001-2003) at the law firm of Vedder, Price, Kaufman & Kammholz. ------------------------------------------------------------------------------------------------------------------------------- David J. Lamb Vice President 2000 Vice President (since 2000) of 172 3/22/63 Nuveen Investments, LLC; Certified 333 W. Wacker Drive Public Accountant. Chicago, IL 60606 ------------------------------------------------------------------------------------------------------------------------------- Tina M. Lazar Vice President 2002 Vice President of Nuveen 172 8/27/61 Investments, LLC (since 1999). 333 W. Wacker Drive Chicago, IL 60606
49 Board Members AND OFFICERS (CONTINUED)
NUMBER OF PORTFOLIOS NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER ------------------------------------------------------------------------------------------------------------------------------- OFFICERS OF THE FUNDS (CONTINUED) ------------------------------------------------------------------------------------------------------------------------------- Larry W. Martin Vice President 1988 Vice President, Assistant Secretary 172 7/27/51 and Assistant and Assistant General Counsel of 333 W. Wacker Drive Secretary Nuveen Investments, LLC; formerly, Chicago, IL 60606 Vice President and Assistant Secretary of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); Vice President (since 2005) and Assistant Secretary of Nuveen Investments, Inc.; Vice President (since 2005) and Assistant Secretary (since 1997) of Nuveen Asset Management; Vice President (since 2000), Assistant Secretary and Assistant General Counsel (since 1998) of Rittenhouse Asset Management, Inc.; Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Assistant Secretary of NWQ Investment Management Company, LLC (since 2002), Symphony Asset Management LLC (since 2003) and Tradewinds NWQ Global Investors, LLC and Santa Barbara Asset Management, LLC (since 2006).
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the Investment Company Act of 1940, because he is an officer and board member of the Adviser. (2) Board members serve a three year term until his/her successor is elected. The year first elected or appointed represents the year in which the board member was first elected or appointed to any fund in the Nuveen Complex. (3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were reorganized into Nuveen Asset Management, effective January 1, 2005. (4) Officers serve one year terms through July of each year. The year first elected or appointed represents the year in which the Officer was first elected or appointed to any fund in the Nuveen Complex. 50 Reinvest Automatically EASILY AND CONVENIENTLY NUVEEN CLOSED-END FUNDS DIVIDEND REINVESTMENT PLAN Your Nuveen Closed-End Fund allows you to conveniently reinvest dividends and/or capital gains distributions in additional fund shares By choosing to reinvest, you'll be able to invest money regularly and automatically, and watch your investment grow through the power of compounding. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market. EASY AND CONVENIENT To make recordkeeping easy and convenient, each month you'll receive a statement showing your total dividends and distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own. HOW SHARES ARE PURCHASED NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET UP YOUR REINVESTMENT ACCOUNT. The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the greater of the net asset value or 95% of the then-current market price. If the shares are trading at less than net asset value, shares for your account will be purchased on the open market. Dividends and distributions received to purchase shares in the open market will normally be invested shortly after the dividend payment date. No interest will be paid on dividends and distributions awaiting reinvestment. Because the market price of the shares may increase before purchases are completed, the average purchase price per share may exceed the market price at the time of valuation, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid by Plan participants. These commissions usually will be lower than those charged on individual transactions. FLEXIBLE You may change your distribution option or withdraw from the Plan at any time, should your needs or situation change. Should you withdraw, you can receive a certificate for all whole shares credited to your reinvestment account and cash payment for fractional shares, or cash payment for all reinvestment account shares, less brokerage commissions and a $2.50 service fee. You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan. The Fund reserves the right to amend or terminate the Plan at any time. Although the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time. CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS For more information on the Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial advisor or call us at (800) 257-8787. 51 AUTOMATIC DIVIDEND REINVESTMENT PLAN NOTICE OF AMENDMENT TO THE TERMS AND CONDITIONS Each of the Funds amended the terms and conditions of its Automatic Dividend Reinvestment Plan (the "Plan") as further described below effective the close of business on December 1, 2006. THESE CHANGES ARE INTENDED TO ENABLE PLAN PARTICIPANTS UNDER CERTAIN CIRCUMSTANCES TO REINVEST FUND DISTRIBUTIONS AT A LOWER AGGREGATE COST THAN WAS POSSIBLE UNDER THE TERMS OF THE PLAN PRIOR TO AMENDMENT. Shareholders who do not wish to continue as participants under the amended Plan may withdraw from the Plan by notifying the Plan Agent. Participants should refer to their Plan document for notification instructions, or may simply call Nuveen at (800) 257-8787. Fund shareholders who elect to participate in the Plan are able to have Fund distributions consisting of income dividends, realized capital gains and returns of capital automatically reinvested in additional Fund shares. Under the Plan's terms prior to amendment, the Plan Agent purchased Fund shares in the open market if the Fund's shares were trading at a discount to their net asset value on the payable date for the distribution. If the Fund's shares were trading at or above their net asset value on the payable date for the distribution, the Plan Agent purchased newly-issued Fund shares directly from the Fund at a price equal to the greater of the shares' net asset value or 95% of the shares' market value. Under the Plan's amended terms, if the Plan Agent begins purchasing Fund shares on the open market while shares are trading below net asset value, but the Fund's shares subsequently trade at or above their net asset value before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in newly-issued Fund shares at a price equal to the greater of the shares' net asset value or 95% of the shares' market value. This change permits Plan participants under these circumstances to reinvest Fund distributions at a lower aggregate cost than was possible under the terms of the Plan prior to amendment. 52 Notes 53 Notes 54 OTHER USEFUL INFORMATION QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION The Fund's (i) quarterly portfolio of investments, (ii) information regarding how the Funds voted proxies relating to portfolio securities held during the most recent 12-month period ended June 30, 2006, and (iii) a description of the policies and procedures that the Fund used to determine how to vote proxies relating to portfolio securities are available without charge, upon request, by calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at www.nuveen.com. You may also obtain this and other Fund information directly from the Securities and Exchange Commission ("SEC"). The SEC may charge a copying fee for this information. Visit the SEC on-line at http://www.sec.gov or in person at the SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours and operation. You may also request Fund information by sending an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section at 450 Fifth Street NW, Washington, D.C. 20549. CEO CERTIFICATION DISCLOSURE Each Fund's Chief Executive Officer has submitted to the New York Stock Exchange the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual. Each Fund has filed with the Securities and Exchange Commission the certification of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act. DISTRIBUTION INFORMATION Nuveen Quality Preferred Income Fund (JTP), Nuveen Quality Preferred Income Fund 2 (JPS) and Nuveen Quality Preferred Income Fund 3 (JHP) designate 29.94%, 29.61% and 25.31%, respectively, of dividends declared from net investment income as dividends qualifying for the 70% dividends received deduction for corporations and 39.52%, 38.59% and 35.69%, respectively, as qualified dividend income for individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003. GLOSSARY OF TERMS USED IN THIS REPORT AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an investment's performance over a particular, usually multi-year time period. It expresses the return that would have been necessary each year to equal the investment's actual cumulative performance (including change in NAV or market price and reinvested dividends and capital gains distributions, if any) over the time period being considered. MARKET YIELD: Market yield is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Funds' cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital. NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by subtracting the liabilities of the Fund (including any Preferred shares issued in order to leverage the Fund) from its total assets and then dividing the remainder by the number of shares outstanding. Fund NAVs are calculated at the end of each business day. BOARD OF TRUSTEES Robert P. Bremner Lawrence H. Brown Jack B. Evans William C. Hunter David J. Kundert William J. Schneider Timothy R. Schwertfeger Judith M. Stockdale Carole E. Stone Eugene S. Sunshine FUND MANAGER Nuveen Asset Management 333 West Wacker Drive Chicago, IL 60606 CUSTODIAN State Street Bank & Trust Company Boston, MA TRANSFER AGENT AND SHAREHOLDER SERVICES State Street Bank & Trust Company Nuveen Funds P.O. Box 43071 Providence, RI 02940-3071 (800) 257-8787 LEGAL COUNSEL Chapman and Cutler LLP Chicago, IL INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Chicago, IL 55 (BACK COVER PHOTO) NUVEEN INVESTMENTS: SERVING INVESTORS FOR GENERATIONS Since 1898, financial advisors and their clients have relied on Nuveen Investments to provide dependable investment solutions. For the past century, Nuveen Investments has adhered to the belief that the best approach to investing is to apply conservative risk-management principles to help minimize volatility. Building on this tradition, we today offer a range of high quality equity and fixed-income solutions that are integral to a well-diversified core portfolio. Our clients have come to appreciate this diversity, as well as our continued adherence to proven, long-term investing principles. WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT NEEDS. Managing $162 billion in assets, as of December 31, 2006, Nuveen Investments offers access to a number of different asset classes and investing solutions through a variety of products. Nuveen Investments markets its capabilities under six distinct brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in value-style equities; Rittenhouse, a leader in growth-style equities; Symphony, a leading institutional manager of market-neutral alternative investment portfolios; Santa Barbara, a leader in growth equities; and Tradewinds NWQ, a leader in global equities. FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS. To learn more about the products and services Nuveen Investments offers, talk to your financial advisor, or call us at (800) 257-8787. Please read the information provided carefully before you invest. Be sure to obtain a prospectus, where applicable. Investors should consider the investment objective and policies, risk considerations, charges and expenses of the Fund carefully before investing. The prospectus contains this and other information relevant to an investment in the Fund. For a prospectus, please contact your securities representative or Nuveen Investments, 333 W. Wacker Dr., Chicago, IL 60606. Please read the prospectus carefully before you invest or send money. LEARN MORE ABOUT NUVEEN FUNDS AT WWW.NUVEEN.COM/CEF - Share prices - Fund details - Daily financial news - Investor education - Interactive planning tools EAN-E-1206D NUVEEN LOGO ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. [There were no amendments to or waivers from the Code during the period covered by this report.] The registrant has posted the code of ethics on its website at www.nuveen.com/etf. (To view the code, click on the Investor Resources drop down menu box, click on Fund Governance and then click on Code of Conduct.) ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Directors or Trustees determined that the registrant has at least one "audit committee financial expert" (as defined in Item 3 of Form N-CSR) serving on its Audit Committee. The registrant's audit committee financial expert is Jack B. Evans, Chairman of the Audit Committee, who is "independent" for purposes of Item 3 of Form N-CSR. Mr. Evans was formerly President and Chief Operating Officer of SCI Financial Group, Inc., a full service registered broker-dealer and registered investment adviser ("SCI"). As part of his role as President and Chief Operating Officer, Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and actively supervised the CFO's preparation of financial statements and other filings with various regulatory authorities. In such capacity, Mr. Evans was actively involved in the preparation of SCI's financial statements and the resolution of issues raised in connection therewith. Mr. Evans has also served on the audit committee of various reporting companies. At such companies, Mr. Evans was involved in the oversight of audits, audit plans, and the preparation of financial statements. Mr. Evans also formerly chaired the audit committee of the Federal Reserve Bank of Chicago. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Nuveen Quality Preferred Income Fund The following tables show the amount of fees that Ernst & Young LLP, the Fund's auditor, billed to the Fund during the Fund's last two full fiscal years. For engagements with Ernst & Young LLP the Audit Committee approved in advance all audit services and non-audit services that Ernst & Young LLP provided to the Fund, except for those non-audit services that were subject to the pre-approval exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The pre-approval exception for services provided directly to the Fund waives the pre-approval requirement for services other than audit, review or attest services if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid by the Fund to its accountant during the fiscal year in which the services are provided; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee's attention, and the Committee (or its delegate) approves the services before the audit is completed. The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee). SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES FISCAL YEAR ENDED TO FUND (1) BILLED TO FUND (2) BILLED TO FUND (3) BILLED TO FUND (4) -------------------------------------------------------------------------------------------------------------------- December 31, 2006 $ 19,977 $ 0 $ 800 $ 3,950 -------------------------------------------------------------------------------------------------------------------- Percentage approved 0% 0% 0% 0% pursuant to pre-approval exception -------------------------------------------------------------------------------------------------------------------- December 31, 2005 $ 18,494 $ 0 $ 2,386 $ 3,750 -------------------------------------------------------------------------------------------------------------------- Percentage approved 0% 0% 0% 0% pursuant to pre-approval exception --------------------------------------------------------------------------------------------------------------------
(1) "Audit Fees" are the aggregate fees billed for professional services for the audit of the Fund's annual financial statements and services provided in connection with statutory and regulatory filings or engagements. (2) "Audit Related Fees" are the aggregate fees billed for assurance and related services reasonably related to the performance of the audit or review of financial statements and are not reported under "Audit Fees". (3) "Tax Fees" are the aggregate fees billed for professional services for tax advice, tax compliance, and tax planning. (4) "All Other Fees" are the aggregate fees billed for products and services other than "Audit Fees", "Audit Related Fees", and "Tax Fees". SERVICES THAT THE FUND'S AUDITOR BILLED TO THE ADVISER AND AFFILIATED FUND SERVICE PROVIDERS The following tables show the amount of fees billed by Ernst & Young LLP to Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling, controlled by or under common control with NAM ("Control Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for engagements directly related to the Fund's operations and financial reporting, during the Fund's last two full fiscal years. The tables also show the percentage of fees subject to the pre-approval exception. The pre-approval exception for services provided to the Adviser and any Affiliated Fund Service Provider (other than audit, review or attest services) waives the pre-approval requirement if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund Service Providers during the fiscal year in which the services are provided that would have to be pre-approved by the Audit Committee; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee's attention, and the Committee (or its delegate) approves the services before the Fund's audit is completed.
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND SERVICE PROVIDERS SERVICE PROVIDERS (1) SERVICE PROVIDERS ------------------------------------------------------------------------------------------------------------------ December 31, 2006 $ 0 $ 5,400 $ 0 ------------------------------------------------------------------------------------------------------------------ Percentage approved 0% 0% 0% pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------ December 31, 2005 $ 0 $ 4,950 $ 0 ------------------------------------------------------------------------------------------------------------------ Percentage approved 0% 0% 0% pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------
(1) The amounts reported for the Fund under the column heading "Tax Fees" represents amounts billed to the Adviser exclusively for the preparation for the Fund's tax return, the cost of which is borne by the Adviser. In the aggregate, for all Nuveen funds for which Ernst & Young LLP serves as independent registered public accounting firm, these fees amounted to $288,000 in 2006 and $282,575 in 2005. NON-AUDIT SERVICES The following table shows the amount of fees that Ernst & Young LLP billed during the Fund's last two full fiscal years for non-audit services. For engagements entered into on or after May 6, 2003, the Audit Committee is required to pre-approve non-audit services that Ernst & Young LLP provides to the Adviser and any Affiliated Fund Services Provider, if the engagement related directly to the Fund's operations and financial reporting (except for those subject to the de minimis exception described above). The Audit Committee requested and received information from Ernst & Young LLP about any non-audit services that Ernst & Young LLP rendered during the Fund's last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating Ernst & Young LLP's independence.
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES BILLED TO ADVISER AND AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL ------------------------------------------------------------------------------------------------------------------------------------ December 31, 2006 $ 4,750 $ 5,400 $ 0 $ 10,150 December 31, 2005 $ 6,136 $ 4,950 $ 0 $ 11,086
"Non-Audit Fees billed to Adviser" for both fiscal year ends represent "Tax Fees" billed to Adviser in their respective amounts from the previous table. Audit Committee Pre-Approval Policies and Procedures. Generally, the Audit Committee must approve (i) all non-audit services to be performed for the Fund by the Fund's independent accountants and (ii) all audit and non-audit services to be performed by the Fund's independent accountants for the Affiliated Fund Service Providers with respect to operations and financial reporting of the Fund. Regarding tax and research projects conducted by the independent accountants for the Fund and Affiliated Fund Service Providers (with respect to operations and financial reports of the Fund) such engagements will be (i) pre-approved by the Audit Committee if they are expected to be for amounts greater than $10,000; (ii) reported to the Audit Committee chairman for his verbal approval prior to engagement if they are expected to be for amounts under $10,000 but greater than $5,000; and (iii) reported to the Audit Committee at the next Audit Committee meeting if they are expected to be for an amount under $5,000. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. The registrant's Board of Directors or Trustees has a separately designated Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78c(a)(58)(A)). The members of the audit committee are Robert P. Bremner, Lawrence H. Brown, Jack B. Evans, William J. Schneider and Eugene S. Sunshine. ITEM 6. SCHEDULE OF INVESTMENTS. See Portfolio of Investments in Item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The Adviser has engaged Spectrum Asset Management, Inc. ("Spectrum" or "Sub-Adviser") as Sub-Adviser to provide discretionary investment advisory services. As part of these services, the Adviser has also delegated to the Sub-Adviser the full responsibility for proxy voting and related duties in accordance with the Sub-Adviser's policy and procedures. The Adviser periodically will monitor the Sub-Adviser's voting to ensure that they are carrying out their duties. The Sub-Adviser's proxy voting policies and procedures are summarized as follows: Spectrum has adopted a Policy on Proxy Voting for Investment Advisory Clients (the "Voting Policy"), which provides that Spectrum aims to ensure that, when delegated proxy voting authority by a client, Spectrum act (1) solely in the interest of the client in providing for ultimate long-term stockholder value, and (2) without undue influence from individuals or groups who may have an economic interest in the outcome of a proxy vote. Spectrum relies on the custodian bank to deliver proxies to Spectrum for voting. Spectrum has selected Institutional Shareholder Services, Inc. ("ISS") to assist with Spectrum's proxy voting responsibilities. Spectrum generally follows ISS standard proxy voting guidelines which embody the positions and factors Spectrum considers important in casting proxy votes. In connection with each proxy vote, ISS prepares a written analysis and recommendation based on its guidelines. In order to avoid any conflict of interest for ISS, the CCO will require ISS to deliver additional information or certify that ISS has adopted policies and procedures to detect and mitigate such conflicts of interest in issuing voting recommendations. Spectrum also may obtain voting recommendations from two proxy voting services as an additional check on the independence of ISS' voting recommendations. Spectrum may, on any particular proxy vote, diverge from ISS' guidelines or recommendations. In such a case, Spectrum's Voting Policy requires that: (i) the requesting party document the reason for the request; (ii) the approval of the Chief Investment Officer; (iii) notification to appropriate compliance personnel; (iv) a determination that the decision is not influenced by any conflict of interest; and (v) a written record of the process. When Spectrum determines not to follow ISS' guidelines or recommendations, Spectrum classifies proxy voting issues into three broad categories: (1) Routine Administrative Items; (2) Special Interest Issues; and (3) Issues having the Potential for Significant Economic Impact, and casts proxy votes in accordance with the philosophy and decision guidelines developed for that category in the Voting Policy. - Routine Administrative Items. Spectrum is willing to defer to management on matters a routine administrative nature. Examples of issues on which Spectrum will normally defer to management's recommendation include selection of auditors, increasing the authorized number of common shares and the election of unopposed directors. - Special Interest Issues. In general, Spectrum will abstain from voting on shareholder social, political, environmental proposals because their long-term impact on share value cannot be calculated with any reasonable degree of confidence. - Issues Having the Potential for Significant Economic Impact. Spectrum is not willing to defer to management on proposals which have the potential for major economic impact on the corporation and value of its shares and believes such issues should be carefully analyzed and decided by shareholders. Examples of such issues are classification of board of directors' cumulative voting and supermajority provisions, defensive strategies (e.g., greenmail prevention), business combinations and restructurings and executive and director compensation. Conflicts of Interest. There may be a material conflict of interest when Spectrum votes, on behalf of a client, a proxy that is solicited by an affiliated person of Spectrum or another Spectrum client. To avoid such conflicts, Spectrum has established procedures under its Voting Policy to seek to ensure that voting decisions are based on a client's best interests and are not the product of a material conflict. In addition to employee monitoring for potential conflicts, the CCO reviews Spectrum's and its affiliates' material business relationships and personal and financial relationships of senior personnel of Spectrum and its affiliates to monitor for conflicts of interest. If a conflict of interest is identified, Spectrum considers both financial and non-financial materiality to determine if a conflict of interest is material. If a material conflict of interest is found to exist, the CCO discloses the conflict to affected clients and obtains consent from each client in the manner in which Spectrum proposed to vote. Spectrum clients can obtain a copy of the Voting Policy or information on how Spectrum voted their proxies by calling Spectrum's Compliance Department at (203) 322-0189. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The Adviser has engaged Spectrum Asset Management, Inc. (the "Sub-Adviser") as sub-adviser to provide discretionary investment advisory services. The following section provides information on the portfolio managers at the Sub-Adviser. A. PORTFOLIO MANAGER BIOGRAPHIES: MARK A. LIEB - Mr. Lieb is Chief Financial Officer and is responsible for business development. Prior to founding Spectrum in 1987, Mr. Lieb was a Founder, Director and Partner of DBL Preferred Management, Inc., a wholly owned corporate cash management subsidiary of Drexel Burnham Lambert, Inc. Mr. Lieb was instrumental in the formation and development of all aspects of DBL Preferred Management, Inc., including the daily management of preferred stock portfolios for institutional clients, hedging strategies, and marketing strategies. Mr. Lieb's prior employment included the development of the preferred stock trading desk at Mosley Hallgarten & Estabrook. BA Economics, Central Connecticut State College; MBA Finance, University of Hartford. L. PHILLIP JACOBY, IV - Managing Director and Senior Portfolio Manager. Mr. Jacoby joined Spectrum in 1995 as Portfolio Manager. Previously, Mr. Jacoby was a Senior Investment Officer at USL Capital Corporation (a subsidiary of Ford Motor Corporation) and was a co-manager of a the preferred stock portfolio of its US Corporate Financing Division for six years. Mr. Jacoby began his career in 1981 with The Northern Trust Company, Chicago and then moved to Los Angeles to join E.F. Hutton & Co. as a Vice President and Institutional Salesman, Generalist Fixed Income Sales through most of the 1980s. BSBA (Finance), Boston University School of Management. BERNARD M. SUSSMAN - Mr. Sussman is Chief Investment Officer and Chairman of Spectrum's Investment Committee. Prior to joining Spectrum in 1995, Mr. Sussman was with Goldman Sachs & Co. for nearly 18 years. A General Partner and head of the Preferred Stock Department, he was in charge of sales, trading and underwriting for all preferred products and was instrumental in the development of the hybrid (MIPS) market. He was a Limited Partner at Goldman Sachs from December 1994 through November 1996. BS Industrial Relations and MBA Finance, Cornell University. NASD Series 55 "Equity Trader Limited Representative". B. OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
TYPE OF ACCOUNT NUMBER OF PORTFOLIO MANAGER MANAGED ACCOUNTS ASSETS* ----------------- ------------------------------ --------- -------------- Phillip Jacoby Separately Managed accounts 32 $2,482,964,695 Pooled Accounts 16 $2,254,008,805 Registered Investment Vehicles 10 $7,981,784,022 Mark Lieb Separately Managed accounts 41 $2,491,238,774 Pooled Accounts 16 $2,254,008,805 Registered Investment Vehicles 10 $7,981,784,022 Bernard Sussman Separately Managed accounts 37 $2,488,012,550 Pooled Accounts 16 $2,254,008,805 Registered Investment Vehicles 10 $7,981,784,022
C. POTENTIAL MATERIAL CONFLICTS OF INTEREST There are no material conflicts of interest to report. D. FUND MANAGER COMPENSATION All employees of Spectrum Asset Management are paid a base salary and discretionary bonus. The bonus is paid quarterly and may represent a significant proportion of an individual's total annual compensation. Discretionary bonuses are determined by management after consideration of several factors including but not necessarily limited to: - Changes in overall firm assets under management (employees have no direct incentive to increase assets) - Portfolio performance relative to benchmarks - Contribution to client servicing - Compliance with firm and/or regulatory policies and procedures - Work ethic - Seniority and length of service - Contribution to overall functioning of organization E. OWNERSHIP OF JTP SECURITIES AS OF DECEMBER 31, 2006
DOLLAR RANGE OF EQUITY SECURITIES BENEFICIALLY NAME OF PORTFOLIO MANAGER OWNED IN FUND ------------------------- ----------------------- Phillip Jacoby $ 0 Mark Lieb $ 0 Bernard Sussman $50,001 - $100,000
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's Board implemented after the registrant last provided disclosure in response to this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable because the code is posted on registrant's website at www.nuveen.com/etf and there were no amendments during the period covered by this report. (To view the code, click on the Investor Resources drop down menu box, click on Fund Governance and then Code of Conduct.) (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT Attached hereto. (a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. (b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR 270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Ex-99.906 CERT attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Nuveen Quality Preferred Income Fund By (Signature and Title)* /s/ Jessica R. Droeger ------------------------------------------ Jessica R. Droeger Vice President and Secretary Date: March 9, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Gifford R. Zimmerman ------------------------------------------ Gifford R. Zimmerman Chief Administrative Officer (principal executive officer) Date: March 9, 2007 By (Signature and Title)* /s/ Stephen D. Foy ------------------------------------------ Stephen D. Foy Vice President and Controller (principal financial officer) Date: March 9, 2007 * Print the name and title of each signing officer under his or her signature.