N-CSR 1 a11-14605_13ncsr.htm N-CSR

 

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

811-21242

 

Nuveen Quality Preferred Income Fund 3

(Exact name of registrant as specified in charter)

 

Nuveen Investments

333 West Wacker Drive

Chicago, IL 60606

(Address of principal executive offices) (Zip code)

 

Kevin J. McCarthy

Nuveen Investments

333 West Wacker Drive

Chicago, IL 60606

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

(312) 917-7700

 

 

Date of fiscal year end:

July 31

 

 

Date of reporting period:

July 31, 2011

 

 

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.

 



Closed-End Funds

Nuveen Investments

Closed-End Funds

Seeks High Current Income from a Portfolio of
Investment-Grade Preferred Securities

Annual Report, July 31, 2011

Nuveen Quality
Preferred Income Fund

JTP

Nuveen Quality
Preferred Income Fund 2

JPS

Nuveen Quality
Preferred Income Fund 3

JHP






INVESTMENT ADVISER NAME CHANGE

Effective January 1, 2011, Nuveen Asset Management, the Funds' investment adviser, changed its name to Nuveen Fund Advisors, Inc. ("Nuveen Fund Advisors"). Concurrently, Nuveen Fund Advisors formed a wholly-owned subsidiary, Nuveen Asset Management, LLC, to house its portfolio management capabilities.

NUVEEN INVESTMENTS COMPLETES STRATEGIC COMBINATION WITH FAF ADVISORS

On December 31, 2010, Nuveen Investments completed the strategic combination between Nuveen Asset Management, LLC, the largest investment affiliate of Nuveen Investments, and FAF Advisors. As part of this transaction, U.S. Bancorp—the parent of FAF Advisors—received cash consideration and a 9.5% stake in Nuveen Investments in exchange for the long term investment business of FAF Advisors, including investment-management responsibilities for the non-money market mutual funds of the First American Funds family.

The approximately $27 billion of mutual fund and institutional assets managed by FAF Advisors, along with the investment professionals managing these assets and other key personnel, have become part of Nuveen Asset Management, LLC. With these additions to Nuveen Asset Management, LLC, this affiliate now manages more than $100 billion of assets across a broad range of strategies from municipal and taxable fixed income to traditional and specialized equity investments.

This combination does not affect the investment objectives or strategies of the Funds in this report. Over time, Nuveen Investments expects that the combination will provide even more ways to meet the needs of investors who work with financial advisors and consultants by enhancing the multi-boutique model of Nuveen Investments, which also includes highly respected investment teams at HydePark, NWQ Investment Management, Santa Barbara Asset Management, Symphony Asset Management, Tradewinds Global Investors and Winslow Capital. Nuveen Investments managed approximately $210 billion of assets as of June 30, 2011.



Table of Contents

Chairman's Letter to Shareholders   4  
Portfolio Managers' Comments   5  
Common Share Distribution and Share Price Information   10  
Performance Overviews   11  
Shareholder Meeting Report   14  
Report of Independent Registered Public Accounting Firm   15  
Portfolios of Investments   16  
Statement of Assets & Liabilities   33  
Statement of Operations   34  
Statement of Changes in Net Assets   35  
Statement of Cash Flows   37  
Financial Highlights   40  
Notes to Financial Statements   43  
Board Members and Officers   55  
Annual Investment Management Agreement Approval Process   61  
Reinvest Automatically Easily and Conveniently   69  
Glossary of Terms Used in this Report   71  
Other Useful Information   72  


Intentionally Left Blank




Chairman's
Letter to Shareholders

Dear Shareholders,

The global economy continues to be weighed down by an unusual combination of pressures facing the larger developed economies. Japanese leaders continue to work through the economic aftereffects of the March 2011 earthquake and tsunami. Political leaders in Europe and the U.S. have resolved some of the near term fiscal problems, but the financial markets are not convinced that these leaders are able to address more complex longer term fiscal issues. Despite improved earnings and capital increases, the largest banks in these countries continue to be vulnerable to deteriorating mortgage portfolios and sovereign credit exposure, adding another source of uncertainty to the global financial system.

In the U.S., recent economic statistics indicate that the economic recovery may be losing momentum. Consumption, which represents about 70% of the gross domestic product, faces an array of challenges from seemingly intractable declines in housing values, increased energy costs and limited growth in the job market. The failure of Congress and the administration to agree on the debt ceiling increase on a timely basis and the deep divisions between the political parties over fashioning a balanced program to address growing fiscal imbalances that led to the recent S&P ratings downgrade add considerable uncertainty to the domestic economic picture.

On a more positive note, corporate earnings continue to hold up well and the municipal bond market is recovering from recent weakness as states and municipalities implement various programs to reduce their budgetary deficits. In addition, the Federal Reserve System has made it clear that it stands ready to take additional steps should the economic recovery falter. However, there are concerns that the Fed is approaching the limits of its resources to intervene in the economy.

These perplexing times highlight the importance of professional investment management. Your Nuveen investment team is working hard to develop an appropriate response to increased risk, and they continue to seek opportunities created by stressful markets using proven investment disciplines designed to help your Fund achieve its investment objectives. On your behalf, we monitor their activities to assure that they maintain their investment disciplines.

As always, I encourage you to contact your financial consultant if you have any questions about your investment in a Nuveen Fund. On behalf of the other members of your Fund Board, we look forward to continuing to earn your trust in the months and years ahead.

Sincerely,

Robert P. Bremner
Chairman of the Board
August 23, 2011

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Portfolio Managers' Comments

Certain statements in this report are forward-looking statements. Discussions of specific investments are for illustration only and are not intended as recommendations of individual investments. The forward-looking statements and other views expressed herein are those of the portfolio managers as of the date of this report. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements and the views expressed herein are subject to change at any time, due to numerous market and other factors. The Funds disclaim any obligation to update publicly or revise any forward-looking statements or views expressed herein.

Ratings shown are the highest rating given by one of the following national rating agencies: S&P, Moody's or Fitch. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. Bonds backed by U.S. Government or agency securities are given an implied rating equal to the rating of such securities. Holdings designated NR are not rated by a national rating agency.

Nuveen Quality Preferred Income Fund (JTP)
Nuveen Quality Preferred Income Fund 2 (JPS)
Nuveen Quality Preferred Income Fund 3 (JHP)

During the current fiscal period, the Funds' Board of Trustees approved a change in the Funds' fiscal year ends from December 31 to July 31. As a result, this annual report focuses on the seven-month period ended July 31, 2011. This change in fiscal year ends did not affect the objectives, investment strategies or portfolio management of the Funds.

The Funds are sub-advised by a team of specialists at Spectrum Asset Management, a wholly-owned subsidiary of Principal Global Investors, LLC. Mark Lieb and Phil Jacoby, who have more than 50 years of combined experience in the preferred securities markets, lead the team. Here Mark and Phil talk about their management strategy and the performance of each Fund for the seven-month period ended July 31, 2011.

What were the general market conditions for the seven-month period?

Economic growth was quite uneven over the reporting period. Early in 2011 there was widespread concern about financial contagion from several European countries and very slow growth, raising the probability of a double-dip recession in the United States. These fears seemed to be quelled as another round of quantitative easing was introduced by the Federal Reserve and consumer spending began to rebound. However, this relief was relatively short lived as renewed weakness in housing and higher food and energy prices put a damper on consumption at about the same time that supply chain disruptions from the Japanese tsunami and earthquake were distorting growth and suppressing job creation in many areas in the U.S. and around the world.

Throughout the period, the Fed continued to hold the benchmark fed funds rate in a target range of zero to 0.25% since cutting it to this record low level in December 2008. At its June 2011 meeting, the central bank downgraded growth estimates for the year while reaffirming that it anticipated keeping the fed funds rate at "exceptionally low levels" for an "extended period."

From a macro perspective, we ended the fiscal period facing many of the same uncertainties that we did as the period began. The Greek bailout had yet to be finalized and fiscal concerns had spread to other European countries such as Ireland, Portugal, Italy and Spain. At the same time, fears about slowing U.S. economic growth bubbled to the surface again, causing consumer spending to pull back. The employment situation seemed to plateau, with the national jobless rate registering 9.1% in July 2011. Also, the overall housing market continued to show weakness, weighed down by a backlog of distressed properties on the market and falling prices. For the twelve months ended

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Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares.

For additional information, see the individual Performance Overview for your Fund in this report.

*  Seven month returns are cumulative. All other returns are annualized.

1.  The Barclays Capital 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 Core Fixed Rate Preferred Securities Index, is designed to replicate the total return of a diversified group of investment-grade preferred securities.; and 2) 45% of the Barclays Capital 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. Returns do not include the effects of any sales charges or management fees. It is not possible to invest directly in this benchmark.

June 2011 (the most recent data available at the time this report was prepared), property values in the Standard & Poor's (S&P)/Case-Shiller index of 20 major metropolitan areas had fallen 4.5% from one year earlier. U.S. gross domestic product (GDP), a broad measure of the nation's economic health, was revised downward to an anemic 0.4% annual growth rate for the first quarter of 2011 and estimated to be 1.3% for the second quarter, according to the Commerce Department.

For the reporting period, preferred securities were up about 4.5%, on average, according to the broad hybrid preferred securities indices.

What was your management strategy during the period?

The investment objective of each Fund is to earn high current income consistent with capital preservation. Each Fund's secondary objective is to enhance portfolio value. Under normal market conditions, the Funds seek to invest at least 80% of their net assets in preferred securities and up to 20% in debt securities, including convertible debt securities and convertible preferred securities.

Our basic strategy is to stay relatively balanced between the individual investor-oriented $25 par preferred securities often traded on securities exchanges and the institutional investor-oriented $1000 par preferred securities traded over-the-counter in the capital markets. Both types of securities offer unique short term capital performance differences, which together with the broad diversification benefits of the combined universe, help to produce potentially attractive risk-adjusted rates of return.

We keep a risk-averse posture toward security structure. This is an important core aspect of our strategy, which, over the long-term, seeks to preserve capital and provide attractive income.

We also maintain approximately a 60% weighting to U.S. names and a 40% weighting to foreign names as part of the basic strategy that keeps all the Funds in a neutral position relative to the benchmark.

How did the Funds perform over this seven-month period?

The performance of JTP, JPS and JHP, as well as a comparative index and benchmark, is presented in the accompanying table.

Average Annual Returns on Common Share Net Asset Value*

For periods ended 7/31/11

    7-Month*   1-Year   5-Year  
JTP     6.74 %     14.00 %     -1.05 %  
JPS     5.99 %     14.28 %     -0.19 %  
JHP     5.69 %     14.61 %     -0.66 %  
Barclays Capital Aggregate Bond Index1     4.35 %     4.44 %     6.57 %  
Comparative Benchmark2     4.53 %     9.67 %     1.77 %  

 

For this seven-month period, JTP, JPS and JHP outperformed the general market and comparative benchmark indexes.

During the seven-month reporting period, we bought call protection and traded out of higher priced securities in favor of discount paper to provide more opportunity for

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capital upside. We reduced our European banking concentration the first two weeks of May by reducing exposure to French banks by 50% and Spanish banks by 25% ahead of the sovereign debt turmoil that played out into mid-June. We also increased concentration in Australian property & casualty insurance companies and U.S. non-financials, which helped to preserve capital amidst declines in the European banking sector.

We remained overweight in capital securities by 7% relative to the custom benchmark in order to more fully benefit from the technical value inherent in certain hybrid securities—this is in keeping with current trends underway in the hybrid preferred securities market.

Several specific holdings contributed to positive performance, including Deutsche Bank 6.55% (DXB), Aegon 6.375% (AEH), ING 7.05 (IND), XL Capital 6.50% and Centaur Funding 9.08%.

As mentioned previously, the market had two shocks to contend with during the period. The reinsurance industry paid out increased catastrophe loss payments to satisfy claims from the tsunami damage in Japan. This was coupled with the protracted European sovereign debt concerns that revalued financial risk in the foreign bank names of the region, as well as in some of the foreign insurance issues.

Several specific positions underperformed with marginally breakeven returns for the seven-month period. These included Dai-ichi Life, AXA Insurance, Credit Suisse, LBG (Lloyds) Capital and Credit Suisse.

During the period, each Fund also entered into interest rate swaps to partially fix the interest cost of leverage, which each Fund uses through the use of bank borrowings. This portion of the Funds is overseen by Nuveen Fund Advisors, Inc., an affiliate of Nuveen Investments.

IMPACT OF THE FUNDS' LEVERAGE STRATEGY ON PERFORMANCE

One important factor impacting the return of the Funds relative to the benchmarks was the Funds' use of financial leverage through the use of bank borrowings. The Funds use leverage because their managers believe that, over time, leveraging provides opportunities for additional income and total return for common shareholders. However, use of leverage also can expose common shareholders to additional volatility. For example, as the prices of securities held by a Fund decline, the negative impact of these valuation changes on common share net asset value and common shareholder total return is magnified by the use of leverage. Conversely, leverage may enhance common share returns during periods when the prices of securities held by a Fund generally are rising. Leverage made a positive contribution to the performance of these Funds over this reporting period.

RECENT DEVELOPMENTS REGARDING THE FUNDS' REDEMPTION OF AUCTION RATE PREFERRED SHARES

Shortly after their inceptions, the Funds issued auction rate preferred shares (ARPS) to create structural leverage. As noted in past shareholder reports, the weekly auctions for those ARPS shares began in February 2008 to consistently fail, causing the Funds to pay the so called "maximum rate" to ARPS shareholders under the terms of the ARPS in the

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Funds' charter documents. The Funds redeemed their ARPS at par in 2009 and since then have relied upon bank borrowings to create structural leverage.

During 2010 and 2011, certain Nuveen leveraged closed-end funds (including these Funds) received a demand letter from a law firm on behalf of purported holders of common shares of each such fund, alleging that Nuveen and the funds' officers and Board of Directors/Trustees breached their fiduciary duties related to the redemption at par of the funds' ARPS. In response, the Board established an ad hoc Demand Committee consisting of certain of its disinterested and independent Board members to investigate the claims. The Demand Committee retained independent counsel to assist it in conducting an extensive investigation. Based upon its investigation, the Demand Committee found that it was not in the best interests of each fund or its shareholders to take the actions suggested in the demand letters, and recommended that the full Board reject the demands made in the demand letters. After reviewing the findings and recommendation of the Demand Committee, the full Board of each fund unanimously adopted the Demand Committee's recommendation.

Subsequently, 33 of the funds that received demand letters (including these Funds) were named in a consolidated complaint as nominal defendants in a putative shareholder derivative action captioned Martin Safier, et al. v. Nuveen Asset Management, et al. that was filed in the Circuit Court of Cook County, Illinois, Chancery Division (the "Cook County Chancery Court") on February 18, 2011 (the "Complaint"). The Complaint, filed on behalf of purported holders of each fund's common shares, also name Nuveen Fund Advisors, Inc. as a defendant, together with current and former Officers and interested Director/Trustees of each of the funds (together with the nominal defendants, collectively, the "Defendants"). The Complaint contains the same basic allegations contained in the demand letters. The suits seek a declaration that the Defendants have breached their fiduciary duties, an order directing the Defendants not to redeem any ARPS at their liquidation value using fund assets, indeterminate monetary damages in favor of the funds and an award of plaintiffs' costs and disbursements in pursuing the action. The funds and other Defendants have filed a motion to dismiss the suit, which is still pending before the court. Nuveen Fund Advisors, Inc. believes that the Complaint is without merit, and is defending vigorously against these charges.

Regulatory Matters

During May 2011, Nuveen Securities, LLC, known as Nuveen Investments, LLC, prior to April 30, 2011, entered into a settlement with the Financial Industry Regulatory Authority (FINRA) with respect to certain allegations regarding Nuveen-sponsored closed-end fund ARPS marketing brochures. As part of this settlement, Nuveen Securities, LLC neither admitted to nor denied FINRA's allegations. Nuveen Securities, LLC is the broker-dealer subsidiary of Nuveen Investments.

The settlement with FINRA concludes an investigation that followed the widespread failure of auctions for ARPS and other auction rate securities, which generally began in mid-February 2008. In the settlement, FINRA alleged that certain marketing materials provided by Nuveen Securities, LLC were false and misleading. Nuveen Securities, LLC agreed to a censure and the payment of a $3 million fine.

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RISK CONSIDERATIONS

Fund shares are not guaranteed or endorsed by any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation. Past performance is no guarantee of future results. Fund common shares are subject to a variety of risks, including:

Investment Risk. The possible loss of the entire principal amount that you invest.

Price Risk. Shares of closed-end investment companies like these Funds frequently trade at a discount to their net asset value (NAV). Your common shares at any point in time may be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions.

Leverage Risk. Each Fund's use of leverage creates the possibility of higher volatility for the Fund's per share NAV, market price, distributions and returns. There is no assurance that a Fund's leveraging strategy will be successful.

Tax Risk. The tax treatment of Fund distributions may be affected by new IRS interpretations of the Internal Revenue Code and future changes in tax laws and regulations. This is particularly true for funds employing a managed distribution program.

Issuer Credit Risk. This is the risk that a security in a Fund's portfolio will fail to make dividend or interest payments when due.

Interest Rate Risk. Fixed-income securities such as bonds, preferred, convertible and other debt securities will decline in value if market interest rates rise.

Reinvestment Risk. If market interest rates decline, income earned from a Fund's portfolio may be reinvested at rates below that of the original bond that generated the income.

Preferred Stock Risk. Preferred stocks are subordinated to bonds and other debt instruments in a company's capital structure, and therefore are subject to greater credit risk.

Call Risk or Prepayment Risk. Issuers may exercise their option to prepay principal earlier than scheduled, forcing a Fund to reinvest in lower-yielding securities.

Non-U.S. Securities Risk. Investments in non-U.S securities involve special risks not typically associated with domestic investments including currency risk and adverse political, social and economic development. These risks often are magnified in emerging markets.

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Common Share Distribution
and Share Price Information

The following information regarding your Fund's distributions is current as of July 31, 2011, and likely will vary over time based on each Fund's investment activities and portfolio investment value changes.

During the seven-month reporting period, the Funds did not make any changes to their monthly distributions to common shareholders. Some of the important factors affecting the amount and composition of these distributions are summarized below.

The Funds employ financial leverage through the use of bank borrowings. Financial leverage provides the potential for higher earnings (net investment income), total returns and distributions over time, but—as noted earlier—also increases the variability of common shareholders' net asset value (NAV) per share in response to changing market conditions.

During certain periods, the Funds may pay dividends at a rate that may be more or less than the amount of net investment income actually earned by the Funds during the period. If a Fund has cumulatively earned more than it has paid in dividends, it holds excess in reserve as undistributed net investment income (UNII) as part of the Fund's NAV. Conversely, if a Fund has cumulatively paid dividends in excess of earnings, the excess constitutes negative UNII that is likewise reflected in a Funds' NAV. As of July 31, 2011, all three Funds had positive UNII balances for tax purposes. JTP and JPS had positive UNII balances and JHP had a negative UNII balance for financial reporting purposes.

Common Share Repurchases and Shares Price Information

As of July 31, 2011, and since the inception of the Funds' repurchase program, the Funds have not repurchased any of their outstanding common shares.

At July 31, 2011, the Funds' common share prices were trading at (-) discounts to their common share NAVs as shown in the accompanying table.

Fund   7/31/11
(-) Discount
  Seven-Month
Average
(-) Discount
 
JTP     (- )8.61%     (- )7.42%  
JPS     (- )7.98%     (- )7.42%  
JHP     (- )9.20%     (- )6.60%  

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JTP

Performance

OVERVIEW

Nuveen Quality Preferred Income Fund

  as of July 31, 2011

Portfolio Allocation (as a % of total investments)3,5

2010-2011 Monthly Distributions Per Common Share

Common Share Price Performance — Weekly Closing Price

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this Fund's Performance Overview page.

1 Current Distribution Rate is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Fund's cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital.

2 Excluding short-term investments.

3 Holdings are subject to change.

4 Rounds to less than 0.1%.

5 Excluding investments in derivatives.

6 As defined in Footnote 7—Management Fees and Other Transactions with Affiliates.

Fund Snapshot

Common Share Price   $ 7.54    
Common Share Net Asset Value (NAV)   $ 8.25    
Premium/(Discount) to NAV     -8.61 %  
Current Distribution Rate1      7.96 %  
Net Assets Applicable to
Common Shares ($000)
  $ 533,062    

 

Leverage

(as a % of managed assets)6

Structural Leverage     22.51 %  
Effective Leverage     22.51 %  

 

Average Annual Total Return

(Inception 6/25/02)

    On Share Price   On NAV  
7-Month (Cumulative)     6.62 %     6.74 %  
1-Year     6.76 %     14.00 %  
5-Year     -2.56 %     -1.05 %  
Since Inception     1.43 %     2.63 %  

 

Portfolio Composition

(as a % of total investments)3,5

Insurance     32.7 %  
Commercial Banks     23.9 %  
Real Estate/Mortgage     8.2 %  
Media     5.7 %  
Capital Markets     5.2 %  
Diversified Financial Services     4.9 %  
Real Estate     3.4 %  
Short-Term Investments     0.7 %  
Other     15.3 %  

 

Country Allocation

(as a % of total investments)3,5

United States     62.7 %  
United Kingdom     5.7 %  
Netherlands     5.6 %  
Bermuda     4.8 %  
Jersey Islands     4.2 %  
France     2.9 %  
Cayman Islands     2.6 %  
Other     11.5 %  

 

Top Five Issuers

(as a % of total investments)2,3,5

Firstar Realty LLC     3.4 %  
Viacom Inc.     2.8 %  
Reliance Capital Trust     2.7 %  
Aegon NV     2.6 %  
Centaur Funding Corp     2.6 %  

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Fund Snapshot

Common Share Price   $ 8.07    
Common Share Net Asset Value (NAV)   $ 8.77    
Premium/(Discount) to NAV     -7.98 %  
Current Distribution Rate1      8.18 %  
Net Assets Applicable to
Common Shares ($000)
  $ 1,055,468    

 

Leverage

(as a % of managed assets)5

Structural Leverage     22.63 %  
Effective Leverage     22.63 %  

 

Average Annual Total Return

(Inception 9/24/02)

    On Share Price   On NAV  
7-Month (Cumulative)     7.02 %     5.99 %  
1-Year     8.70 %     14.28 %  
5-Year     -1.60 %     -0.19 %  
Since Inception     2.46 %     3.63 %  

 

Portfolio Composition

(as a % of total investments)3,4

Insurance     32.1 %  
Commercial Banks     24.0 %  
Real Estate/Mortgage     11.0 %  
Diversified Financial Services     6.3 %  
Media     5.3 %  
Capital Markets     5.3 %  
Multi-Utilities     2.9 %  
Short-Term Investments     0.7 %  
Other     12.4 %  

 

Country Allocation

(as a % of total investments)3,4

United States     61.9 %  
Netherlands     6.3 %  
United Kingdom     6.2 %  
Bermuda     6.1 %  
France     3.9 %  
Ireland     2.7 %  
Cayman Islands     2.7 %  
Other     10.2 %  

 

Top Five Issuers

(as a % of total investments)2,3,4

Wachovia     3.3 %  
Aegon NV     2.8 %  
Centaur Funding Corp     2.7 %  
Deutsche Bank AG     2.2 %  
Vornado Realty LP     2.1 %  

JPS

Performance

OVERVIEW

Nuveen Quality Preferred Income Fund 2

  as of July 31, 2011

Portfolio Allocation (as a % of total investments)3,4

2010-2011 Monthly Distributions Per Common Share

Common Share Price Performance — Weekly Closing Price

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this Fund's Performance Overview page.

1 Current Distribution Rate is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Fund's cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital.

2 Excluding short-term investments.

3 Holdings are subject to change.

4 Excluding investments in derivatives.

5 As defined in Footnote 7—Management Fees and Other Transactions with Affiliates.

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JHP

Performance

OVERVIEW

Nuveen Quality Preferred Income Fund 3

  as of July 31, 2011

Portfolio Allocation (as a % of total investments)3,4

2010-2011 Monthly Distributions Per Common Share

Common Share Price Performance — Weekly Closing Price

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this Fund's Performance Overview page.

1 Current Distribution Rate is based on the Fund's current annualized monthly distribution divided by the Fund's current market price. The Fund's monthly distributions to its shareholders may be comprised of ordinary income, net realized capital gains and, if at the end of the calendar year the Fund's cumulative net ordinary income and net realized gains are less than the amount of the Fund's distributions, a tax return of capital.

2 Excluding short-term investments.

3 Holdings are subject to change.

4 Excluding investments in derivatives.

5 As defined in Footnote 7—Management Fees and Other Transactions with Affiliates.

Fund Snapshot

Common Share Price   $ 7.70    
Common Share Net Asset Value (NAV)   $ 8.48    
Premium/(Discount) to NAV     -9.20 %  
Current Distribution Rate1      8.10 %  
Net Assets Applicable to
Common Shares ($000)
  $ 201,139    

 

Leverage

(as a % of managed assets)5

Structural Leverage     22.65 %  
Effective Leverage     22.65 %  

 

Average Annual Total Return

(Inception 12/18/02)

    On Share Price   On NAV  
7-Month (Cumulative)     4.08 %     5.69 %  
1-Year     6.92 %     14.61 %  
5-Year     -2.51 %     -0.66 %  
Since Inception     1.37 %     2.77 %  

 

Portfolio Composition

(as a % of total investments)3,4

Insurance     32.8 %  
Commercial Banks     24.7 %  
Real Estate/Mortgage     9.9 %  
Capital Markets     6.7 %  
Diversified Financial Services     6.3 %  
Investment Companies     3.1 %  
Diversified Telecommunication Services     3.0 %  
Short-Term Investments     0.7 %  
Other     12.8 %  

 

Country Allocation

(as a % of total investments)3,4

United States     63.6 %  
United Kingdom     6.5 %  
Bermuda     6.5 %  
Netherlands     4.6 %  
France     3.4 %  
Jersey Islands     3.3 %  
Cayman Islands     2.4 %  
Other     9.7 %  

 

Top Five Issuers

(as a % of total investments)2,3,4

First Union     3.7 %  
Deutsche Bank AG     3.6 %  
Aegon NV     2.8 %  
Centaur Funding Corp     2.4 %  
Viacom Inc.     2.3 %  

Nuveen Investments
13




JTP

JPS

JHP

Shareholder MEETING REPORT

The annual meeting of shareholders was held in the offices of Nuveen Investments on May 6, 2011; at this meeting the shareholders were asked to vote on the election of Board Members.

    JTP   JPS   JHP  
    Common
Shares
  Common
Shares
  Common
Shares
 
Approval of the Board Members was reached as follows:  
John P. Amboian  
For     56,968,711       107,452,217       21,438,509    
Withhold     1,633,564       2,381,665       594,608    
Total     58,602,275       109,833,882       22,033,117    
David J. Kundert  
For     56,949,637       107,318,047       21,433,434    
Withhold     1,652,638       2,515,835       599,683    
Total     58,602,275       109,833,882       22,033,117    
Terence J. Toth  
For     56,992,893       107,448,875       21,439,589    
Withhold     1,609,382       2,385,007       593,528    
Total     58,602,275       109,833,882       22,033,117    

 

 

Nuveen Investments
14



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 July 31, 2011, and the related statements of operations, changes in net assets, cash flows, and the financial highlights for each of 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 are 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 July 31, 2011, by correspondence with the custodian, brokers and counterparty. 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 July 31, 2011, and the results of their operations, the changes in their net assets, their cash flows, and the financial highlights for each of the periods indicated therein in conformity with U.S. generally accepted accounting principles.

Chicago, Illinois
September 13, 2011

Nuveen Investments
15




JTP

Nuveen Quality Preferred Income Fund

Portfolio of INVESTMENTS

  July 31, 2011

Shares   Description (1)     Coupon     Ratings (2)   Value  
    $25 Par (or similar) Preferred Securities – 65.9% (51.1% of Total Investments)  
    Capital Markets – 5.9%  
  137,200     Ameriprise Financial, Inc.           7.750 %         A   $ 3,770,256    
  75,644     BNY Capital Trust V, Series F           5.950 %         A1     1,900,177    
  515,776     Credit Suisse           7.900 %         A3     13,642,275    
  339,132     Deutsche Bank Capital Funding Trust II           6.550 %         BBB     7,996,733    
  83,000     Deutsche Bank Contingent Capital Trust III           7.600 %         BBB     2,094,920    
  37,900     Goldman Sachs Group Inc., Series GSC-3 (PPLUS)           6.000 %         A3     852,750    
  2,200     Goldman Sachs Group Inc., Series GSG-1 (PPLUS)           6.000 %         A1     52,426    
  4,500     Goldman Sachs Group Inc., Series GSG-2 (PPLUS)           5.750 %         A1     103,275    
  43,900     Morgan Stanley Capital Trust IV           6.250 %         Baa2     1,043,503    
    Total Capital Markets                             31,456,315    
    Commercial Banks – 10.4%  
  1,100     ABN AMRO North America Capital Funding, 144A           6.968 %         BB     750,063    
  323,100     Banco Santander Finance           10.500 %         A-     9,001,566    
  2,100     Barclays Bank PLC           6.625 %         A-     48,174    
  118,500     BB&T Capital Trust VI           9.600 %         Baa1     3,116,550    
  119,800     CoBank ACB, 144A           7.000 %         N/R     5,626,862    
  46,000     CoBank ACB           11.000 %         A     2,486,875    
  48,600     CoBank ACB           11.000 %         A     2,557,575    
  30,200     BB&T Capital Trust VII           8.100 %         Baa1     774,630    
  18,400     HSBC Holdings PLC, (3)           8.000 %         A-     502,320    
  13,800     HSBC Holdings PLC           6.200 %         A-     334,512    
  36,000     KeyCorp Capital Trust X           8.000 %         Baa3     917,280    
  80,308     Merrill Lynch Preferred Capital Trust V           7.280 %         Baa3     1,941,847    
  3,500,000     National Australia Bank           8.000 %         A+     3,788,925    
  275,041     National City Capital Trust II           6.625 %         BBB     7,013,546    
  7,100     PNC Financial Services Inc.           6.750 %         BBB     7,084,664    
  25,000     Royal Bank of Scotland Group PLC, Series L           5.750 %         BB     434,500    
  4,300,000     Royal Bank of Scotland Group PLC           7.648 %         BB     3,708,750    
  20,400     Wachovia Capital Trust IX           6.375 %         A-     511,224    
  120,000     Wells Fargo Capital Trust XII           7.875 %         A-     3,060,000    
  60,000     Wells Fargo Capital Trust IX           5.625 %         A-     1,485,000    
    Total Commercial Banks                             55,144,863    
    Diversified Financial Services – 4.1%  
  18,000     Bank of America Corporation           6.375 %         BB+     392,760    
  500     Citigroup Capital Trust VII           7.125 %         BB+     12,555    
  80,800     Citigroup Capital Trust XI           6.000 %         BB+     1,858,400    
  10,000     Citigroup Capital Trust XII           8.500 %         BB+     257,300    
  150,514     Citigroup Capital XIII           7.875 %         BB+     4,074,414    
  1,900     Citigroup Capital XIV           6.875 %         BB+     46,588    
  36,200     ING Groep N.V.           7.375 %         BBB-     825,360    
  625,776     ING Groep N.V.           7.200 %         BBB-     14,230,146    
  13,651     National Rural Utilities Cooperative Finance Corporation           5.950 %         A3     342,777    
    Total Diversified Financial Services                             22,040,300    
    Diversified Telecommunication Services – 0.1%  
  28,000     Telephone and Data Systems Inc.           6.875 %         Baa2     703,360    
    Electric Utilities – 1.1%  
  33,000     Alabama Power Company           6.450 %         BBB+     887,908    
  181,800     Entergy Texas Inc.           7.875 %         BBB+     5,181,300    
    Total Electric Utilities                             6,069,208    

 

Nuveen Investments
16



Shares   Description (1)     Coupon     Ratings (2)   Value  
    Food Products – 0.5%  
  28,100     Dairy Farmers of America Inc., 144A           7.875 %         BBB-   $ 2,529,880    
    Insurance – 20.2%  
  906     AAG Holding Company Inc.           7.250 %         BBB+     22,722    
  795,723     Aegon N.V.           6.375 %         BBB     17,816,238    
  326,106     Allianz SE           8.375 %         A+     8,519,519    
  480,648     Arch Capital Group Limited           8.000 %         BBB     12,093,104    
  3,250,000     Dai-Ichi Mutual Life, 144A           7.250 %         A3     3,430,261    
  228,238     Delphi Financial Group, Inc.           7.376 %         BB+     5,434,347    
  617,204     EverestRe Capital Trust II           6.200 %         Baa1     14,862,272    
  199,931     Markel Corporation           7.500 %         BBB     5,050,257    
  276,263     PartnerRe Limited, Series C           6.750 %         BBB+     6,790,545    
  10,539     PartnerRe Limited, Series D           6.500 %         BBB+     255,360    
  40,500     PLC Capital Trust III           7.500 %         BBB     1,027,890    
  386,042     PLC Capital Trust IV           7.250 %         BBB     9,678,073    
  166,360     Prudential Financial Inc.           6.750 %         A-     4,170,645    
  4,100,000     Reinsurance Group of America Inc.           6.750 %         BBB-     3,982,638    
  34,500     RenaissanceRe Holdings Limited, Series C           6.080 %         BBB+     814,545    
  232,691     RenaissanceRe Holdings Limited, Series D           6.600 %         BBB+     5,794,006    
  312,499     W. R. Berkley Corporation, Capital Trust II           6.750 %         BBB-     7,834,350    
    Total Insurance                             107,576,772    
    Media – 7.3%  
  131,141     CBS Corporation           6.750 %         BBB-     3,317,867    
  612,684     Comcast Corporation           7.000 %         BBB+     15,556,047    
  47,000     Comcast Corporation           6.625 %         BBB+     1,203,200    
  747,738     Viacom Inc.           6.850 %         BBB+     18,850,475    
    Total Media                             38,927,589    
    Multi-Utilities – 3.3%  
  244,700     Dominion Resources Inc.           8.375 %         BBB     6,868,729    
  10,000     Scana Corporation           7.700 %         BBB-     277,500    
  391,815     Xcel Energy Inc.           7.600 %         BBB     10,575,087    
    Total Multi-Utilities                             17,721,316    
    Oil, Gas & Consumable Fuels – 2.2%  
  467,481     Nexen Inc.           7.350 %         BB+     11,757,147    
    Pharmaceuticals – 0.1%  
  15,419     Bristol Myers Squibb Company (CORTS)           6.250 %         A+     388,867    
    Real Estate/Mortgage – 10.6%  
  3,800     Commomwealth REIT           7.500 %         BBB     79,990    
  164,500     Commomwealth REIT           7.250 %         Baa3     4,015,445    
  2,845     Commomwealth REIT           7.125 %         Baa3     69,589    
  80,607     Duke Realty Corporation, Series L           6.600 %         Baa3     1,942,629    
  18,192     Kimco Realty Corporation, Series F           6.650 %         Baa2     452,435    
  652,387     Kimco Realty Corporation, Series G           7.750 %         Baa2     16,909,871    
  10,294     Kimco Realty Corporation, Series H           6.900 %         Baa2     261,982    
  92,378     Prologis Inc.           6.750 %         Baa3     2,202,292    
  1,675     PS Business Parks, Inc.           6.875 %         BBB-     41,925    
  12,691     PS Business Parks, Inc.           0.000 %         BBB-     318,036    
  11,699     Public Storage, Inc., Series E           6.750 %         BBB+     293,996    
  2,542     Public Storage, Inc., Series F           6.450 %         BBB+     63,753    
  9,000     Public Storage, Inc., Series M           6.625 %         BBB+     228,690    
  29,300     Public Storage, Inc., Series Q           6.500 %         BBB+     747,150    
  107,100     Public Storage, Inc., Series Y, (3)           6.850 %         BBB+     2,506,815    
  70,216     Realty Income Corporation           6.750 %         Baa2     1,766,635    

 

Nuveen Investments
17



JTP

Nuveen Quality Preferred Income Fund (continued)

Portfolio of INVESTMENTS July 31, 2011

Shares   Description (1)     Coupon     Ratings (2)   Value  
    Real Estate/Mortgage (continued)  
  7,893     Regency Centers Corporation           7.250 %         Baa3   $ 197,641    
  452,734     Vornado Realty LP           7.875 %         BBB     12,042,724    
  165,282     Wachovia Preferred Funding Corporation, (4)           7.250 %         A-     4,217,997    
  298,102     Weingarten Realty Investors, Series F           6.500 %         Baa3     7,366,100    
  32,329     Weingarten Realty Trust           8.100 %         BBB     745,183    
    Total Real Estate/Mortgage                             56,470,878    
    Wireless Telecommunication Services – 0.1%  
  18,500     Telephone and Data Systems Inc.           7.000 %         Baa2     469,344    
    Total $25 Par (or similar) Preferred Securities (cost $342,476,930)                             351,255,839    
Principal
Amount (000)
  Description (1)     Coupon   Maturity   Ratings (2)   Value  
    Corporate Bonds – 7.2% (5.6% of Total Investments)  
    Capital Markets – 0.2%  
$ 1,000     Man Group PLC           5.000 %   8/09/17   Baa3   $ 885,453    
    Commercial Banks – 2.1%  
  8,400     LBG Capital I PLC, 144A           7.875 %   11/01/20   BB     7,875,000    
  3,400     Lloyds Banking Group LBG Capital 1, 144A           8.000 %   6/15/20   BB-     3,128,000    
  11,800     Total Commercial Banks                             11,003,000    
    Diversified Financial Services – 0.5%  
  3,100     Fortis Hybrid Financing           8.250 %   8/27/49   BBB     2,976,000    
    Electric Utilities – 0.6%  
  3,400     FPL Group Capital Inc.           6.650 %   6/15/17   BBB     3,391,500    
    Food & Staples Retailing – 1.3%  
  7,000     CVS Caremark Corporation           6.302 %   6/01/37   BBB-     6,825,000    
    Insurance – 2.3%  
  2,500     Prudential PLC, Convertible Bond           11.750 %   12/23/14   A-     2,928,875    
  9,400     QBE Capital Funding Trust II, 144A           7.250 %   5/24/41   BBB+     9,579,972    
  11,900     Total Insurance                             12,508,847    
    Multi-Utilities – 0.2%  
  1,000     Wisconsin Energy Corporation, (4)           6.250 %   5/15/17   Baa1     1,008,001    
$ 39,200     Total Corporate Bonds (cost $37,924,702)                             38,597,801    
Principal
Amount (000)/
Shares
  Description (1)     Coupon   Maturity   Ratings (2)   Value  
    Capital Preferred Securities – 51.9% (40.2% of Total Investments)  
    Capital Markets – 0.7%  
  1,200     ABN AMRO North America Holding Capital, 144A           6.523 %   12/31/49   BB+   $ 1,098,000    
  1,000     Credit Suisse Guernsey           0.951 %   5/15/17   A3     791,690    
  1,900     Dresdner Funding Trust I, 144A           8.151 %   6/30/31   Baa3     1,719,500    
    Total Capital Markets                             3,609,190    
    Commercial Banks – 18.4%  
  9,600     AgFirst Farm Credit Bank           8.393 %   12/15/11   A     9,788,160    
  2,100     American Express Company           6.800 %   9/01/16   Baa2     2,163,000    
  2,720     Banco Santander Finance           10.500 %   9/29/49   A-     2,955,751    

 

Nuveen Investments
18



Principal
Amount (000)/
Shares
  Description (1)     Coupon   Maturity   Ratings (2)   Value  
    Commercial Banks (continued)  
  700     BankAmerica Capital II, Series 2           8.000 %   12/15/26   Baa3   $ 714,875    
  4,000     BankAmerica Institutional Capital Trust, Series B, 144A           7.700 %   12/31/26   Baa3     4,065,000    
  2,800     Barclays Bank PLC           6.278 %   12/15/34   A-     2,240,000    
  900     Barclays Bank PLC, 144A           7.434 %   12/15/17   A-     902,250    
  2,500     Barclays Bank PLC, 144A           6.860 %   6/15/32   A-     2,218,750    
  2,500     BB&T Capital Trust IV           6.820 %   6/12/37   Baa1     2,531,250    
  400     First Empire Capital Trust I           8.234 %   2/01/27   Baa2     409,406    
  575     First Empire Capital Trust II           8.277 %   6/01/27   Baa2     590,772    
  3,500     Fulton Capital Trust I           6.290 %   2/01/36   Baa3     3,010,000    
  300     HBOS Capital Funding LP, 144A           6.071 %   6/30/14   BB     247,500    
  11,650     HSBC Capital Funding LP, Debt           10.176 %   6/30/50   A-     15,145,000    
  2,000     KeyCorp Capital III           7.750 %   7/15/29   Baa3     2,152,496    
  2,509     NB Capital Trust II           7.830 %   12/15/26   Baa3     2,549,771    
  2,400     NB Capital Trust IV           8.250 %   4/15/27   Baa3     2,457,000    
  5,000     Nordea Bank AB           8.375 %   3/25/15   A-     5,350,000    
  4,150     Rabobank Nederland, 144A           11.000 %   6/30/19   AA-     5,301,625    
  17,500     Reliance Capital Trust I, Series B           8.170 %   5/01/28   N/R     18,285,313    
  300     Societe Generale, 144A           5.922 %   4/05/57   BBB+     261,290    
  8,900     Societe Generale           8.750 %   10/07/49   BBB+     9,122,500    
  3,000     Sparebanken Rogaland, Notes, 144A           6.443 %   5/01/49   Ba1     2,875,545    
  1,550     Standard Chartered PLC, 144A           7.014 %   7/30/37   BBB     1,526,903    
  1,100     Suntrust Capital Trust VIII           6.100 %   12/01/66   Baa3     1,072,500    
    Total Commercial Banks                             97,936,657    
    Diversified Financial Services – 1.6%  
  200     Bank One Capital III           8.750 %   9/01/30   A2     256,127    
  4,000     JPMorgan Chase Capital Trust XXVII           7.000 %   11/01/39   A2     4,065,376    
  1,140     JPMorgan Chase Capital XXV           6.800 %   10/01/37   A2     1,155,678    
  47,500     JPMorgan Chase Capital Trust XXIX           6.700 %   4/02/40   A2     1,206,500    
  1,800     MBNA Corporation, Capital Trust A           8.278 %   12/01/26   Baa3     1,845,000    
    Total Diversified Financial Services                             8,528,681    
    Diversified Telecommunication Services – 3.3%  
  15     Centaur Funding Corporation, Series B           9.080 %   4/21/20   BBB     17,794,844    
    Electric Utilities – 0.7%  
  2,300     Dominion Resources Inc.           7.500 %   6/30/16   BBB     2,433,400    
  1,500     PPL Capital Funding, Inc.           6.700 %   3/30/17   BB+     1,478,250    
    Total Electric Utilities                             3,911,650    
    Insurance – 19.7%  
  4,500     Allstate Corporation           6.125 %   5/15/17   Baa1     4,398,750    
  3,800     AXA S.A., 144A           6.379 %   12/14/36   Baa1     3,192,000    
  4,800     AXA           8.600 %   12/15/30   A3     5,824,109    
  700     Catlin Insurance Company Limited           7.249 %   1/19/17   BBB+     661,500    
  9,925     Glen Meadows Pass Through Trust           6.505 %   2/15/17   BB+     8,386,625    
  5,500     Great West Life & Annuity Capital I, 144A           6.625 %   11/15/34   A-     5,253,650    
  3,800     Great West Life and Annuity Insurance Company, 144A           7.153 %   5/16/16   A-     3,866,500    
  2,150     Liberty Mutual Group Inc., 144A           10.750 %   6/15/58   Baa3     2,843,375    
  3,000     Liberty Mutual Group Inc., 144A           7.800 %   3/15/37   Baa3     3,030,000    
  5,100     Lincoln National Corporation           7.000 %   5/17/16   BBB     5,151,000    
  2,500     Lincoln National Corporation           6.050 %   4/20/17   BBB     2,375,000    
  6,300     MetLife Capital Trust IV, 144A           7.875 %   12/15/37   BBB     6,909,103    
  600     MetLife Capital Trust X, 144A           9.250 %   4/08/68   BBB     744,000    
  10,150     National Financial Services Inc.           6.750 %   5/15/37   Baa2     9,490,250    
  1,400     Nationwide Financial Services Capital Trust           7.899 %   3/01/37   Baa2     1,252,056    
  7,225     Oil Insurance Limited, 144A           7.558 %   6/30/11   Baa1     6,659,355    
  7,400     Old Mutual Capital Funding, Notes           8.000 %   6/22/53   Baa3     7,363,000    
  1,000     Progressive Corporation, (4)           6.700 %   6/15/67   A2     1,032,500    

 

Nuveen Investments
19



JTP

Nuveen Quality Preferred Income Fund (continued)

Portfolio of INVESTMENTS July 31, 2011

Principal
Amount (000)/
Shares
  Description (1)     Coupon   Maturity   Ratings (2)   Value  
    Insurance (continued)  
  3,200     Prudential Financial Inc.           8.875 %   6/15/18   BBB+   $ 3,720,000    
  1,000     Prudential PLC           6.500 %   6/29/49   A-     955,000    
  1,100     QBE Capital Funding Trust II, 144A           6.797 %   6/01/49   BBB+     1,044,247    
  3,000     Swiss Re Capital I           6.854 %   5/25/16   A-     2,941,281    
  15,000     XL Capital Ltd           6.500 %   10/15/57   BBB-     14,006,250    
  2,536     ZFS Finance USA Trust II 144A           6.450 %   12/15/65   A     2,574,040    
  1,260     ZFS Finance USA Trust V           6.500 %   5/09/67   A     1,253,700    
      Total Insurance                             104,927,291    
    Real Estate – 4.3%  
  19     Firstar Realty LLC, 144A           8.875 %   12/31/50   A2     23,043,438    
    Road & Rail – 2.1%  
  10,900     Burlington Northern Santa Fe Funding Trust I           6.613 %   1/15/26   BBB     11,254,250    
    Thrifts & Mortgage Finance – 0.4%  
  2,000     Caisse Nationale Des Caisses d'Epargne et de Prevoyance           6.750 %   1/27/49   BBB+     1,800,000    
    U.S. Agency – 0.7%  
  3     Farm Credit Bank of Texas           10.000 %   12/15/60   A3     3,894,062    
        Total Capital Preferred Securities (cost $264,552,577)                     276,700,063    
Shares   Description (1)     Coupon     Ratings (2)   Value  
    Convertible Preferred Securities – 0.0% (0.0% of Total Investments)  
    Commerical Banks – 0.0%  
  200     Wells Fargo & Company           7.500 %         A-   $ 212,340    
      Total Convertible Preferred Securities (cost $203,167)                     212,340    
Shares   Description (1)           Value  
    Investment Companies – 3.1% (2.4% of Total Investments)  
  315,548     BlackRock Credit Allocation Income Trust II                           $ 3,171,257    
  415,561     Flaherty and Crumrine/Claymore Preferred Securities Income Fund Inc.                             7,251,539    
  352,012     John Hancock Preferred Income Fund III                             5,822,279    
      Total Investment Companies (cost $20,807,508)                             16,245,075    
Principal
Amount (000)
  Description (1)     Coupon   Maturity     Value  
    Short-Term Investments – 0.9% (0.7% of Total Investments)  
$ 4,531

  Repurchase Agreement with Fixed Income Corporation, dated 7/29/11,
repurchase price $4,530,618, collateralized by $4,260,000,
U.S. Treasury Notes, 3.250%, due 12/31/16, value $4,622,100
          0.010 %   8/01/11         $ 4,530,614    
      Total Short-Term Investments (cost $4,530,614)                             4,530,614    
      Total Investments (cost $670,495,498) – 129.0%                             687,541,732    
      Borrowings – (29.1)% (5), (6)                             (154,875,000 )  
      Other Assets Less Liabilities – 0.1% (7)                             395,332    
      Net Assets Applicable to Common Shares – 100%                           $ 533,062,064    

 

Nuveen Investments
20



Investments in Derivatives

Interest Rate Swaps outstanding:

Counterparty   Notional
Amount
  Fund
Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate*   Fixed Rate
Payment
Frequency
  Termination
Date
  Unrealized
Appreciation
(Depreciation)
 
JPMorgan   $ 38,718,750     Receive   1-Month USD-LIBOR     0.360 %   Monthly   3/21/12   $ (6,220 )  
JPMorgan     38,718,750     Receive   1-Month USD-LIBOR     1.193     Monthly   3/21/14     (538,015 )  
Morgan Stanley     38,718,750     Receive   1-Month USD-LIBOR     2.064     Monthly   3/21/16     (1,135,556 )  
                            $ (1,679,791 )  

 

*  Annualized.

    For Fund portfolio compliance purposes, the Fund's industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry sub-classifications into sectors for reporting ease.

  (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 highest of Standard & Poor's Group ("Standard & Poor's"), Moody's Investor Service, Inc. ("Moody's") or Fitch, Inc. ("Fitch") rating. Ratings below BBB by Standard & Poor's, Baa by Moody's or BBB by Fitch are considered to be below investment grade. Holdings designated N/R are not rated by any of these national rating agencies.

  (3)  Non-income producing; issuer has not declared a dividend within the past twelve months.

  (4)  Investment, or portion of investment, has been pledged to collateralize the net payment obligations for investments in derivatives.

  (5)  Borrowings as a percentage of Total Investments is 22.5%.

  (6)  The Fund may pledge up to 100% of its eligible investments in the Portfolio of Investments as collateral for Borrowings. As of July 31, 2011, investments with a value of $352,044,169 have been pledged as collateral for Borrowings.

  (7)  Other Assets Less Liabilities includes the Value and/or the Unrealized Appreciation (Depreciation) of derivative instruments as noted within Investments in Derivatives.

  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.

  USD-LIBOR  United States Dollar–London Inter-Bank Offered Rate.

    See accompanying notes to financial statements.

Nuveen Investments
21




JPS

Nuveen Quality Preferred Income Fund 2

Portfolio of INVESTMENTS

  July 31, 2011

Shares   Description (1)     Coupon     Ratings (2)   Value  
    $25 Par (or similar) Preferred Securities – 64.5% (49.9% of Total Investments)  
    Capital Markets – 5.2%  
  381,200     Ameriprise Financial, Inc.           7.750 %           A     $ 10,475,376    
  6,400     Credit Suisse           7.900 %         A3     169,280    
  92,800     Deutsche Bank Capital Funding Trust I           7.350 %         BBB     2,307,936    
  1,276,135     Deutsche Bank Capital Funding Trust II           6.550 %         BBB     30,091,263    
  13,800     Deutsche Bank Capital Funding Trust IX           6.625 %         BBB     326,370    
  40,500     Deutsche Bank Capital Funding Trust V           8.050 %         BBB     1,047,735    
  95,651     Deutsche Bank Capital Funding Trust VIII           6.375 %         BBB     2,192,321    
  256,400     Deutsche Bank Contingent Capital Trust III           7.600 %         BBB     6,471,536    
  14,123     Goldman Sachs Group Inc.           6.125 %         A1     350,109    
  70,214     Goldman Sachs Group Inc., Series GSC-3 (PPLUS)           6.000 %         A3     1,579,815    
  4,000     Goldman Sachs Group Inc., Series GSG-1 (PPLUS)           6.000 %         A1     95,320    
  2,290     Morgan Stanley Capital Trust III           6.250 %         Baa2     54,639    
  2,800     Morgan Stanley Capital Trust V           5.750 %         Baa2     64,372    
    Total Capital Markets                             55,226,072    
    Commercial Banks – 8.1%  
  2,200     ABN AMRO North America Capital Funding, 144A           6.968 %         BB     1,500,125    
  181,000     Banco Santander Finance           10.500 %         A-     5,042,660    
  150,000     Barclays Bank PLC           8.125 %         A-     3,799,500    
  172,828     BB&T Capital Trust VI           9.600 %         Baa1     4,545,376    
  66,429     BB&T Capital Trust VII           8.100 %         Baa1     1,703,904    
  235,100     CoBank ACB, 144A           7.000 %         N/R     11,042,365    
  82,000     CoBank ACB           11.000 %           A       4,433,125    
  42,800     CoBank ACB           11.000 %           A       2,252,350    
  10,930     Fifth Third Capital Trust V           7.250 %         Baa3     276,092    
  2,917     Fifth Third Capital Trust VI           7.250 %         Baa3     73,713    
  5,200     Goldman Sachs Group Inc., Series GSC-4 Class A (PPLUS)           6.000 %         A3     119,912    
  10,500,000     HSBC Bank PLC           1.000 %         A     6,300,000    
  404,800     HSBC Holdings PLC, (3)           8.000 %         A-     11,051,040    
  102,700     HSBC Holdings PLC           6.200 %         A-     2,489,448    
  6,166     KeyCorp Capital Trust X           8.000 %         Baa3     157,110    
  5,600,000     National Australia Bank           8.000 %         A+     6,062,280    
  197,891     National City Capital Trust II           6.625 %         BBB     5,046,221    
  20,000     PNC Financial Services Inc.           6.750 %         BBB     19,956,800    
    Total Commercial Banks                             85,852,021    
    Consumer Finance – 0.0%  
  20,100     HSBC USA Inc., Series H           6.500 %         A-     500,691    
    Diversified Financial Services – 4.5%  
  139,900     Citigroup Capital Trust XI           6.000 %         BB+     3,217,700    
  94,800     Citigroup Capital Trust XII           8.500 %         BB+     2,439,204    
  271,589     Citigroup Capital XIII           7.875 %         BB+     7,351,914    
  40,000     Citigroup Capital XVI           6.450 %         BB+     923,600    
  770,313     ING Groep N.V.           7.200 %         BBB-     17,516,918    
  729,055     ING Groep N.V.           7.050 %         BBB-     16,345,413    
    Total Diversified Financial Services                             47,794,749    
    Diversified Telecommunication Services – 0.2%  
  70,501     Telephone and Data Systems Inc.           6.875 %         Baa2     1,770,985    

 

Nuveen Investments
22



Shares   Description (1)     Coupon     Ratings (2)   Value  
    Electric Utilities – 1.2%  
  135,400     Alabama Power Company           6.450 %         BBB+   $ 3,643,113    
  59,650     Entergy Louisiana LLC           5.875 %         A-     1,550,304    
  69,300     Entergy Texas Inc.           7.875 %         BBB+     1,975,050    
  12,533     FPL Group Capital Trust I           5.875 %         BBB     318,965    
  216,300     PPL Capital Funding, Inc.           6.850 %         BBB-     5,491,857    
    Total Electric Utilities                             12,979,289    
    Food Products – 0.5%  
  53,400     Dairy Farmers of America Inc., 144A           7.875 %         BBB-     4,807,671    
    Insurance – 17.8%  
  1,717,889     Aegon N.V.           6.375 %         BBB     38,463,535    
  617,913     Allianz SE           8.375 %         A+     16,142,977    
  913,746     Arch Capital Group Limited           8.000 %         BBB     22,989,849    
  6,500,000     Dai-Ichi Mutual Life, 144A           7.250 %         A3     6,860,523    
  404,700     Delphi Financial Group, Inc.           7.376 %         BB+     9,635,907    
  310,216     EverestRe Capital Trust II           6.200 %         Baa1     7,470,001    
  475,999     Markel Corporation           7.500 %         BBB     12,023,735    
  579,002     PartnerRe Limited, Series C           6.750 %         BBB+     14,231,869    
  106,800     PLC Capital Trust III           7.500 %         BBB     2,710,584    
  443,236     PLC Capital Trust IV           7.250 %         BBB     11,111,927    
  11,153     Protective Life Corporation           7.250 %         BBB     277,487    
  200,842     Prudential Financial Inc.           9.000 %         BBB+     5,468,928    
  317,875     Prudential Financial Inc.           6.750 %         A-     7,969,126    
  4,000,000     Reinsurance Group of America Inc.           6.750 %         BBB-     3,885,500    
  410,974     RenaissanceRe Holdings Limited, Series D           6.600 %         BBB+     10,233,253    
  717,391     W. R. Berkley Corporation, Capital Trust II           6.750 %         BBB-     17,984,992    
    Total Insurance                             187,460,193    
    Media – 6.9%  
  746,750     CBS Corporation           6.750 %         BBB-     18,892,775    
  1,018,440     Comcast Corporation           7.000 %         BBB+     25,858,192    
  145,000     Comcast Corporation           6.625 %         BBB+     3,712,000    
  961,340     Viacom Inc.           6.850 %         BBB+     24,235,381    
    Total Media                             72,698,348    
    Multi-Utilities – 3.8%  
  543,823     Dominion Resources Inc.           8.375 %         BBB     15,265,112    
  148,500     Scana Corporation           7.700 %         BBB-     4,120,875    
  768,182     Xcel Energy Inc.           7.600 %         BBB     20,733,232    
    Total Multi-Utilities                             40,119,219    
    Oil, Gas & Consumable Fuels – 1.9%  
  793,430     Nexen Inc.           7.350 %         BB+     19,954,765    
    Pharmaceuticals – 0.0%  
  4,500     Bristol Myers Squibb Company (CORTS)           6.250 %         A+     113,490    
    Real Estate/Mortgage – 14.3%  
  43,840     Commomwealth REIT           7.125 %         Baa3     1,072,326    
  162,000     Duke Realty Corporation, Series L           6.600 %         Baa3     3,904,200    
  8,710     Harris Preferred Capital Corporation, Series A           7.375 %         A-     219,666    
  67,000     Kimco Realty Corporation, Series F           6.650 %         Baa2     1,666,290    
  909,886     Kimco Realty Corporation, Series G           7.750 %         Baa2     23,584,245    
  62,865     Kimco Realty Corporation, Series H           6.900 %         Baa2     1,599,914    
  82,301     Prologis Inc., Series C           8.540 %         Baa3     4,704,021    
  89,050     Prologis Inc., Series G           6.750 %         Baa3     2,122,952    

 

Nuveen Investments
23



JPS

Nuveen Quality Preferred Income Fund 2 (continued)

Portfolio of INVESTMENTS July 31, 2011

Shares   Description (1)     Coupon     Ratings (2)   Value  
    Real Estate/Mortgage (continued)  
  16,607     Prologis Inc., Series L           6.500 %         Baa2   $ 403,550    
  6,524     Prologis Inc., Series R           6.750 %         Baa3     156,446    
  10,357     Public Storage, Inc., Series C           6.600 %         BBB+     259,961    
  110,300     Public Storage, Inc., Series E           6.750 %         BBB+     2,771,839    
  8,900     Public Storage, Inc., Series F           6.450 %         BBB+     223,212    
  16,650     Public Storage, Inc., Series H           6.950 %         BBB+     421,578    
  36,400     Public Storage, Inc., Series Q           6.500 %         BBB+     928,200    
  67,600     Public Storage, Inc., Series Y, (3)           6.850 %         BBB+     1,582,266    
  47,977     Realty Income Corporation           7.375 %         Baa2     1,233,009    
  446,756     Realty Income Corporation           6.750 %         Baa2     11,240,381    
  222,744     Regency Centers Corporation           7.250 %         Baa3     5,577,510    
  1,079,521     Vornado Realty LP           7.875 %         BBB     28,715,259    
  1,767,227     Wachovia Preferred Funding Corporation           7.250 %         A-     45,099,633    
  157,644     Weingarten Realty Trust           8.100 %         BBB     3,633,694    
  149,245     Weingarten Realty Trust           6.950 %         Baa3     3,737,094    
  230,192     Weingarten Realty Trust           6.500 %         Baa3     5,688,043    
    Total Real Estate/Mortgage                             150,545,289    
    Wireless Telecommunication Services – 0.1%  
  24,050     Telephone and Data Systems Inc.           7.000 %         Baa2     610,148    
    Total $25 Par (or similar) Preferred Securities (cost $665,613,428)                             680,432,930    
Principal
Amount (000)
  Description (1)  
  Coupon   Maturity   Ratings (2)   Value  
    Corporate Bonds – 6.0% (4.6% of Total Investments)  
    Capital Markets – 0.1%  
$ 600     Man Group PLC           5.000 %   8/09/17   Baa3   $ 531,272    
    Commercial Banks – 1.7%  
  1,000     Den Norske Bank           0.875 %   2/18/35   Baa1     600,000    
  1,000     Den Norske Bank           0.657 %   2/24/37   Baa1     590,000    
  5,000     Groupe BCPE           3.800 %   12/30/49   BBB+     3,275,750    
  6,500     LBG Capital I PLC, 144A           7.875 %   11/01/20   BB     6,093,750    
  7,500     Lloyds Banking Group LBG Capital 1, 144A           8.000 %   6/15/20   BB-     6,900,000    
  650     Swedbank ForengingsSparbanken AB, 144