N-Q 1 nq1.htm NKR Form N-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM N-Q


QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number         811-10553         

        Nuveen Arizona Dividend Advantage Municipal Fund 2         
(Exact name of registrant as specified in charter)


        333 West Wacker Drive, Chicago, Illinois 60606         
(Address of principal executive offices) (Zip code)


Jessica R. Droeger—Vice President and Secretary
        333 West Wacker Drive, Chicago, Illinois 60606         
(Name and address of agent for service)

Registrant's telephone number, including area code:         312-917-7700        

Date of fiscal year end:            7/31          

Date of reporting period:          10/31/05         

Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q 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 the 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. § 3507.

Item 1. Schedule of Investments

  Portfolio of Investments (Unaudited)
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR)
October 31, 2005

Principal    Optional Call    Market 
Amount (000)  Description(1)   Provisions*  Ratings**  Value 
  Education and Civic Organizations - 10.7% (7.3% of Total Investments)       
$ 1,250  Glendale Industrial Development Authority, Arizona, Revenue Bonds, Midwestern University, Series  5/11 at 101.00  A-  $ 1,323,325 
  2001A, 5.875%, 5/15/31       
460  Pima County Industrial Development Authority, Arizona, Charter School Revenue Bonds, Noah Webster  12/14 at 100.00  BBB-  469,513 
  Basic Schools Inc., Series 2004, 6.000%, 12/15/24       
320  Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities  2/09 at 101.00  BBB-  326,934 
  Financing Authority, Higher Education Revenue Bonds, Ana G. Mendez University System, Series 1999,       
  5.375%, 2/01/19       
480  Tucson Industrial Development Authority, Arizona, Charter School Revenue Bonds, Arizona  9/14 at 100.00  BBB-  487,142 
  Agribusiness and Equine Center Charter School, Series 2004A, 6.125%, 9/01/34       
  University of Arizona, Certificates of Participation, Series 2002A:       
750  5.500%, 6/01/18 - AMBAC Insured  6/12 at 100.00  AAA  817,470 
500  5.125%, 6/01/22 - AMBAC Insured  6/12 at 100.00  AAA  524,260 
  Healthcare - 16.0% (10.9% of Total Investments)       
735  Arizona Health Facilities Authority, Hospital System Revenue Bonds, Phoenix Children's Hospital,  2/12 at 101.00  Baa3  762,305 
  Series 2002A, 6.250%, 2/15/21       
400  Arizona Health Facilities Authority, Hospital Revenue Bonds, Catholic Healthcare West, Series  7/10 at 101.00  A-  447,232 
  1999A, 6.625%, 7/01/20       
600  Arizona Health Facilities Authority, Revenue Bonds, Blood Systems Inc., Series 2004, 5.000%,  4/14 at 100.00  A-  612,498 
  4/01/20       
1,375  Maricopa County Industrial Development Authority, Arizona, Health Facility Revenue Bonds, Catholic  7/14 at 100.00  A-  1,432,901 
  Healthcare West, Series 2004A, 5.375%, 7/01/23       
500  Maricopa County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Mayo Clinic  5/08 at 101.00  AA  520,175 
  Hospital, Series 1998, 5.250%, 11/15/37       
1,000  Scottsdale Industrial Development Authority, Arizona, Hospital Revenue Bonds, Scottsdale  12/11 at 101.00  A3  1,060,570 
  Healthcare, Series 2001, 5.800%, 12/01/31       
1,000  Yavapai County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Yavapai Regional  8/13 at 100.00  Baa2  1,064,500 
  Medical Center, Series 2003A, 6.000%, 8/01/33       
  Housing/Multifamily - 7.9% (5.3% of Total Investments)       
1,000  Maricopa County Industrial Development Authority, Arizona, GNMA Collateralized Multifamily Housing  10/11 at 105.00  AAA  1,054,240 
  Revenue Refunding Bonds, Pine Ridge, Cambridge Court, Cove on 44th and Fountain Place Apartments,       
  Series 2001A-1, 6.000%, 10/20/31       
1,425  Phoenix Industrial Development Authority, Arizona, GNMA Collateralized Multifamily Housing Revenue  7/12 at 105.00  AAA  1,526,902 
  Bonds, Summit Apartments, Series 2002, 6.450%, 7/20/32       
325  Phoenix Industrial Development Authority, Arizona, GNMA Collateralized Multifamily Housing Revenue  4/15 at 100.00  Aaa  324,168 
  Bonds, Park Lee Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative Minimum Tax)       
  Housing/Single Family - 0.1% (0.1% of Total Investments)       
50  Pima County Industrial Development Authority, Arizona, FNMA/GNMA Single Family Mortgage Revenue  11/10 at 101.00  AAA  51,391 
  Bonds, Series 2001A-1, 5.350%, 11/01/24 (Alternative Minimum Tax)       
  Industrials - 2.2% (1.5% of Total Investments)       
810  Yavapai County Industrial Development Authority, Arizona, Solid Waste Disposal Revenue Bonds, Waste No Opt. Call  BBB  819,388 
  Management Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative Minimum Tax) (Mandatory put      
  3/01/08)       
  Tax Obligation/General - 33.3% (22.5% of Total Investments)      
1,725  Chandler, Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/17 7/12 at 100.00  AA+  1,817,960 
  Maricopa County School District 6, Arizona, General Obligation Refunding Bonds, Washington      
  Elementary School, Series 2002A:      
1,000  5.375%, 7/01/15 - FSA Insured No Opt. Call  AAA  1,112,250 
1,000  5.375%, 7/01/16 - FSA Insured No Opt. Call  AAA  1,116,080 
1,165  Maricopa County Unified School District 69, Paradise Valley, Arizona, General Obligation Refunding No Opt. Call  AAA  1,278,308 
  Bonds, Series 2002A, 5.250%, 7/01/14 - FGIC Insured      
285  Maricopa County Union High School District 210, Phoenix, Arizona, General Obligation Bonds, Series 7/15 at 100.00  AAA  299,361 
  2005B, 5.000%, 7/01/23 - MBIA Insured      
1,000  Mesa, Arizona, General Obligation Bonds, Series 2000, 6.500%, 7/01/11 - FGIC Insured No Opt. Call  AAA  1,143,820 
1,405  Mesa, Arizona, General Obligation Bonds, Series 2002, 5.375%, 7/01/15 - FGIC Insured No Opt. Call  AAA  1,562,711 
  Phoenix, Arizona, Various Purpose General Obligation Bonds, Series 2002B:      
1,700  5.000%, 7/01/22 7/12 at 100.00  AA+  1,778,472 
500  5.000%, 7/01/27 7/12 at 100.00  AA+  515,830 
1,000  Pinal County Unified School District 43, Apache Junction, Arizona, General Obligation Refunding No Opt. Call  AAA  1,137,810 
  Bonds, Series 2001, 5.750%, 7/01/15 - FGIC Insured      
510  Scottsdale, Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/24 7/11 at 100.00  AAA  531,950 
  Tax Obligation/Limited - 38.9% (26.5% of Total Investments)      
  Arizona State, Certificates of Participation, Series 2002A:      
750  5.000%, 11/01/17 - MBIA Insured 5/12 at 100.00  AAA  788,393 
1,000  5.000%, 11/01/18 - MBIA Insured 5/12 at 100.00  AAA  1,048,230 
500  5.000%, 11/01/20 - MBIA Insured 5/12 at 100.00  AAA  521,535 
140  Centerra Community Facilities District, Goodyear, Arizona, General Obligation Bonds, Series 2005, 7/15 at 100.00  N/R  139,528 
  5.500%, 7/15/29      
312  Estrella Mountain Ranch Community Facilities District, Goodyear, Arizona, Special Assessment Lien 7/10 at 102.00  N/R  343,081 
  Bonds, Series 2001A, 7.875%, 7/01/25      
670  Goodyear Community Facilities Utility District 1, Arizona, General Obligation Bonds, Series 2003, 7/13 at 100.00  A  686,428 
  5.350%, 7/15/28 - ACA Insured      
1,000  Maricopa County Public Finance Authority, Arizona, Lease Revenue Bonds, Series 2001, 5.500%, 7/11 at 100.00  Aaa  1,088,800 
  7/01/15 – AMBAC Insured      
  Maricopa County Stadium District, Arizona, Revenue Refunding Bonds, Series 2002:      
840  5.375%, 6/01/18 - AMBAC Insured 6/12 at 100.00  Aaa  910,031 
2,645  5.375%, 6/01/19 - AMBAC Insured 6/12 at 100.00  Aaa  2,865,514 
1,500  Phoenix Industrial Development Authority, Arizona, Government Bonds, Capitol Mall LLC II, Series 3/12 at 100.00  AAA  1,614,180 
  2001, 5.250%, 9/15/16 - AMBAC Insured      
800  Phoenix Civic Improvement Corporation, Arizona, Subordinate Excise Tax Revenue Bonds, Civic Plaza 7/15 at 100.00  AAA  840,312 
  Expansion Project, Series 2005A, 5.000%, 7/01/22 - FGIC Insured      
1,070  Pinal County Industrial Development Authority, Arizona, Correctional Facilities Contract Revenue No Opt. Call  A  1,093,166 
  Bonds, Florence West Prison LLC, Series 2002A, 5.000%, 10/01/18 - ACA Insured      
1,000  Puerto Rico Public Buildings Authority, Guaranteed Government Facilities Revenue Refunding Bonds, 7/12 at 100.00  BBB  1,027,470 
  Series 2002D, 5.125%, 7/01/24      
750  Vistancia Community Facilities District, Arizona, Restricted General Obligation Bonds, Series 7/15 at 100.00  N/R  754,635 
  2005, 5.750%, 7/15/24      
640  Yuma Municipal Property Corporation, Arizona, Municipal Facilities Tax Revenue Bonds, Series 2001, 7/10 at 100.00  AAA  668,211 
  5.000%, 7/01/21 - AMBAC Insured      
  Transportation - 5.6% (3.8% of Total Investments)    
1,000  Phoenix Civic Improvement Corporation, Arizona, Senior Lien Airport Revenue Bonds, Series 1998A, 7/08 at 101.00  AAA  1,023,410
  5.000%, 7/01/25 - FSA Insured    
1,000  Phoenix, Arizona, Civic Improvement Corporation, Senior Lien Airport Revenue Bonds, Series 2002B, 7/12 at 100.00  AAA  1,032,830
  5.250%, 7/01/27 (Alternative Minimum Tax) - FGIC Insured    
  U.S. Guaranteed *** - 14.7% (10.0% of Total Investments)    
1,000  Arizona State Transportation Board, Highway Revenue Bonds, Series 2002B, 5.250%, 7/01/21 7/12 at 100.00  AAA  1,088,630
  (Pre-refunded to 7/01/12)    
715  Arizona State University, System Revenue Bonds, Series 2002, 5.750%, 7/01/27 (Pre-refunded to 7/12 at 100.00  AAA  799,291
  7/01/12) - FGIC Insured    
1,000  Gilbert, Arizona, General Obligation Bonds, Series 2002A, 5.000%, 7/01/18 (Pre-refunded to 7/11 at 100.00  AAA  1,070,350
  7/01/11) - AMBAC Insured    
300  Maricopa County Unified School District 89, Dysart, Arizona, General Obligation Bonds, Series 7/14 at 100.00  AAA  328,947
  2004B, 5.250%, 7/01/20 (Pre-refunded to 7/01/14) - FSA Insured    
1,000  Mesa, Arizona, Street and Highway User Tax Revenue Bonds, Series 2004, 5.125%, 7/01/23 7/14 at 100.00  AAA  1,087,380
  (Pre-refunded to 7/01/14) - FSA Insured    
990  Scottsdale, Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/24 (Pre-refunded to 7/11 at 100.00  AAA  1,060,686
  7/01/11)     
  Utilities - 7.0% (4.8% of Total Investments)    
1,115  Arizona Power Authority, Special Obligation Power Resource Revenue Refunding Crossover Bonds, No Opt. Call  AA  1,219,531
  Hoover Project, Series 2001, 5.250%, 10/01/15    
1,000  Mesa, Arizona, Utility System Revenue Bonds, Series 2002, 5.000%, 7/01/20 - FGIC Insured 7/11 at 100.00  AAA  1,048,650
320  Salt River Project Agricultural Improvement and Power District, Arizona, Electric System Revenue 1/13 at 100.00  AA  333,750
  Bonds, Series 2002B, 5.000%, 1/01/22    
  Water and Sewer - 10.8% (7.3% of Total Investments)    
500  Maricopa County Industrial Development Authority, Arizona, Water System Improvement Revenue Bonds, 12/07 at 102.00  AAA  523,880
  Chaparral City Water Company, Series 1997A, 5.400%, 12/01/22 (Alternative Minimum Tax) - AMBAC    
  Insured    
360  Oro Valley Municipal Property Corporation, Arizona, Senior Lien Water Revenue Bonds, Series 2003, 7/13 at 100.00  AAA  375,075
  5.000%, 7/01/23 - MBIA Insured    
1,000  Phoenix Civic Improvement Corporation, Arizona, Junior Lien Water System Revenue Refunding Bonds, No Opt. Call  AAA  1,137,180
  Series 2001, 5.500%, 7/01/22 - FGIC Insured    
805  Phoenix Civic Improvement Corporation, Arizona, Junior Lien Water System Revenue Bonds, Series 7/15 at 100.00  AAA  836,540
  2005, 5.000%, 7/01/29 - MBIA Insured    
1,000  Tucson, Arizona, Water System Revenue Refunding Bonds, Series 2002, 5.500%, 7/01/18 - FGIC Insured 7/12 at 102.00  AAA  1,100,280
$ 50,992  Total Long-Term Investments (cost $52,124,947) - 147.2%     54,375,390
  Other Assets Less Liabilities - 2.9%     1,076,005
  Preferred Shares, at Liquidation Value - (50.1)%     (18,500,000)
  Net Assets Applicable to Common Shares - 100%     $ 36,951,395

Forward Swaps outstanding at October 31, 2005:

 
 
Counterparty  		 
Notional 
Amount  		Fixed Rate
Paid by the Fund
(annualized) 		  Fixed Rate 
Payment 
Frequency  		Floating Rate 
Received by the Fund 
Based On  		Floating Rate 
Payment 
Frequency  		 
 
Effective  
Date (2)  		 
Termination 
Date  		 
Unrealized 
Appreciation 
 
 
Citigroup  $ 600,000  4.699 %  Semi-annually  3-month USD-LIBOR  Quarterly  2/27/06  2/27/26  $ 41,566 
JPMorgan  500,000  4.833 %  Semi-annually  3-month USD-LIBOR  Quarterly  2/09/06  2/09/36  34,597 
Morgan Stanley  700,000  4.816 %  Semi-annually  3-month USD-LIBOR  Quarterly  2/15/06  2/15/36  50,682 
                $ 126,845 

USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates)

(1 )  All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares 
  unless otherwise noted. 
(2 )  Effective date represents the date on which both the Fund and counterparty commence interest rate payment 
  accruals on each forward swap contract. 
*   Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or redemption. There 
  may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be 
  subject to periodic principal paydowns. 
**   Ratings: Using the higher of Standard & Poor's or Moody's rating. 
***   Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency 
  securities which ensures the timely payment of principal and interest. 
N/R   Investment is not rated. 

Income Tax Information

The following information is presented on an income tax basis. Differences between amounts for financial statement and federal income tax purposes are primarily due to timing differences in recognizing taxable market discount and timing differences in recognizing certain gains and losses on investment transactions.

At October 31, 2005, the cost of investments was $52,307,524.

Gross unrealized appreciation and gross unrealized depreciation of investments at October 31, 2005, were as follows:
Gross unrealized   
 Appreciation  $ 2,354,147  
 Depreciation  (286,281 ) 
Net unrealized appreciation of investments  $ 2,067,866  

Item 2. Controls and Procedures.

  1. 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 Rule 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 (17 CFR 240.13a-15(b) or 240.15d-15(b)).
  2. 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 registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

Item 3. Exhibits.

File as exhibits as part of this Form 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)), exactly as set forth below: EX-99 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 Arizona Dividend Advantage Municipal Fund 2        

By (Signature and Title)*          /s/ Jessica R. Droeger                     
                                                    Jessica R. Droeger
                                                    Vice President and Secretary

Date         12/29/05        

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         12/29/05        

By (Signature and Title)*         /s/ Stephen D. Foy                              
                                                   Stephen D. Foy
                                                   Vice President and Controller (principal financial officer) 

Date         12/29/05        

* Print the name and title of each signing officer under his or her signature.