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:          4/30/06         

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)             
                           April 30, 2006             
Principal        Optional Call         
Amount (000)    Description (1)    Provisions (2)    Ratings (3)    Value 
    Education and Civic Organizations – 10.8% (7.2% of Total Investments)             
$          1,250    Glendale Industrial Development Authority, Arizona, Revenue Bonds, Midwestern University,    5/11 at 101.00    A–   $   1,319,688 
     Series 2001A, 5.875%, 5/15/31             
460    Pima County Industrial Development Authority, Arizona, Charter School Revenue Bonds, Noah    12/14 at 100.00    BBB–    470,056 
     Webster 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–    326,493 
     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–    487,464 
     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    805,358 
500     5.125%, 6/01/22 – AMBAC Insured    6/12 at 100.00    AAA    522,015 
3,760    Total Education and Civic Organizations            3,931,074 
    Health Care – 18.2% (12.3% of Total Investments)             
400    Arizona Health Facilities Authority, Hospital Revenue Bonds, Catholic Healthcare West, Series    7/10 at 101.00    A–    442,552 
     1999A, 6.625%, 7/01/20             
735    Arizona Health Facilities Authority, Hospital System Revenue Bonds, Phoenix Children’s    2/12 at 101.00    Baa3    781,812 
     Hospital, Series 2002A, 6.250%, 2/15/21             
600    Arizona Health Facilities Authority, Revenue Bonds, Blood Systems Inc., Series 2004, 5.000%,    4/14 at 100.00    A–    609,192 
     4/01/20             
400    Glendale Industrial Development Authority, Arizona, Revenue Bonds, John C. Lincoln Health    12/15 at 100.00    BBB    396,528 
     Network, Series 2005B, 5.000%, 12/01/37             
320    Maricopa County Industrial Development Authority, Arizona, Health Facilities Revenue Bonds,    5/16 at 100.00    AA    326,566 
     Mayo Clinic, Series 2006, 5.000%, 11/15/36 (WI/DD, Settling 5/11/06)             
1,375    Maricopa County Industrial Development Authority, Arizona, Health Facility Revenue Bonds,    7/14 at 100.00    A–    1,421,736 
     Catholic 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    515,770 
     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    1,058,620 
     Healthcare, Series 2001, 5.800%, 12/01/31             
1,000    Yavapai County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Yavapai    8/13 at 100.00    Baa2    1,058,600 
     Regional Medical Center, Series 2003A, 6.000%, 8/01/33             
6,330    Total Health Care            6,611,376 
    Housing/Multifamily – 8.0% (5.3% of Total Investments)             
1,000    Maricopa County Industrial Development Authority, Arizona, GNMA Collateralized Multifamily    10/11 at 105.00    AAA    1,052,840 
     Housing Revenue Refunding Bonds, Pine Ridge, Cambridge Court, Cove on 44th and Fountain Place             
     Apartments, Series 2001A-1, 6.000%, 10/20/31             
325    Phoenix Industrial Development Authority, Arizona, GNMA Collateralized Multifamily Housing    4/15 at 100.00    Aaa    321,510 
     Revenue Bonds, Park Lee Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative Minimum Tax)             
1,425    Phoenix Industrial Development Authority, Arizona, GNMA Collateralized Multifamily Housing    7/12 at 105.00    AAA    1,524,422 
     Revenue Bonds, Summit Apartments, Series 2002, 6.450%, 7/20/32             
2,750    Total Housing/Multifamily            2,898,772 
    Housing/Single Family – 0.1% (0.1% of Total Investments)             
30    Pima County Industrial Development Authority, Arizona, FNMA/GNMA Single Family Mortgage    11/10 at 101.00    AAA    30,723 
     Revenue 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,    3/28 at 100.00    BBB    812,130 
     Waste Management Inc., Series 2003B, 4.450%, 3/01/28 (Mandatory put 3/01/08) (Alternative             
     Minimum Tax)             
    Tax Obligation/General – 33.6% (22.4% of Total Investments)             
1,725    Chandler, Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/17    7/12 at 100.00    AA+    1,802,332 
    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    1,098,630 
1,000     5.375%, 7/01/16 – FSA Insured    No Opt. Call    AAA    1,096,850 
1,165    Maricopa County Unified School District 69, Paradise Valley, Arizona, General Obligation    No Opt. Call    AAA    1,262,662 
     Refunding Bonds, Series 2002A, 5.250%, 7/01/14 – FGIC Insured             
285    Maricopa County Union High School District 210, Phoenix, Arizona, General Obligation Bonds,    7/15 at 100.00    AAA    297,668 
     Series 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    1,125,950 
1,405    Mesa, Arizona, General Obligation Bonds, Series 2002, 5.375%, 7/01/15 – FGIC Insured    No Opt. Call    AAA    1,543,575 
    Phoenix, Arizona, Various Purpose General Obligation Bonds, Series 2002B:             
1,700     5.000%, 7/01/22    7/12 at 100.00    AA+    1,772,828 
500     5.000%, 7/01/27    7/12 at 100.00    AA+    513,725 
1,000    Pinal County Unified School District 43, Apache Junction, Arizona, General Obligation    No Opt. Call    AAA    1,123,830 
     Refunding 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    529,635 
11,290    Total Tax Obligation/General            12,167,685 
    Tax Obligation/Limited – 39.4% (26.3% of Total Investments)             
    Arizona State, Certificates of Participation, Series 2002A:             
750     5.000%, 11/01/17 – MBIA Insured    5/12 at 100.00    AAA    781,687 
1,000     5.000%, 11/01/18 – MBIA Insured    5/12 at 100.00    AAA    1,041,010 
500     5.000%, 11/01/20 – MBIA Insured    5/12 at 100.00    AAA    516,085 
140    Centerra Community Facilities District, Goodyear, Arizona, General Obligation Bonds, Series    7/15 at 100.00    N/R    140,038 
     2005, 5.500%, 7/15/29             
307    Estrella Mountain Ranch Community Facilities District, Goodyear, Arizona, Special Assessment    7/10 at 102.00    N/R    334,344 
     Lien Bonds, Series 2001A, 7.875%, 7/01/25             
670    Goodyear Community Facilities Utility District 1, Arizona, General Obligation Bonds, Series    7/13 at 100.00    A    685,142 
     2003, 5.350%, 7/15/28 – ACA Insured             
435    Greater Arizona Development Authority, Infrastructure Revenue Bonds, Series 2006A, 5.000%,    8/16 at 100.00    AAA    454,323 
     8/01/23 – MBIA Insured             
870    Maricopa County Public Finance Corporation, Arizona, Lease Revenue Bonds, Series 2001, 5.500%,    7/11 at 100.00    Aaa    935,459 
     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    897,322 
2,645     5.375%, 6/01/19 – AMBAC Insured    6/12 at 100.00    Aaa    2,825,494 
1,500    Phoenix Industrial Development Authority, Arizona, Government Bonds, Capitol Mall LLC II,    3/12 at 100.00    AAA    1,597,485 
     Series 2001, 5.250%, 9/15/16 – AMBAC Insured             
1,070    Pinal County Industrial Development Authority, Arizona, Correctional Facilities Contract    No Opt. Call    A    1,084,509 
     Revenue 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    7/12 at 100.00    BBB    1,020,870 
     Bonds, 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    757,673 
     2005, 5.750%, 7/15/24             
560    Watson Road Community Facilities District, Arizona, Special Assessement Revenue Bonds, Series    7/16 at 100.00    N/R    557,469 
     2005, 6.000%, 7/01/30             
640    Yuma Municipal Property Corporation, Arizona, Municipal Facilities Tax Revenue Bonds, Series    7/10 at 100.00    AAA    662,854 
     2001, 5.000%, 7/01/21 – AMBAC Insured             
13,677    Total Tax Obligation/Limited            14,291,764 
    Transportation – 5.7% (3.8% of Total Investments)             
1,000    Phoenix Civic Improvement Corporation, Arizona, Senior Lien Airport Revenue Bonds, Series    7/08 at 101.00    AAA    1,020,620 
     1998A, 5.000%, 7/01/25 – FSA Insured             
1,000    Phoenix, Arizona, Civic Improvement Corporation, Senior Lien Airport Revenue Bonds, Series    7/12 at 100.00    AAA    1,030,740 
     2002B, 5.250%, 7/01/27 – FGIC Insured (Alternative Minimum Tax)             
2,000    Total Transportation            2,051,360 
    U.S. Guaranteed – 11.0% (7.3% of Total Investments) (4)             
715    Arizona State University, System Revenue Bonds, Series 2002, 5.750%, 7/01/27 (Pre-refunded    7/12 at 100.00    AAA    788,366 
     7/01/12) – FGIC Insured             
900    Gilbert, Arizona, General Obligation Bonds, Series 2002A, 5.000%, 7/01/18 (Pre-refunded    7/11 at 100.00    AAA    952,641 
     7/01/11) – AMBAC Insured             
100    Maricopa County Unified School District 89, Dysart, Arizona, General Obligation Bonds, Series    7/14 at 100.00    AAA    108,166 
     2004B, 5.250%, 7/01/20 (Pre-refunded 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    1,073,040 
     (Pre-refunded 7/01/14) – FSA Insured             
990    Scottsdale, Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/24 (Pre-refunded    7/11 at 100.00    AAA    1,048,865 
     7/01/11)             
3,705    Total U.S. Guaranteed            3,971,078 
    Utilities – 7.1% (4.7% of Total Investments)             
1,115    Arizona Power Authority, Special Obligation Power Resource Revenue Refunding Crossover Bonds,    No Opt. Call    AA    1,204,858 
     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    1,035,060 
320    Salt River Project Agricultural Improvement and Power District, Arizona, Electric System    1/13 at 100.00    AA    331,994 
     Revenue Bonds, Series 2002B, 5.000%, 1/01/22             
2,435    Total Utilities            2,571,912 
    Water and Sewer – 13.7% (9.1% of Total Investments)             
640    Arizona Water Infrastructure Finance Authority, Water Quality Revenue Bonds, Series 2006A,    10/16 at 100.00    AAA    672,083 
     5.000%, 10/01/24             
500    Maricopa County Industrial Development Authority, Arizona, Water System Improvement Revenue    12/07 at 102.00    AAA    518,130 
     Bonds, Chaparral City Water Company, Series 1997A, 5.400%, 12/01/22 – AMBAC Insured             
     (Alternative Minimum Tax)             
360    Oro Valley Municipal Property Corporation, Arizona, Senior Lien Water Revenue Bonds, Series    7/13 at 100.00    AAA    373,054 
     2003, 5.000%, 7/01/23 – MBIA Insured             
320    Phoenix Civic Improvement Corporation, Arizona, Junior Lien Wastewater System Revenue Bonds,    7/14 at 100.00    AAA    332,710 
     Series 2004, 5.000%, 7/01/24 – MBIA Insured             
805    Phoenix Civic Improvement Corporation, Arizona, Junior Lien Water System Revenue Bonds, Series    7/15 at 100.00    AAA    834,012 
     2005, 5.000%, 7/01/29 – MBIA Insured             
1,000    Phoenix Civic Improvement Corporation, Arizona, Junior Lien Water System Revenue Refunding    No Opt. Call    AAA    1,131,880 
     Bonds, Series 2001, 5.500%, 7/01/22 – FGIC Insured             
1,000    Tucson, Arizona, Water System Revenue Refunding Bonds, Series 2002, 5.500%, 7/01/18 – FGIC    7/12 at 102.00    AAA    1,088,450 
     Insured             
4,625    Total Water and Sewer            4,950,319 
$        51,412    Total Investments (cost $52,441,970) – 149.8%            54,288,193 
    Other Assets Less Liabilities – 1.2%            452,320 
    Preferred Shares, at Liquidation Value – (51.0)%            (18,500,000) 
    Net Assets Applicable to Common Shares – 100%           $   36,240,513 

(1)    All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares 
    unless otherwise noted. 
(2)    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. 
(3)    Ratings: Using the higher of Standard & Poor’s or Moody’s rating. Ratings below BBB by Standard & Poor’s 
    Group or Baa by Moody’s Investor Service, Inc. are considered to be below investment grade. 
(4)    Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities 
    which ensure the timely payment of principal and interest. 
N/R    Not rated. 
WI/DD    Purchased on a when-issued or delayed delivery basis. 

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 the treatment of paydown gains and losses, timing differences in recognizing taxable market discount and timing differences in recognizing certain gains and losses on investment transactions.

At April 30, 2006, the cost of investments was $52,624,311.

Gross unrealized appreciation and gross unrealized depreciation of investments at April 30, 2006, were as follows:

Gross unrealized:     
  Appreciation    $1,939,413 
  Depreciation    (275,531) 
Net unrealized appreciation (depreciation) of investments    $1,663,882 

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         June 28, 2006        

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         June 28, 2006        

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

Date        June 28, 2006        

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