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)

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


Kevin J. McCarthy 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:         4/30/09         

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, 2009             
Principal        Optional Call         
Amount (000)    Description (1)    Provisions (2)    Ratings (3)    Value 
    Education and Civic Organizations – 6.0% (4.1% of Total Investments)             
$        1,130    Arizona Higher Education Loan Authority, Student Loan Revenue Bonds, Series 2007B, Adjustable    9/09 at 100.00    AAA   $   821,397 
     Rate, 0.930%, 11/01/41 (4)             
460    Pima County Industrial Development Authority, Arizona, Charter School Revenue Bonds, Noah    12/14 at 100.00    BBB–    366,036 
     Webster Basic Schools Inc., Series 2004, 6.000%, 12/15/24             
320    Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities    8/09 at 101.00    BBB–    268,320 
     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–    351,048 
     Agribusiness and Equine Center Charter School, Series 2004A, 6.125%, 9/01/34             
    University of Arizona, Certificates of Participation, Series 2002A:             
65     5.500%, 6/01/18 – AMBAC Insured    6/12 at 100.00    AA–    68,652 
40     5.125%, 6/01/22 – AMBAC Insured    6/12 at 100.00    AAA    40,208 
2,495    Total Education and Civic Organizations            1,915,661 
    Health Care – 23.9% (16.0% of Total Investments)             
845    Arizona Health Facilities Authority, Hospital Revenue Bonds, Banner Health Systems, Series    1/17 at 100.00    AA–    799,243 
     2007A, 5.000%, 1/01/25             
520    Arizona Health Facilities Authority, Hospital Revenue Bonds, Banner Health Systems, Series    1/17 at 100.00    AA–    229,710 
     2007B, 1.619%, 1/02/37             
1,150    Arizona Health Facilities Authority, Hospital Revenue Bonds, Banner Health Systems, Series    1/18 at 100.00    AA–    1,103,517 
     2008D, 5.500%, 1/01/38             
600    Arizona Health Facilities Authority, Revenue Bonds, Blood Systems Inc., Series 2004,    4/14 at 100.00    A    595,494 
     5.000%, 4/01/20             
400    Glendale Industrial Development Authority, Arizona, Revenue Bonds, John C. Lincoln Health    12/15 at 100.00    BBB    303,664 
     Network, Series 2005B, 5.000%, 12/01/37             
655    Glendale Industrial Development Authority, Arizona, Revenue Bonds, John C. Lincoln Health    12/17 at 100.00    BBB    476,604 
     Network, Series 2007, 5.000%, 12/01/42             
1,375    Maricopa County Industrial Development Authority, Arizona, Health Facility Revenue Bonds,    7/14 at 100.00    A    1,339,663 
     Catholic Healthcare West, Series 2004A, 5.375%, 7/01/23             
1,650    Maricopa County Industrial Development Authority, Arizona, Health Facility Revenue Bonds,    7/17 at 100.00    A    1,458,468 
     Catholic Healthcare West, Series 2007A, 5.250%, 7/01/32             
500    Maricopa County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Mayo Clinic    5/09 at 100.50    Aa2    491,995 
     Hospital, Series 1998, 5.250%, 11/15/37             
1,000    Yavapai County Industrial Development Authority, Arizona, Hospital Revenue Bonds, Yavapai    8/13 at 100.00    Baa2    794,280 
     Regional Medical Center, Series 2003A, 6.000%, 8/01/33             
8,695    Total Health Care            7,592,638 
    Housing/Multifamily – 7.8% (5.3% of Total Investments)             
1,000    Maricopa County Industrial Development Authority, Arizona, GNMA Collateralized Multifamily    10/11 at 105.00    AAA    1,029,660 
     Housing 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    7/12 at 105.00    AAA    1,454,854 
     Revenue Bonds, Summit Apartments, Series 2002, 6.450%, 7/20/32             
2,425    Total Housing/Multifamily            2,484,514 
    Housing/Single Family – 3.9% (2.6% of Total Investments)             
1,245    Tucson and Pima County Industrial Development Authority, Arizona, Joint Single Family Mortgage    6/17 at 101.00    Aaa    1,246,892 
     Revenue Bonds, Series 2007B, 5.350%, 6/01/47 (Alternative Minimum Tax)             
    Tax Obligation/General – 21.6% (14.5% of Total Investments)             
1,000    Maricopa County School District 6, Arizona, General Obligation Refunding Bonds, Washington    No Opt. Call    AAA    1,152,140 
     Elementary School, Series 2002A, 5.375%, 7/01/16 – FSA Insured             
1,165    Maricopa County Unified School District 69, Paradise Valley, Arizona, General Obligation    No Opt. Call    AA–    1,301,736 
     Refunding Bonds, Series 2002A, 5.250%, 7/01/14 – FGIC Insured             
1,405    Mesa, Arizona, General Obligation Bonds, Series 2002, 5.375%, 7/01/15 – FGIC Insured    No Opt. Call    AA    1,594,141 
    Phoenix, Arizona, Various Purpose General Obligation Bonds, Series 2002B:             
1,700     5.000%, 7/01/22    7/12 at 100.00    AAA    1,785,697 
500     5.000%, 7/01/27    7/12 at 100.00    AAA    511,130 
510    Scottsdale, Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/24    7/11 at 100.00    AAA    523,352 
6,280    Total Tax Obligation/General            6,868,196 
    Tax Obligation/Limited – 44.2% (29.7% of Total Investments)             
    Arizona State, Certificates of Participation, Series 2002A:             
750     5.000%, 11/01/17 – MBIA Insured    5/12 at 100.00    AA–    781,800 
1,000     5.000%, 11/01/18 – MBIA Insured    5/12 at 100.00    AA–    1,036,510 
500     5.000%, 11/01/20 – MBIA Insured    5/12 at 100.00    AA–    512,920 
131    Centerra Community Facilities District, Goodyear, Arizona, General Obligation Bonds, Series    7/15 at 100.00    N/R    80,273 
     2005, 5.500%, 7/15/29             
345    Estrella Mountain Ranch Community Facilities District, Arizona, Special Assessment Bonds,    1/17 at 100.00    N/R    204,444 
     Montecito Assessment District, Series 2007, 5.800%, 7/01/32             
250    Estrella Mountain Ranch Community Facilities District, Goodyear, Arizona, Special Assessment    7/10 at 102.00    N/R    221,743 
     Lien Bonds, Series 2001A, 7.875%, 7/01/25             
921    Marana, Arizona, Tangerine Farms Road Improvement District Revenue Bonds, Series 2006,    7/16 at 100.00    Baa1    675,507 
     4.600%, 1/01/26             
    Maricopa County Stadium District, Arizona, Revenue Refunding Bonds, Series 2002:             
840     5.375%, 6/01/18 – AMBAC Insured    6/12 at 100.00    N/R    880,404 
2,645     5.375%, 6/01/19 – AMBAC Insured    6/12 at 100.00    N/R    2,772,223 
240    Marley Park Community Facilities District, City of Surprise, Arizona, Limited Tax General    7/17 at 100.00    N/R    154,188 
     Obligation Bonds, Series 2007, 6.100%, 7/15/32             
415    Merrill Ranch Community Facilities District 1, Florence, Arizona, General Obligation Bonds,    7/18 at 100.00    N/R    312,673 
     Series 2008A, 7.400%, 7/15/33             
530    Palm Valley Community Facility District 3, Goodyear, Arizona, General Obligation Bonds, Series    7/16 at 100.00    N/R    300,139 
     2006, 5.300%, 7/15/31             
350    Palm Valley Community Facility District 3, Goodyear, Arizona, Limited Tax General Obligation    7/17 at 100.00    N/R    211,376 
     Bonds, Series 2007, 5.800%, 7/15/32             
140    Parkway Community Facilities District 1, Prescott Valley, Arizona, General Obligation Bonds,    7/16 at 100.00    N/R    80,676 
     Series 2006, 5.350%, 7/15/31             
1,500    Phoenix Industrial Development Authority, Arizona, Government Bonds, Capitol Mall LLC II,    3/12 at 100.00    A1    1,574,700 
     Series 2001, 5.250%, 9/15/16 – AMBAC Insured             
1,070    Pinal County Industrial Development Authority, Arizona, Correctional Facilities Contract    No Opt. Call    BBB–    929,477 
     Revenue Bonds, Florence West Prison LLC, Series 2002A, 5.000%, 10/01/18 – ACA Insured             
270    Puerto Rico Public Buildings Authority, Guaranteed Government Facilities Revenue Refunding    7/12 at 100.00    BBB–    239,755 
     Bonds, Series 2002D, 5.125%, 7/01/24             
960    San Luis Civic Improvement Corporation, Arizona, Municipal Facilities Excise Tax Revenue    7/15 at 100.00    A–    926,890 
     Bonds, Series 2005, 5.000%, 7/01/25 – SYNCORA GTY Insured             
555    Tartesso West Community Facility District, Buckeye, Arizona, Limited Tax General Obligation    7/17 at 100.00    N/R    340,037 
     Bonds, Series 2007, 5.900%, 7/15/32             
750    Vistancia Community Facilities District, Arizona, Restricted General Obligation Bonds, Series    7/15 at 100.00    Baa1    639,885 
     2005, 5.750%, 7/15/24             
560    Watson Road Community Facilities District, Arizona, Special Assessment Revenue Bonds, Series    7/16 at 100.00    N/R    348,219 
     2005, 6.000%, 7/01/30             
350    Westpark Community Facilities District, Buckeye, Arizona, General Obligation Tax Increment    7/16 at 100.00    N/R    200,620 
     Bonds Series 2006, 5.250%, 7/15/31             
640    Yuma Municipal Property Corporation, Arizona, Municipal Facilities Tax Revenue Bonds, Series    7/10 at 100.00    AA–    649,517 
     2001, 5.000%, 7/01/21 – AMBAC Insured             
15,712    Total Tax Obligation/Limited            14,073,976 
    Transportation – 4.4% (3.0% of Total Investments)             
470    Phoenix Civic Improvement Corporation, Arizona, Senior Lien Airport Revenue Bonds, Series    7/09 at 100.50    AAA    471,448 
     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    AA–    922,810 
     2002B, 5.250%, 7/01/27 – FGIC Insured (Alternative Minimum Tax)             
1,470    Total Transportation            1,394,258 
    U.S. Guaranteed – 22.6% (15.2% of Total Investments) (5)             
400    Arizona Health Facilities Authority, Hospital Revenue Bonds, Catholic Healthcare West, Series    7/10 at 101.00    A (5)    428,036 
     1999A, 6.625%, 7/01/20 (Pre-refunded 7/01/10)             
735    Arizona Health Facilities Authority, Hospital System Revenue Bonds, Phoenix Children’s    2/12 at 101.00    N/R (5)    831,924 
     Hospital, Series 2002A, 6.250%, 2/15/21 (Pre-refunded 2/15/12)             
715    Arizona State University, System Revenue Bonds, Series 2002, 5.750%, 7/01/27 (Pre-refunded    7/12 at 100.00    AAA    814,785 
     7/01/12) – FGIC Insured             
100    Maricopa County Unified School District 89, Dysart, Arizona, General Obligation Bonds, Series    7/14 at 100.00    AAA    116,551 
     2004B, 5.250%, 7/01/20 (Pre-refunded 7/01/14) – FSA Insured             
375    Maricopa County Union High School District 210 Phoenix, Arizona, General Obligation Bonds,    7/16 at 100.00    AA (5)    442,238 
     Series 2006C, 5.000%, 7/01/24 (Pre-refunded 7/01/16) – MBIA Insured             
225    Maricopa County, Arizona, Hospital Revenue Bonds, Sun Health Corporation, Series 2005, 5.000%,    4/15 at 100.00    BBB (5)    260,258 
     4/01/16 (Pre-refunded 4/01/15)             
730    Puerto Rico Public Buildings Authority, Guaranteed Government Facilities Revenue Refunding    7/12 at 100.00    Baa3 (5)    805,029 
     Bonds, Series 2002D, 5.125%, 7/01/24 (Pre-refunded 7/01/12)             
1,000    Scottsdale Industrial Development Authority, Arizona, Hospital Revenue Bonds, Scottsdale    12/11 at 101.00    N/R (5)    1,116,240 
     Healthcare, Series 2001, 5.800%, 12/01/31 (Pre-refunded 12/01/11)             
990    Scottsdale, Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/24    7/11 at 100.00    AAA    1,074,427 
     (Pre-refunded 7/01/11)             
    University of Arizona, Certificates of Participation, Series 2002A:             
685     5.500%, 6/01/18 (Pre-refunded 6/01/12) – AMBAC Insured    6/12 at 100.00    AA– (5)    770,522 
460     5.125%, 6/01/22 (Pre-refunded 6/01/12) – AMBAC Insured    6/12 at 100.00    A1 (5)    512,238 
6,415    Total U.S. Guaranteed            7,172,248 
    Utilities – 2.1% (1.4% of Total Investments)             
1,000    Salt Verde Financial Corporation, Arizona, Senior Gas Revenue Bonds, Series 2007,    No Opt. Call    A    677,890 
     5.000%, 12/01/37             
    Water and Sewer – 12.3% (8.2% of Total Investments)             
500    Maricopa County Industrial Development Authority, Arizona, Water System Improvement Revenue    6/09 at 101.00    A    480,620 
     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    AA–    366,340 
     2003, 5.000%, 7/01/23 – MBIA Insured             
1,000    Phoenix Civic Improvement Corporation, Arizona, Junior Lien Water System Revenue Refunding    No Opt. Call    AAA    1,132,040 
     Bonds, Series 2001, 5.500%, 7/01/22 – FGIC Insured             
    Surprise Municipal Property Corporation, Arizona, Wastewater System Revenue Bonds, Series 2007:             
350     4.700%, 4/01/22    4/14 at 100.00    N/R    295,474 
410     4.900%, 4/01/32    4/17 at 100.00    N/R    305,630 
1,000    Tucson, Arizona, Water System Revenue Refunding Bonds, Series 2002, 5.500%, 7/01/18 –    7/12 at 102.00    AA–    1,119,450 
     FGIC Insured             
275    Yuma County Industrial Development Authority, Arizona, Exempt Revenue Bonds, Far West Water &    12/17 at 100.00    N/R    198,561 
     Sewer Inc. Refunding, Series 2007A, 6.375%, 12/01/37 (Alternative Minimum Tax)             
3,895    Total Water and Sewer            3,898,115 
$       49,632    Total Investments (cost $49,603,282) – 148.8%            47,324,388 
    Other Assets Less Liabilities – 7.7%            2,464,109 
    Preferred Shares, at Liquidation Value – (56.5)% (6)            (17,975,000)
    Net Assets Applicable to Common Shares – 100%           $   31,813,497 

Fair Value Measurements

During the current fiscal period, the Fund adopted the provisions of Statement of Financial Accounting Standards No. 157 (SFAS No.157) "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. In determining the value of the Fund's investments various inputs are used. These inputs are summarized in the three broad levels listed below:

Level 1 – Quoted prices in active markets for identical securities. 
Level 2 – Other significant observable inputs (including quoted prices for similar securities, interest rates, 
              prepayment speeds, credit risk, etc.). 
Level 3 – Significant unobservable inputs (including management's assumptions in determining the fair 
              value of investments). 

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following is a summary of the Fund's fair value measurements as of April 30, 2009:

    Level 1    Level 2    Level 3    Total 
Investments    $ —    $46,502,991    $821,397    $47,324,388 

The following is a reconciliation of the Fund's Level 3 investments held at the beginning and end of the measurement period:

    Level 3 
    Investments 
Balance at beginning of period    $578,017 
 Gains (losses):     
     Net realized gains (losses)    — 
     Net change in unrealized appreciation (depreciation)    243,380 
 Net purchases at cost (sales at proceeds)    — 
 Net discounts (premiums)    — 
 Net transfers in to (out of) at end of period fair value    — 
Balance at end of period    $821,397 

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, timing differences in recognizing certain gains and losses on investment transactions and the treatment of investments in inverse floating rate transactions subject to Statement of Financial Accounting Standards No. 140 (SFAS No. 140), if any. To the extent that differences arise that are permanent in nature, such amounts are reclassified within the capital accounts on the Statement of Assets and Liabilities presented in the annual report, based on their federal tax basis treatment; temporary differences do not require reclassification. Temporary and permanent differences do not impact the net asset value of the Fund.

At April 30, 2009, the cost of investments was $49,596,111.

Gross unrealized appreciation and gross unrealized depreciation of investments at April 30, 2009, were as follows:

Gross unrealized:     
  Appreciation    $ 1,730,454 
  Depreciation    (4,002,177)
Net unrealized appreciation (depreciation) of investments    $(2,271,723)

(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 Group ("Standard & Poor's") or Moody's Investor Service, 
    Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to 
    be below investment grade. 
    The Portfolio of Investments may reflect the ratings on certain bonds whose insurer has experienced 
    downgrades as of the end of the reporting period. Subsequent to the reporting period, and during the 
    period this Portfolio of Investments was prepared, there may have been reductions to the ratings of 
    certain bonds resulting from changes to the ratings of the underlying insurers both during the period and 
    after period end. Such reductions would likely reduce the effective rating of many of the bonds insured 
    by that insurer or insurers presented at period end. 
(4)    Investment valued at fair value using methods determined in good faith by, or at the discretion of, the 
    Board of Trustees. 
(5)    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. Such investments are normally 
    considered to be equivalent to AAA rated securities. 
(6)    Preferred Shares, at Liquidation Value as a percentage of Total Investments is 38.0%. 
N/R    Not rated. 

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: See 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/ Kevin J. McCarthy                    
                                                  Kevin J. McCarthy
                                                  Vice President and Secretary

Date         June 29, 2009        

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 29, 2009        

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

Date        June 29, 2009