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 811-21333
---------------------
Nuveen Preferred and Convertible Income Fund 2
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
-------------------
Date of fiscal year end: December 31
------------------
Date of reporting period: June 30, 2005
------------------
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.
SEMIANNUAL REPORT June 30, 2005
Nuveen Investments
Closed-End
Exchange-Traded
Funds
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND
JPC
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND 2
JQC
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HIGH CURRENT INCOME FROM A PORTFOLIO OF PREFERRED AND CONVERTIBLE SECURITIES
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Photo of: Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
Chairman's
LETTER TO SHAREHOLDERS
I am pleased to report that for the six months ended June 30, 2005, your Fund
continued to provide you with attractive monthly income from a diversified
portfolio of quality preferred securities, convertible securities and high-yield
debt. For more details about the management strategy and performance of your
Fund, please see the Portfolio Managers' Comments and Performance Overview
sections of this report.
As you'll see as you review this report, we continue to believe that your Fund
provides a valuable source of regular monthly income, and that it also may
provide an opportunity to reduce the overall risk of your entire investment
portfolio. This
"WE CONTINUE TO BELIEVE THAT YOUR FUND PROVIDES A VALUABLE SOURCE OF REGULAR
MONTHLY INCOME, AND THAT IT ALSO MAY PROVIDE AN OPPORTUNITY TO REDUCE THE
OVERALL RISK OF YOUR ENTIRE INVESTMENT PORTFOLIO."
is because the price of your Fund's shares may move differently than the prices
of other investments that you may own. Your financial advisor can explain the
advantages of portfolio diversification in more detail. I urge you to contact
him or her soon for more information on this important investment strategy.
I also urge you to consider receiving future Fund reports and other Fund
information faster by using e-mail and the Internet. Sign up is quick and easy -
see the inside front cover of this report for step-by-step instructions.
Earlier in 2005, The St. Paul Travelers Companies, Inc., which owned 79% of
Nuveen Investments, Inc. (the parent of your Fund's investment adviser), sold a
substantial portion of its stake in Nuveen. More recently, St. Paul sold the
balance of its shares in Nuveen to us or to others. Please be assured that these
transactions only affect Nuveen's corporate structure, and they do not have any
impact on the investment objectives or management of your Fund.
For more than 100 years, Nuveen has specialized in offering quality investments
such as your Fund to those seeking to accumulate and preserve wealth. Our
mission continues to be to assist you and your financial advisor by offering the
investment solutions and services that can help you secure your long-term
financial goals. We thank you for choosing us as a partner as you work toward
that objective.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
August 15, 2005
Nuveen Preferred and Convertible Income Funds (JPC, JQC)
Portfolio Managers'
COMMENTS
These Funds are subadvised by a team of specialists from Spectrum Asset
Management, Froley, Revy Investment Co., Inc., and Symphony Asset Management
LLC, an affiliate of Nuveen Investments.
Spectrum, an affiliate of Principal CapitalSM, manages the preferred securities
portion of each Fund's portfolio. Mark Lieb, Bernie Sussman and Phil Jacoby, who
have more than 50 years of combined experience in the preferred securities
markets, lead the team.
Froley, Revy, one of the oldest firms specializing in convertible securities,
manages that portion of each Fund's portfolio. Their investment team is led by
Andrea Revy O'Connell and Michael Revy, who each have more than 10 years'
experience in convertible securities investing.
The Symphony team managing the high yield securities and other debt instruments
in both Funds is led by Gunther Stein and Lenny Mason. Gunther and Lenny have
more than 25 years of combined investment management experience, much of it in
evaluating and purchasing senior corporate loans and other high-yield debt.
Here representatives from Spectrum, Froley, Revy and Symphony talk about their
management strategies and the performance of both Funds for the six-month period
ended June 30, 2005.
WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE SIX-MONTH PERIOD ENDED JUNE
30, 2005?
In the preferred securities sleeve of each Fund's portfolio, our focus for this
six-month period was on trying to maintain Fund income levels as much as
possible without sacrificing quality in the face of a surprisingly strong bond
market. Contrary to what many market observers predicted, intermediate- and
long-term interest rates dropped significantly during the first six months of
2005 at the same time as the Federal Reserve was raising short-term rates. As
might be expected in this type of environment, a number of the Funds' higher
coupon preferred securities issues were called away and the proceeds generally
had to be reinvested at lower current rates.
As the period progressed, we tried to turn some of this yield curve flattening
to our advantage by shortening the average durations - and therefore reducing
the interest rate risk - of the preferred securities holding within the Funds.
We did this by purchasing securities with shorter effective maturities, since
the flatter yield curve meant that we would give up less income to buy these
less risky investments. Helping this process, certain sectors of both the $1000
par capital securities market and the $25 par listed securities market also
afforded opportunities to reinvest in ways that provided more yield for a given
level of interest rate risk.
4
Generally, as intermediate- and long-term bonds rallied during this reporting
period, $25 par preferred securities tended to lag behind. This was especially
true during the first three months of 2005, when the $25 par sector experienced
one of its worst quarters ever, both on an absolute basis as well as relative to
the general fixed-income markets. While this hurt the overall performance of the
Funds, it also meant that many $25 par securities were available at yields that
were the most attractive relative to the corporate bond market since 2001. To
take advantage of this situation, we reallocated a small percentage of each
Fund's portfolios into the $25 par sector by selling some $1000 par capital
securities.
Other parts of the preferred securities market that appeared very attractive to
us were Dividends Received Deduction (DRD) and the Qualified Dividend Income
(QDI) issues. Due to a recent change by Moody's in how they would evaluate an
issuer's preferred securities, there was a large amount of issuance of this type
of paper during this reporting period. In nearly all cases, the new issues were
priced attractively to the current market and at levels that allowed investors
to buy without giving up much income relative to fully taxable securities. Even
though the Funds do not emphasize tax-advantaged income to either individuals or
corporations as an objective, we increased our concentration in these types of
issues since we believed that we were getting the tax advantages for little or
no cost. Moreover, we believed that there were potential total return benefits
that existed if these types of preferred investments ever begin to trade at
levels that reflect their tax benefits.
The overall management strategy for the convertible sleeves of JPC and JQC
remained consistent during this period. We continued to focus on the "balanced"
portion of the convertible universe, which includes securities that capture the
features of both bonds and stocks by being priced much like bonds while
maintaining the upside potential of equities. We thought these securities had an
attractive risk/reward trade off between equity sensitivity and downside risk.
We had a slight bias towards yield-oriented convertibles while making sure that
the convertible securities sleeves of both Funds maintained a minimum of 50%
investment grade issues. The Funds' convertible securities sleeves also remained
more equity sensitive than the Merrill Lynch All Convertibles Index (VXA0).
5
The first six months of 2005 were very difficult in the convertible securities
market due to intense selling pressure from convertible arbitrage hedge funds.
This resulted in four consecutive months of negative returns for the VXA0 Index.
One reason behind the massive selling pressure was the large number of
redemptions suffered by hedge funds as a result of weak performance in 2004 and
early 2005. As the selling pressure mounted, many of both Funds' convertible
securities holdings declined in value for reasons that we believed were
unrelated to their fundamentals.
In addition to troubles in the convertible securities market, the credit default
(CDO) market experienced a serious but short-lived crisis. Redemption worries
were compounded by a general loosening of correlations between equity and debt.
This was best exemplified with the almost simultaneous bid by investor Kirk
Kerkorian for General Motors stock and the rating agencies' downgrade to junk of
GM debt.
For the high yield debt portion of both portfolios, we continued to employ a
value-oriented strategy, focusing on relatively higher-quality credits with
strong fundamental business models, diversified revenue streams, and relatively
low earnings volatility. Investing our assets across a variety of industry
sectors and rating tiers also remains a priority. We continued to evaluate the
entire group of holdings, eliminating positions that we believed had escalating
credit issues, limited upside potential or significant downside risk.
HOW DID THE FUNDS PERFORM OVER THIS PERIOD?
The performance of each Fund, as well as the performance of a comparative
benchmark, is shown in the accompanying table.
CUMULATIVE TOTAL RETURN ON NET ASSET VALUE
For periods ended June 30, 2005
6-MONTH 1-YEAR
--------------------------------------------------------------------------------
JPC -0.68% 9.65%
--------------------------------------------------------------------------------
JQC -0.80% 9.76%
--------------------------------------------------------------------------------
Comparative Benchmark1 -1.27% 6.48%
--------------------------------------------------------------------------------
For more information, please see the individual Performance Overview pages in
this report.
Past performance does not guarantee future results. Current performance may be
higher or lower than the data shown. Returns do not reflect the deduction of
taxes that a shareholder may have to pay on Fund distributions or upon the sale
of Fund shares.
For more information, please see the individual Performance Overview pages in
this report.
1 Comparative benchmark performance is a blended return consisting 1) 60% of
the Merrill Lynch Preferred Stock Hybrid Securities Index, an unmanaged index
of investment-grade, exchange-traded preferred stocks with outstanding market
values of at least $30 million and at least one year to maturity; 2) 30% of
the Merrill Lynch All U.S. Convertibles Index, consisting of approximately
575 securities with par value greater than $50 million that were issued by
U.S. companies or non-U.S. based issuers that have a significant business
presence in the U.S.; and 3) 10% of the CSFB High Yield Index, which includes
approximately $375 billion of $US-denominated high yield debt with a minimum
of $75 million in par value and at least one rating below investment-grade.
Index returns to not include the effects of any sales charges or management
fees. It is not possible to invest directly in an index.
6
For the six months ended June 30, 2005, both Funds outperformed an unmanaged,
unleveraged comparative benchmark. One of the primary factors benefiting the
performance of these Funds relative to that of the benchmark was the Funds' use
of financial leverage. While leveraging can add volatility to a Fund's NAV and
share price, especially during periods of rising interest rates, this strategy
can also provide opportunities for additional income and total return for common
shareholders when short-term interest rates remain relatively low and long-term
rates fall or remain relatively constant.
While the Funds' performance was unremarkable in absolute terms, they did
perform well when compared with their benchmark. Helping the performance of the
Funds during this period was the decision to focus on some of the recent DRD and
QDI issuance. These purchases produced positive results quickly as many of these
offerings traded immediately to premiums. The Funds also benefited from the
trades that took profits on a number of $1000 par capital security positions
such as Centaur, Abbey National and KN Energy, with the proceeds then reinvested
in both fully taxable and QDI $25 par securities. We sold our positions in
Ameren, Keyspan, Public Service Enterprise and Alltel at significant gains after
having enjoyed book yields of 8% or more from these issues over the past couple
of years.
On the other hand, auto industry securities were a bad news story during the six
month period. As of June 30, 2005, we had liquidated all of our holdings in GM
and Delphi, and most of our holdings in Ford. In hindsight, we wish we had acted
more quickly. The bonds and preferred securities of these issuers traded down
considerably as market share concerns and unfunded pension and health care
obligations took center stage in the press. Rating agency downgrades followed
and even though most of our investments were in the senior debt of these
companies, prices of all securities of these companies dropped as investors
reacted to the unfavorable news.
In addition, the underperformance of the $25 par sector relative to both the
$1000 par capital securities sector and the general bond market hurt the
performance of the Funds. We believed this to be a temporary phenomenon, and we
actually increased our concentrations in this sector. While we believe this may
help the Funds over the longer term, it did constrain their performance over
this six month period.
7
In the convertible securities portion of both Funds' portfolios, the energy
sector was by far the best performer in the first half of 2005 as oil prices
rose substantially. In addition, utilities had a strong second quarter after a
slightly negative first quarter. As a result, four of the five best performing
securities held for JPC and JQC were from the energy and utilities sectors.
Looking at JPC, the top convertible securities contributors to performance were
Chesapeake Energy, FPL Group, Diamond Offshore, Corning Inc. (Telecomm
Equipment/Fiber Optics Supplier) and Amerada Hess. The top contributors for JQC
were Chesapeake Energy, Kerr-McGee Corp., Public Service Enterprises, Diamond
Offshore, and Corning Inc. (Kerr-McGee and Corning were sold prior to June 30,
2005.)
Conversely, the convertible securities sector with the most negative impact was
the consumer discretionary area, largely driven by autos. The technology and
healthcare areas also had generally poor returns during this period. In JPC, the
securities with the largest negative impact were Ford Motor Co., OSI
Pharmaceuticals, Nortel Networks, Liberty Media/Viacom, and Comcast PCS. The
primary performance detractors for JQC were General Motors, OSI Pharmaceuticals,
Ford Motor Co., Tyco International, and Nortel Networks.
Despite some volatility in the high yield debt market, several holdings in JPC
and JQC performed well. The bond prices for Fisher Scientific, Warnaco, Cienna,
Georgia Pacific all gained over 3%. At the same time, these sleeves within the
Funds were hurt by their holdings of Affinia, an auto components supplier which
was adversely affected by the GM and Ford downgrades. The bond price for Affinia
dropped 9% in the quarter.
8
Distribution and Share Price
INFORMATION
Each of these Funds uses financial leverage in an effort to enhance its
dividend-paying capabilities. While this strategy adds volatility to a Fund's
net asset value and share price, it generally enhances the amount of income the
Fund has to distribute to its common shareholders. The extent of this benefit is
tied in part to the short-term rates these Funds pay their FundPreferredTM
shareholders. As short-term rates rose through this reporting period, the Funds
paid higher dividends to their FundPreferred shareholders. As a result, the
leveraging strategy - while still beneficial - did not provide as much income
enhancement as it did before short-term interest rates began to rise. Over this
reporting period, both JPC and JQC announced two reductions in their monthly
distribution to shareholders.
Both Funds seek to pay stable distributions at rates that reflect each Fund's
past results and projected future performance. During certain periods, each Fund
may pay distributions at a rate that may be more or less than the amount of net
investment income actually earned by the Fund during the period. If a Fund has
cumulatively earned more than it has paid in distributions, it holds the excess
in reserve as undistributed net investment income (UNII) as part of the Fund's
NAV. Conversely, if a Fund has cumulatively paid distributions in excess of its
earnings, the excess constitutes negative UNII that is likewise reflected in the
Fund's NAV. Each Fund will, over time, pay all of its net investment income in
distributions to shareholders. As of June 30, both Funds had negative UNII
balances for financial statement purposes and positive UNII balances for tax
purposes.
In addition, due to normal portfolio management activity, common shareholders of
the following Funds received capital gains and/or net ordinary income
distributions at the end of December 2004 as follows:
LONG-TERM CAPITAL GAINS ORDINARY INCOME
(PER SHARE) (PER SHARE)
--------------------------------------------------------------------------------
JPC $0.0710 $0.1626
--------------------------------------------------------------------------------
JQC $0.0196 $0.0001
--------------------------------------------------------------------------------
The relatively large distributions from JPC represented important parts of this
Fund's total return for this period. Generally, these types of distributions
were generated by bond calls or by sales of appreciated securities that occurred
in the course of normal portfolio management activities. The proceeds of these
calls or sales then were reinvested in securities paying lower, current interest
rates. On balance, this had a slight negative impact on the Funds' earning power
and was a minor factor in the reductions noted above.
As of June 30, 2005, the Funds' shares were trading at discounts to their NAVs
as shown in the accompanying chart:
6/30/05 6-MONTH AVERAGE
DISCOUNT DISCOUNT
--------------------------------------------------------------------------------
JPC -8.69% -7.79%
--------------------------------------------------------------------------------
JQC -9.93% -9.28%
--------------------------------------------------------------------------------
9
Nuveen Preferred and Convertible Income Fund
JPC
Performance
OVERVIEW As of June 30, 2005
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
$25 Par (or similar) Securities 34.9%
Capital Preferred Securities 22.4%
Convertible Bonds 19.5%
Convertible Preferred Securities 11.3%
Corporate Bonds 10.6%
Repurchase Agreements 1.0%
Common Stocks 0.3%
Bar Chart:
2004-2005 MONTHLY DIVIDENDS PER SHARE1
Jul 0.1005
Aug 0.1005
Sep 0.1005
Oct 0.1005
Nov 0.1005
Dec 0.1005
Jan 0.1005
Feb 0.1005
Mar 0.096
Apr 0.096
May 0.096
Jun 0.09
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
7/1/04 13.49
13.6
13.66
13.65
13.7
13.69
13.78
13.77
13.68
13.89
13.88
13.9
13.91
13.86
13.91
13.83
13.69
13.62
13.8
13.94
13.95
13.95
14.07
14.19
14.12
14.05
14.01
14
14.15
14.01
14.13
14.21
14.09
14.01
14.03
14.1
14.16
14.2
14.24
14.39
14.47
14.56
14.53
14.56
14.52
14.44
14.54
14.55
14.59
14.59
14.69
14.55
14.36
14.31
14.45
14.41
14.46
14.49
14.53
14.54
14.56
14.65
14.69
14.6
14.57
14.6
14.65
14.7
14.72
14.67
14.75
14.76
14.76
14.62
14.56
14.54
14.54
14.49
14.44
14.39
14.4
14.34
14.38
14.57
14.65
14.73
14.85
14.95
14.98
14.96
14.54
14.36
14.46
14.51
14.49
14.53
14.61
14.55
14.54
14.56
14.56
14.48
14.46
14.49
14.52
14.37
14.26
14.25
14.16
14.29
14.43
14.48
14.45
14.46
14.47
14.38
14.19
14.07
14.04
13.97
13.86
13.99
14.06
14.02
13.82
13.89
14.07
14.19
14.33
14.26
14.34
14.32
14.47
14.47
14.45
14.5
14.35
14.36
14.28
14.26
14.23
14.27
14.23
14.21
14.15
14.09
14.24
14.35
14.43
14.5
14.56
14.53
14.59
14.69
14.66
14.68
14.75
14.6
14.65
14.57
14.51
14.45
14.29
14.08
14.34
14.47
14.54
14.63
14.62
14.55
14.41
14.34
14.35
14.38
14.1
14
13.69
13.39
13.29
13.06
13.22
13.05
12.82
12.69
12.42
12.51
12.32
12.55
12.87
13.08
12.97
13.04
12.9
12.98
13
13
12.9
12.94
12.83
12.8
12.6
12.58
12.62
12.59
12.55
12.62
12.63
12.67
12.8
12.93
12.93
12.93
12.89
12.99
13.14
13.13
13.09
13.13
13.2
13.11
13.11
13.1
13.05
13.02
13.05
13.01
13.12
13.17
13.19
13.23
13.25
13.25
13.36
13.43
13.44
13.36
13.36
13.41
13.35
13.4
13.41
13.13
13.19
13.2
13.24
13.28
13.25
13.28
13.42
13.46
13.44
13.39
13.37
13.37
6/30/05 13.35
PORTFOLIO STATISTICS
------------------------------------
Common Share Price $13.35
------------------------------------
Common Share
Net Asset Value $14.62
------------------------------------
Premium/(Discount) to NAV -8.69%
------------------------------------
Latest Dividend $.0900
------------------------------------
Market Yield 8.09%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $1,463,774
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Commercial Banks 17.9%
------------------------------------
Insurance 12.4%
------------------------------------
Real Estate 9.0%
------------------------------------
Capital Markets 7.7%
------------------------------------
Diversified Financial Services 7.6%
------------------------------------
Media 5.4%
------------------------------------
Hotels Restaurants & Leisure 4.5%
------------------------------------
Thrifts & Mortgage Finance 3.8%
------------------------------------
Pharmaceuticals 2.6%
------------------------------------
Oil, Gas & Consumable Fuels 2.6%
------------------------------------
Electric Utilities 2.4%
------------------------------------
Repurchase Agreements 1.0%
------------------------------------
Other 23.1%
------------------------------------
TOP FIVE ISSUERS
(EXCLUDING REPURCHASE AGREEMENTS)
(as a % of total investments)
------------------------------------
Wachovia Corporation 2.0%
------------------------------------
JPMorgan Chase & Company 1.9%
------------------------------------
Citigroup 1.9%
------------------------------------
HBOS Public Limited Company 1.7%
------------------------------------
HSBC Holdings Public
Limited Company 1.7%
------------------------------------
ANNUALIZED TOTAL RETURN
(Inception 3/26/03)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
6-Month
(Cumulative) -2.81% -0.68%
------------------------------------
1-Year 10.93% 9.65%
------------------------------------
Since
Inception 3.72% 9.80%
------------------------------------
1 The Fund also paid shareholders capital gains and net ordinary income
distributions in December 2004 of $0.2336 per share.
10
Nuveen Preferred and Convertible Income Fund 2
JQC
Performance
OVERVIEW As of June 30, 2005
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
$25 Par (or similar) Securities 33.8%
Capital Preferred Securities 23.3%
Convertible Bonds 19.0%
Convertible Preferred Securities 11.0%
Corporate Bonds 10.6%
Repurchase Agreements 1.9%
Common Stocks 0.4%
Bar Chart:
2004-2005 MONTHLY DIVIDENDS PER SHARE1
Jul 0.0975
Aug 0.0975
Sep 0.0975
Oct 0.0975
Nov 0.0975
Dec 0.0975
Jan 0.0975
Feb 0.0975
Mar 0.093
Apr 0.093
May 0.093
Jun 0.0885
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
7/1/04 13.06
13.21
13.23
13.27
13.36
13.35
13.44
13.19
13.19
13.26
13.43
13.43
13.42
13.29
13.29
13.3
13.2
13.13
13.31
13.43
13.54
13.54
13.6
13.65
13.68
13.62
13.68
13.63
13.77
13.71
13.7
13.71
13.6
13.53
13.56
13.63
13.73
13.62
13.67
13.75
13.83
13.9
13.94
14.01
14.08
14.02
14.05
14.03
14.11
14.19
14.26
14.18
14.16
14.09
14.08
14.11
14.13
14.13
14.2
14.21
14.17
14.13
14.22
14.18
14.11
14.16
14.24
14.32
14.27
14.26
14.33
14.38
14.35
14.22
14.15
14.18
14.07
14.12
14.1
14
13.93
13.98
14.02
14.11
14.17
14.23
14.29
14.31
14.45
14.49
14.07
13.82
13.99
14.01
14.03
14.04
14.05
14.05
14.16
14.22
14.09
14.03
14.04
14.04
14.05
13.94
13.83
13.82
13.71
13.81
13.98
14.04
14.03
13.99
13.98
13.84
13.69
13.62
13.57
13.52
13.57
13.77
13.7
13.65
13.56
13.5
13.7
13.81
13.87
13.87
13.88
13.83
13.91
13.94
13.99
14.02
13.93
13.93
13.89
13.88
13.83
13.85
13.85
13.85
13.8
13.76
13.86
13.95
13.98
14.05
14.04
14
14.12
14.22
14.25
14.35
14.37
14.28
14.15
14.17
14.14
14.02
13.85
13.67
13.98
14.04
14.06
14.09
14.07
14.04
13.91
13.84
13.83
13.88
13.54
13.48
13.21
13.02
12.94
12.75
12.9
12.82
12.59
12.56
12.33
12.4
12.3
12.55
12.72
12.76
12.64
12.73
12.63
12.69
12.69
12.74
12.69
12.74
12.61
12.54
12.4
12.45
12.57
12.54
12.47
12.44
12.42
12.4
12.39
12.52
12.6
12.6
12.7
12.76
12.92
12.88
12.78
12.82
12.85
12.78
12.74
12.74
12.77
12.78
12.82
12.83
12.85
12.94
12.91
12.86
12.83
12.9
12.97
13.08
13.09
13.07
13.07
13.16
13.14
13.12
13.08
12.9
12.98
12.94
12.96
13.07
13.05
13.05
13.1
13.09
13.1
13.05
13.05
13.06
6/30/05 13.06
PORTFOLIO STATISTICS
------------------------------------
Common Share Price $13.06
------------------------------------
Common Share
Net Asset Value $14.50
------------------------------------
Premium/(Discount) to NAV -9.93%
------------------------------------
Latest Dividend $.0885
------------------------------------
Market Yield 8.13%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $2,044,450
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Commercial Banks 20.8%
------------------------------------
Insurance 12.1%
------------------------------------
Real Estate 8.3%
------------------------------------
Diversified Financial Services 8.2%
------------------------------------
Capital Markets 6.7%
------------------------------------
Media 5.7%
------------------------------------
Hotels Restaurants & Leisure 4.0%
------------------------------------
Oil, Gas & Consumable Fuels 2.8%
------------------------------------
Pharmaceuticals 2.4%
------------------------------------
Thrifts & Mortgage Finance 1.9%
------------------------------------
Specialty Retail 1.7%
------------------------------------
Energy Equipment & Services 1.7%
------------------------------------
Repurchase Agreements 1.9%
------------------------------------
Other 21.8%
------------------------------------
TOP FIVE ISSUERS
(EXCLUDING REPURCHASE AGREEMENTS)
(as a % of total investments)
------------------------------------
Wachovia Corporation 2.2%
------------------------------------
JPMorgan Chase & Company 2.1%
------------------------------------
Citigroup 1.9%
------------------------------------
HBOS Public Limited Company 1.8%
------------------------------------
ING Groep NV 1.6%
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 6/25/03)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
6-Month
(Cumulative) -1.77% -0.80%
------------------------------------
1-Year 10.28% 9.76%
------------------------------------
Since
Inception 1.12% 8.45%
------------------------------------
1 The Fund also paid shareholders capital gains and net ordinary income
distributions in December 2004 of $0.0197 per share.
11
Shareholder
MEETING REPORT
The annual shareholder meeting was held on March 22, 2005, in Chicago at
Nuveen's headquarters.
JPC JQC
------------------------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
Common and Common and
Preferred Preferred Preferred Preferred
shares voting shares voting shares voting shares voting
together together together together
as a class as a class as a class as a class
====================================================================================================================================
Robert P. Bremner
For 96,638,297 -- 136,584,089 --
Withhold 694,786 -- 1,150,424 --
------------------------------------------------------------------------------------------------------------------------------------
Total 97,333,083 -- 137,734,513 --
====================================================================================================================================
Lawrence H. Brown
For 96,630,734 -- 136,557,535 --
Withhold 702,349 -- 1,176,978 --
------------------------------------------------------------------------------------------------------------------------------------
Total 97,333,083 -- 137,734,513 --
====================================================================================================================================
Jack B. Evans
For 96,668,478 -- 136,590,103 --
Withhold 664,605 -- 1,144,410 --
------------------------------------------------------------------------------------------------------------------------------------
Total 97,333,083 -- 137,734,513 --
====================================================================================================================================
William C. Hunter
For 96,640,331 -- 136,587,712 --
Withhold 692,752 -- 1,146,801 --
------------------------------------------------------------------------------------------------------------------------------------
Total 97,333,083 -- 137,734,513 --
====================================================================================================================================
David J. Kundert
For 96,640,310 -- 136,568,365 --
Withhold 692,773 -- 1,166,148 --
------------------------------------------------------------------------------------------------------------------------------------
Total 97,333,083 -- 137,734,513 --
====================================================================================================================================
William J. Schneider
For -- 25,488 -- 35,188
Withhold -- 43 -- 63
------------------------------------------------------------------------------------------------------------------------------------
Total -- 25,531 -- 35,251
====================================================================================================================================
Timothy R. Schwertfeger
For -- 25,496 -- 35,188
Withhold -- 35 -- 63
------------------------------------------------------------------------------------------------------------------------------------
Total -- 25,531 -- 35,251
====================================================================================================================================
Judith M. Stockdale
For 96,622,037 -- 136,574,344 --
Withhold 711,046 -- 1,160,169 --
------------------------------------------------------------------------------------------------------------------------------------
Total 97,333,083 -- 137,734,513 --
====================================================================================================================================
Eugene S. Sunshine
For 96,635,068 -- 136,577,913 --
Withhold 698,015 -- 1,156,600 --
------------------------------------------------------------------------------------------------------------------------------------
Total 97,333,083 -- 137,734,513 --
====================================================================================================================================
12
Nuveen Preferred and Convertible Income Fund (JPC)
Portfolio of
INVESTMENTS June 30, 2005 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 0.5% (0.3% OF TOTAL INVESTMENTS)
DIVERSIFIED FINANCIAL SERVICES - 0.2%
71,370 Gabelli Asset Management Inc. $ 3,153,840
------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.1%
62,025 Acxiom Corporation 1,295,082
------------------------------------------------------------------------------------------------------------------------------------
SOFTWARE - 0.2%
102,711 Computer Associates International Inc. 2,822,499
------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost $7,196,915) 7,271,421
--------------------------------------------------------------------------------------------------------------------
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) SECURITIES - 51.6% (34.9% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.5%
169,229 Ford Motor Company (CORTS) 8.000% Baa3 BB+ 3,849,960
123,079 Ford Motor Company, Series F (CORTS) 8.000% Baa3 BB+ 2,898,510
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 5.0%
2,500 ABN AMRO North America, Series L, 144A (a) 6.460% A3 NR 2,595,313
17,900 Bear Stearns Capital Trust III 7.800% A2 BBB 463,610
500 BNY Capital Trust IV, Series E 6.875% A1 A- 12,625
300,800 BNY Capital Trust V, Series F 5.950% A1 A- 7,565,120
129,800 Compass Capital Trust III 7.350% A3 BBB- 3,374,800
9,900 CSFB USA, Series 2002-10 (SATURNS) 7.000% Aa3 A+ 258,390
29,000 First Union Capital II, Series II, (CORTS) 7.500% A1 A- 761,830
41,500 First Union Institutional Capital II, (CORTS) 8.200% A1 A- 1,143,740
39,600 Goldman Sachs Group Inc., Series 2004-4, (CORTS) 6.000% A1 A- 970,200
13,100 Goldman Sachs Group Inc., Series2003-06 (SATURNS) 6.000% Aa3 A+ 324,291
526,388 Lehman Brothers Holdings Capital Trust III, Series K 6.375% A2 BBB+ 13,238,658
2,400 Lehman Brothers Holdings Capital Trust IV, Series L 6.375% A2 BBB+ 61,128
109,800 Merrill Lynch Capital Trust 7.000% A1 A- 2,886,642
29,000 Merrill Lynch Preferred Capital Trust 7.750% A1 A- 759,800
227,900 Merrill Lynch Preferred Capital Trust V 7.280% A1 A- 6,100,883
119,200 Merrill Lynch Preferred Capital Trust IV 7.120% A1 A- 3,152,840
23,300 Morgan Stanley (PPLUS) 7.050% Aa3 A+ 604,635
67,100 Morgan Stanley Capital Trust II 7.250% A1 A- 1,736,548
365,739 Morgan Stanley Capital Trust III 6.250% A1 A- 9,194,678
717,800 Morgan Stanley Capital Trust IV 6.250% A1 A- 18,052,670
25,000 Safeco Capital Trust I (CORTS) 8.750% Baa2 BBB- 759,875
13,200 Safeco Capital Trust IV (CORTS) 8.375% Baa2 BBB- 362,274
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 7.2%
170,000 Abbey National plc 7.375% A2 A- 4,474,400
92,400 Abbey National plc, Series B 7.250% A1 A- 2,383,920
16,600 Abbey National plc, Series B 7.375% A2 A 444,880
37,900 ABN AMRO Capital Fund Trust V 5.900% A2 A 922,107
69,300 ASBC Capital I 7.625% Baa1 BBB- 1,836,450
68,185 BAC Capital Trust I 7.000% Aa3 A 1,759,855
135,755 BAC Capital Trust II 7.000% Aa3 A 3,536,418
284,700 BAC Capital Trust III 7.000% Aa3 A 7,464,834
59,750 Banco Santander 6.410% A2 BBB+ 1,508,688
63,400 Banco Totta & Acores Finance, Series A 8.875% A3 NR 1,688,025
207,400 Banesto Holdings, Series A, 144A 10.500% A2 NR 6,468,288
13
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
81,700 Bank One Capital Trust VI 7.200% A1 A- $ 2,130,736
35,200 BankNorth Capital Trust II 8.000% A3 BB+ 924,352
62,600 Chittenden Capital Trust I 8.000% Baa1 BB+ 1,651,388
4,700 Citigroup Capital X 6.100% Aa2 A 118,675
107,000 Cobank ABC, 144A (a) 7.000% NR NR 5,896,663
83,400 Comerica Capital Trust I 7.600% A3 BBB+ 2,143,380
306,079 Fleet Capital Trust VII 7.200% Aa3 A 7,884,595
337,000 Fleet Capital Trust VIII 7.200% Aa3 A 8,748,520
15,500 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 BBB 408,115
25,400 KeyCorp, Series B (CORTS) 8.250% A3 BBB 648,716
156,300 National Commerce Capital Trust II 7.700% A1 A- 4,077,867
32,900 National Westminster Bank plc, Series A 7.875% Aa2 A+ 852,110
32,200 PNC Capital Trust 6.125% A3 BBB 814,016
21,400 Regions Finance Trust I 8.000% A2 BBB+ 547,412
175,000 Royal Bank of Scotland Group plc, Series L 5.750% A1 A 4,256,000
77,700 SunTrust Capital Trust IV 7.125% A1 A- 2,004,660
57,700 SunTrust Capital Trust V 7.050% A1 A- 1,493,276
71,100 USB Capital Trust III 7.750% Aa3 A- 1,844,334
189,300 USB Capital Trust IV 7.350% Aa3 A- 4,944,516
70,300 USB Capital Trust V 7.250% Aa3 A- 1,827,800
344,300 USB Capital Trust VI 5.750% Aa3 A- 8,400,920
33,400 VNB Capital Trust I 7.750% Baa1 BBB 868,400
21,400 Washington Mutual Capital Trust I,
Series 2001-22, Class A-1 (CORTS) 7.650% Baa1 BBB 553,190
9,100 Wells Fargo Capital Trust IV 7.000% Aa2 A 237,237
77,235 Wells Fargo Capital Trust V 7.000% Aa2 A 1,995,752
14,700 Wells Fargo Capital Trust VI 6.950% Aa2 A- 384,405
225,700 Wells Fargo Capital Trust VII 5.850% Aa2 A 5,642,500
80,200 Zions Capital Trust B 8.000% Baa1 BBB- 2,145,350
------------------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.1%
13,100 IBM Inc. (CORTS) 7.125% A1 A+ 334,705
20,700 IBM Inc., Series 2001-1 (SATURNS) 7.125% A1 A+ 531,990
2,700 IBM Inc., Trust Certificates, Series 2001-2 7.100% A1 A+ 69,633
5,100 IBM Trust III (CORTS) 7.200% A1 A+ 130,917
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 1.5%
773,900 HSBC Finance Corporation 6.875% A1 A 20,392,265
27,800 Household Capital Trust VI 8.250% A2 BBB+ 720,854
39,200 Household Capital Trust VII 7.500% A2 BBB+ 1,025,472
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.8%
15,100 BBVA Preferred Capital Ltd., Series B 7.750% A1 A- 389,127
15,200 CIT Group Incorporated (CORTS) 7.750% A3 BBB+ 418,760
215,900 Citigroup Capital Trust IX 6.000% Aa2 A 5,425,567
79,500 Citigroup Capital Trust VII 7.125% Aa2 A 2,062,230
355,200 Citigroup Capital Trust VIII 6.950% Aa2 A 9,107,328
4,800 Citigroup Capital Trust XI 6.000% Aa2 A 120,576
33,200 Citigroup Inc., Series F (a) 6.365% Aa3 A 1,747,980
94,000 Citigroup Inc., Series G (a) 6.213% Aa3 A 4,841,000
59,300 Citigroup Inc., Series H (a) 6.231% Aa3 NR 3,164,841
4,600 Citigroup Inc., Series M (a) 5.864% Aa3 A 3,294,600
5,400 General Electric Capital Corporation 5.875% NR AAA 136,944
33,100 General Electric Capital Corporation 6.625% Aaa AAA 868,875
2,200 General Electric Capital Corporation (CORTS) 6.000% Aaa AAA 55,528
769,075 ING Group NV 7.050% NR A- 20,111,311
560,618 ING Group NV 7.200% A2 A- 14,772,284
16,800 ING Group NV 6.200% A2 A- 425,544
30,000 JPM Capital Trust (CORTS) 7.200% A2 A- 786,600
52,200 JPMorgan Chase & Company (PCARS) 7.125% A2 A- 1,341,279
395,367 JPMorgan Chase Capital Trust X 7.000% A1 NR 10,279,542
22,800 JPMorgan Chase Capital Trust XVI 6.350% A1 A- 577,752
47,200 JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS) 7.125% A1 A- 1,244,192
14
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
29,900 Merrill Lynch Capital Trust II 8.000% A1 A- $ 799,825
91,395 Royal Bank of Scotland Group plc, Series N 6.350% A1 A 2,318,691
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.4%
2,500 BellSouth Capital Funding (CORTS) 7.100% A1 A 65,675
11,600 BellSouth Corporation 7.125% A2 A 296,844
2,200 BellSouth Corporation (CORTS) 7.000% Aa3 A 56,232
29,000 BellSouth Corporation, Series 2001-3, (SATURNS) 7.125% A2 A 741,820
9,800 BellSouth Inc. (CORTS) 7.000% A2 A 254,310
16,700 BellSouth Telecommunications (PPLUS) 7.300% Aa3 A 427,938
44,750 Deutsche Telekom International Finance B.V.,
Series 2001-24, Class A-1 (CORTS) 7.875% A3 A- 1,152,760
16,900 SBC Communications Inc. 7.000% A2 A 432,809
17,100 Verizon Communications (CORTS) 7.625% A2 A+ 448,875
22,200 Verizon Communications (CORTS) 7.375% A2 A+ 587,856
13,900 Verizon New England Inc., Series B 7.000% A2 NR 363,624
41,555 Verizon South Inc., Series F 7.000% A2 A+ 1,073,366
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.4%
10,000 Consolidated Edison Company 7.250% A2 A- 265,800
7,000 Consolidated Edison Company of New York Inc. 7.500% A1 A 180,740
22,200 DTE Energy Trust I 7.800% Baa3 BB+ 580,974
33,470 Entergy Louisiana Inc. 7.600% Baa1 A- 877,249
43,670 Georgia Power Capital Trust V 7.125% A3 BBB+ 1,140,660
6,600 Georgia Power Company 5.700% Aaa AAA 167,970
228,700 Georgia Power Company 5.900% A2 A 5,788,397
4,100 National Rural Utilities Cooperative Finance 7.600% A3 BBB+ 105,247
Corporation
80,000 National Rural Utilities Cooperative Finance 6.100% A3 BBB+ 2,008,000
Corporation
116,800 National Rural Utilities Cooperative Finance 5.950% A3 BBB+ 2,866,856
Corporation
113,432 Tennessee Valley Authority, Series D 6.750% Aaa AAA 2,902,725
128,000 Virginia Power Capital Trust 7.375% Baa1 BBB- 3,394,560
------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
58,000 Dairy Farmers of America Inc., 144A (a) 7.875% Ba1 BBB- 6,079,125
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.0%
23,000 AGL Capital Trust II 8.000% Baa2 BBB 595,470
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES - 0.5%
274,000 Aetna Incorporated 8.500% Baa1 BBB+ 7,154,140
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 10.5%
5,500 ACE Capital Trust I, Series 1999 8.875% Baa1 BBB- 141,350
538,010 Ace Ltd., Series C 7.800% Baa2 BBB- 14,418,668
777,500 Aegon NV 6.375% A3 A- 19,647,425
13,000 Allstate Insurance Company (CORTS) 8.000% A2 A- 354,315
6,000 AMBAC Financial Group Inc. 7.000% Aa2 AA 157,560
53,200 AMBAC Financial Group Inc. 5.950% Aa2 AA 1,358,728
5,000 AMBAC Financial Group Inc. 5.875% Aa2 AA 126,150
1,218,400 Delphi Financial Group Inc. 8.000% Baa3 BBB 32,653,120
158,005 EverestRe Capital Trust II 6.200% Baa1 BBB 3,758,939
99,400 EverestRe Group Limited 7.850% Baa1 BBB 2,648,016
8,600 Financial Security Assurance Holdings 6.875% Aa2 AA 222,568
18,300 Financial Security Assurance Holdings 6.250% Aa2 AA 469,029
208,400 Hartford Capital Trust III, Series C 7.450% Baa1 BBB 5,370,468
37,400 Hartford Life Capital Trust II, Series B 7.625% Baa1 BBB 966,416
38,400 Lincoln National Capital Trust V, Series E 7.650% Baa1 BBB 1,001,856
3,500 Lincoln National Capital Trust VI 6.750% Baa1 BBB 91,525
557,500 MetLife Inc., Series B (a) 6.500% Baa1 BBB 14,037,850
962,000 PartnerRe Limited, Series C 6.750% Baa1 BBB+ 24,531,000
2,600 PartnerRe Limited, Series D 6.500% Baa1 BBB+ 64,948
81,300 PLC Capital Trust III 7.500% Baa1 BBB+ 2,110,548
35,700 PLC Capital Trust IV 7.250% Baa1 BBB+ 935,340
6,000 PLC Capital Trust V 6.125% Baa1 BBB+ 150,600
15
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
37,400 Prudential plc 6.750% Baa1 A $ 981,750
325,410 RenaissanceRe Holdings Ltd., Series B 7.300% Baa2 BBB+ 8,535,504
12,000 RenaissanceRe Holdings Ltd., Series C 6.080% Baa2 BBB+ 288,600
96,100 RenaissanceRe Holdings Ltd., Series A 8.100% Baa2 BBB+ 2,521,664
23,500 Safeco Capital Trust I (CORTS) 8.700% Baa2 BBB- 630,035
11,300 Safeco Capital Trust I, Series 2001-4, (CORTS) 8.750% Baa2 BBB- 299,337
33,700 Safeco Capital Trust III (CORTS) 8.072% Baa2 BBB- 911,248
47,400 Safeco Corporation, Series 2001-7, (SATURNS) 8.250% Baa2 BBB- 1,246,620
40,600 Safeco Corporation, Series 2002-5, (SATURNS) 8.250% Baa2 BBB- 1,070,622
33,000 Torchmark Capital Trust I 7.750% Baa1 A- 873,840
74,000 W.R. Berkley Capital Trust, Series 2002-1, (CBTCS) 8.125% Baa3 BBB- 772,560
86,700 XL Capital Ltd., Series A 8.000% Baa1 BBB+ 2,306,220
292,100 XL Capital Ltd., Series B 7.625% Baa1 BBB+ 7,664,704
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.1%
43,700 Viacom Inc. 7.300% A3 BBB+ 1,106,921
------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 0.2%
49,100 Dominion CNG Capital Trust I 7.800% Baa1 BBB- 1,285,438
56,100 Energy East Capital Trust I 8.250% Baa3 BBB- 1,472,625
------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
477,200 Nexen Inc. 7.350% Baa3 BB+ 12,583,764
1,000 TransCanada Pipeline 8.250% A3 BBB 25,900
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 12.2%
10,700 AvalonBay Communities, Inc., Series H 8.700% Baa2 BBB 299,600
3,000 BRE Properties, Series B 8.080% Baa3 BBB- 79,200
22,500 BRE Properties, Series C 6.750% Baa3 BBB- 563,850
345,825 CarrAmerica Realty Corporation, SeriesE 7.500% Baa3 BBB- 8,946,493
20,600 Developers Diversified Realty Corporation, Series F 8.600% Ba1 BBB- 545,282
657,885 Developers Diversified Realty Corporation, Series G 8.000% Ba1 BBB- 17,105,010
72,600 Developers Diversified Realty Corporation, Series H 7.375% Ba1 BBB- 1,839,684
80,400 Duke Realty Corporation, Series L 6.600% Baa2 BBB 2,012,412
208,656 Equity Office Properties Trust, Series G 7.750% Baa3 BBB 5,575,288
6,100 Equity Residential Properties Trust 9.125% Baa2 BBB 154,513
19,200 Equity Residential Properties Trust, Series C 9.125% Baa2 BBB 502,272
9,900 Equity Residential Properties Trust, Series D 8.600% Baa2 BBB 263,637
424,173 Equity Residential Properties Trust, Series N 6.480% Baa2 BBB 10,608,567
7,000 HRPT Properties Trust, Series A 9.875% Baa3 BBB- 182,560
309,400 HRPT Properties Trust, Series B 8.750% Baa3 BBB- 8,378,552
755,483 Kimco Realty Corporation, Series F 6.650% Baa2 BBB+ 19,287,481
13,693 New Plan Excel Realty Trust, Series D 7.800% Baa3 BBB- 704,762
974,075 New Plan Excel Realty Trust, Series E 7.625% NR BBB- 25,316,209
32,982 Prologis Trust, Series C 8.540% Baa2 BBB 2,111,880
13,600 Prologis Trust, Series G 6.750% Baa2 BBB 346,528
37,500 Public Storage Inc., Series E 6.750% Baa2 BBB+ 944,625
159,800 Public Storage Inc., Series R 8.000% Baa2 BBB+ 4,154,800
34,900 Public Storage Inc., Series S 7.875% Baa2 BBB+ 904,608
28,200 Public Storage Inc., Series T 7.625% Baa2 BBB+ 731,508
29,200 Public Storage Inc., Series U 7.625% Baa2 BBB+ 763,580
32,000 Public Storage Inc., Series V 7.500% Baa2 BBB+ 841,600
186,500 Regency Centers Corporation 7.450% Baa3 BBB- 4,801,443
7,000 Simon Property Group, Inc., Series G 7.890% Baa2 BBB 376,460
16,800 Vornado Realty Trust, Series G 6.625% Baa3 BBB- 417,480
1,461,445 Wachovia Preferred Funding Corporation 7.250% A2 BBB+ 41,943,472
707,700 Weingarten Realty Trust, Preferred Securities 6.750% Baa1 A- 18,407,277
------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.0%
11,900 Sherwin Williams Company, Series III, (CORTS) 7.250% A2 A 316,540
16
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 4.0%
96,300 Countrywide Capital Trust III (PPLUS) 8.050% Baa1 BBB+ $ 2,558,691
1,200,900 Countrywide Capital Trust IV 6.750% Baa1 BBB+ 31,175,364
184,300 Fannie Mae (a) 0.000% Aa3 AA- 10,268,975
143,300 Fannie Mae (a) 5.125% Aa3 AA- 6,305,200
90,200 Federal Home Loan Mortgage Corporation (a) 6.000% Aa3 AA- 4,658,830
20,600 Federal Home Loan Mortgage Corporation (a) 6.140% Aa3 NR 1,032,575
47,300 Federal Home Loan Mortgage Corporation (a) 5.100% Aa3 AA- 2,043,360
8,000 Federal Home Loan Mortgage Corporation (a) 5.000% Aa3 AA- 348,000
------------------------------------------------------------------------------------------------------------------------------------
US AGENCY - 0.1%
17,000 Federal Home Loan Mortgage Corporation (a) 5.300% Aa3 AA- 757,563
------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.8%
18,300 AT&T Wireless Services Equity, Series 2002-B (SATURNS) 9.250% Baa2 A 508,740
31,300 AT&T Wireless, Series 2002-7 (CORTS) 8.000% Baa2 A 839,623
84,500 Telephone and Data Systems Inc. 7.600% Baa1 A- 2,175,875
35,800 United States Cellular Corporation 8.750% Baa1 A- 980,920
271,600 United States Cellular Corporation 7.500% Baa1 A- 7,259,865
------------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $745,121,049) 754,702,529
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 16.7% (11.3% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.4%
152,050 Ford Motor Company Capital Trust II 6.500% Ba1 B+ 6,132,177
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 1.0%
108,560 Goldman Sachs Group Inc., Series EMC 6.125% Aa3 NR 1,460,783
89,675 Lehman Brothers Holdings Inc., Series GIS 6.250% A1 A 2,273,261
53,200 State Street Corporation 6.750% NR BB+ 11,544,400
------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.9%
133,290 Celanese Corporation 4.250% NR NR 3,265,605
112,625 Huntsman Corporation 5.000% NR NR 5,192,013
52,800 The Mosaic Company 7.500% Caa1 NR 5,396,160
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 2.0%
10,730,000 Fortis Insurance NV, 144A 7.750% A1 A+ 11,789,588
97,950 HSBC Finance Corporation 8.875% A1 A 4,112,921
164,000 Sovereign Capital Trust IV, Convertible Security 4.375% Ba1 BB 7,257,000
105,800 Washington Mutual Inc., Unit 1 Trust 5.375% Baa1 BBB 5,605,919
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.3%
97,375 Allied Waste Industries Inc. 6.250% Caa3 B 4,486,066
------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.3%
85,800 TXI Capital Trust I 6.500% B2 B- 4,135,560
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.7%
217,900 Citigroup Global Markets 2.000% Aa1 AA- 10,543,745
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.6%
213,350 DTE Energy Company 8.750% Baa2 BBB- 5,378,554
217,900 FPL Group Inc. 8.000% NR A- 14,078,519
56,800 PNM Resources Inc. 6.750% Baa3 NR 3,041,072
------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.1%
25,000 Hanover Compressor Capital Trust 7.250% Caa1 B- 1,193,750
------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.1%
90,465 Albertson's, Inc. 7.250% Baa2 BBB 2,023,702
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.2%
39,750 Southern Union Company, Series B 5.750% Baa3 NR 2,891,415
17
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 1.0%
250,000 Host Marriott Financial Trust 6.750% B2 CCC+ $ 14,375,000
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.3%
106,675 Newell Financial Trust I 5.250% Baa3 BBB- 4,680,366
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.9%
66,550 Conseco Inc., Series B 5.500% Caa2 B- 1,830,125
398,965 Genworth Financial Inc. 6.000% A2 A 13,704,448
61,200 Hartford Financial Services Group Inc. 7.000% NR A- 4,235,040
418,700 MetLife Inc., Convertible, Series B 6.375% NR NR 10,978,314
90,000 Phoenix Companies Inc. 7.000% NR NR 3,048,120
166,000 Reinsurance Group of America Inc. 5.750% Baa2 BBB 9,885,300
100,000 The Chubb Corporation 7.000% NR A 3,173,000
65,000 UnumProvident Corporation 8.250% Ba1 BB+ 2,337,400
256,250 XL Capital Ltd 6.500% A2 A 6,137,188
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.7%
185,000 Emmis Communications Corporation, Series A 6.250% Caa1 CCC+ 7,738,550
53,375 Interpublic Group Companies Inc., Series A 5.375% NR NR 2,396,538
------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 0.6%
56,625 Aquila Inc. 6.750% B2 B- 1,980,743
133,155 Dominion Resources Inc. 8.750% Baa1 BBB+ 7,383,445
------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
40,125 Amerada Hess Corporation 7.000% Ba3 BB 3,676,654
6,725 Chesapeake Energy Corporation, 144A 4.125% NR NR 9,863,053
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.4%
126,150 Schering-Plough Corporation 6.000% Baa3 BBB 6,431,127
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.6%
165,000 Equity Office Properties Trust, Series B 5.250% Baa2 BBB 8,452,950
------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.7%
81 Fannie Mae 5.375% Aa3 AA- 7,865,460
87,475 PMI Group Inc. 5.875% A1 A 2,145,762
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $221,319,523) 244,120,793
--------------------------------------------------------------------------------------------------------------------
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 28.9% (19.5% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.4%
2,900 AAR Corporation, 144A 2.875% 2/01/24 B2 BB- 2,867,375
2,500 EDO Corporation, Convertible Subordinate Note 5.250% 4/15/07 NR NR 2,587,500
------------------------------------------------------------------------------------------------------------------------------------
AIRLINES - 0.2%
2,625 Pinnacle Airlines Corporation, 144A 3.250% 2/15/25 NR NR 2,208,281
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES - 0.6%
785 Fleetwood Enterprises Inc., 144A 5.000% 12/15/23 B2 B 896,863
185,250 General Motors Corporation, Convertible Notes, Senior 4.500% 3/06/32 Baa3 BB 4,505,280
Debentures, Series A
185,100 General Motors Corporation, Convertible Notes, Senior 5.250% 3/03/32 Baa3 BB 3,435,456
Debentures, Series B
------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 1.0%
1,320 CV Therapeutics Inc. 2.750% 5/16/12 NR NR 1,857,900
1,645 CV Therapeutics Inc. 3.250% 8/16/13 NR NR 1,758,094
4,500 Ivax Corporation, Convertible Bonds,144A 1.500% 3/01/24 NR NR 4,612,500
6,500 Ivax Corporation, Convertible Senior Subordinated Notes 4.500% 5/15/08 NR NR 6,516,250
18
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.7%
4,015 DST Systems Inc. 4.125% 8/15/23 NR NR $ 4,592,156
6,435 Electronic Data Systems, Convertible Senior 3.875% 7/15/23 Ba1 BBB- 6,145,425
Notes, 144A
------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.2%
5,565 Comverse Technology Inc. 0.000% 5/15/23 NR BB- 7,686,656
6,735 JDS Uniphase Corporation 0.000% 11/15/10 NR NR 5,202,788
10,850 Liberty Media Corporation, Senior Debentures 3.500% 1/15/31 Baa3 BB+ 9,656,500
Exchangeable for Motorola Common Stock
625 Lucent Technologies Inc. 2.750% 6/15/23 B1 B 679,688
1,610 Lucent Technologies Inc., Series B 2.750% 6/15/25 B1 B 1,813,263
2,985 Nortel Networks Corp 4.250% 9/01/08 B3 B- 2,798,438
3,355 Powerwave Technologies Inc. 1.825% 11/15/24 NR NR 3,715,663
1,240 Powerwave Technologies Inc. 1.875% 11/15/24 NR NR 1,373,300
------------------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.2%
2,500 Mercury Computer Systems Inc.,144A 2.000% 5/01/24 NR NR 2,678,125
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.5%
6,900 Providian Financial Corporation, Convertible 3.250% 8/15/05 B2 B 6,917,250
Senior Notes
------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.2%
3,400 Sealed Air Corporation, 144A 3.000% 6/30/33 Baa3 BBB 3,378,750
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.1%
1,990 Leucadia National Corporation, 144A 3.750% 4/15/14 Ba3 B+ 2,024,825
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.4%
1,835 PG&E Corporation 9.500% 6/30/10 NR NR 5,422,425
755 Unisource Energy Corporation, 144A 4.500% 3/01/35 NR NR 769,156
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.8%
255 Gateway Inc. 1.500% 12/31/09 NR NR 193,163
1,725 Gateway Inc., 144A 2.000% 12/31/11 NR NR 1,280,813
3,250 Gateway Inc., 144A 1.500% 12/31/09 NR NR 2,461,875
6,600 Solectron Corporation, Series B 0.500% 2/15/34 B1 B+ 4,958,250
2,720 Vishay Intertechnology Inc. 3.625% 8/01/23 B3 B+ 2,614,600
------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 1.9%
2,600 Cal Dive International Inc. 3.250% 12/15/25 NR NR 2,879,500
6,275 Diamond Offshore Drilling Inc. 1.500% 4/15/31 NR A- 7,718,250
2,325 Oil States International Inc., Series 144A 2.375% 7/01/25 NR NR 2,418,000
5,265 Pride International Inc. 3.250% 5/01/33 Ba2 BB- 6,324,581
7,000 Schlumberger Limited 2.125% 6/01/23 A1 A+ 7,892,500
510 Willbros Group Inc., 144A 2.750% 3/15/24 NR NR 460,913
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES - 0.9%
4,315 Advanced Medical Optics 2.500% 7/15/24 B3 B 4,352,756
8,835 Fisher Scientific International Inc. 3.250% 3/01/24 Ba3 BB+ 9,188,400
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES - 0.5%
3,100 Health Management Associates Inc. 1.500% 8/01/23 Baa3 BBB+ 3,363,500
6,210 Roche Holdings Inc., 144A 0.000% 7/25/21 NR NR 4,299,804
------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 3.1%
11,300 Carnival Corporation 1.132% 4/29/33 A3 A- 9,181,250
2,550 Hilton Hotels Corporation 3.375% 4/15/23 Baa3 BBB- 3,082,313
5,400 Kerzner International Limited,144A 2.375% 4/15/24 B2 B 6,088,500
15,500 Royal Caribbean Cruises Limited, Senior Convertible 0.000% 2/02/21 Ba1 BB+ 8,990,000
Liquid Yield Option Notes
6,305 Scientific Games Corporation 0.750% 12/01/24 B2 B+ 6,840,925
3,525 Six Flags Inc. 4.500% 5/15/15 Caa1 CCC 3,467,719
5,830 Starwood Hotels and Resorts Worldwide Inc. 3.500% 5/16/23 Ba1 BB+ 7,017,863
19
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.3%
3,350 Tyco International Group SA, Convertible Notes, 144A 3.125% 1/15/23 Ba1 BBB $ 4,648,125
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.5%
5,075 American Equity Investment Life Holding Company 5.250% 12/06/24 NR BB+ 5,658,625
2,300 American International Group Inc. 0.500% 5/15/07 Aa2 AA 2,162,000
------------------------------------------------------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL - 0.1%
220 Overstock.com, Inc. 3.750% 12/01/11 NR NR 180,125
2,030 Overstock.com, Inc. 3.750% 12/01/11 NR NR 1,662,063
------------------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES - 0.2%
5,845 Open Solutions Inc., 144A 1.467% 2/02/35 NR NR 2,966,338
------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.4%
5,390 Digital River Inc., 144A 1.250% 1/01/24 NR NR 5,356,313
------------------------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS - 1.1%
3,675 Collegiate Pacific Inc. 5.750% 12/01/09 NR NR 3,403,969
5,300 Hasbro Inc. 2.750% 12/01/21 Baa3 BBB- 5,849,875
6,195 K2 Corporation, Convertible Notes, 144A 5.000% 6/15/10 NR NR 7,557,900
------------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.3%
4,180 AGCO Corporation, Series B 1.750% 12/31/33 B1 BB- 4,336,750
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 4.2%
325,000 Comcast Corporation 2.000% 10/15/29 Ba1 BBB 13,942,500
4,000 Echostar Communications Corporation, Convertible 5.750% 5/15/08 B2 B 3,990,000
Subordinated Notes
3,400 Interpublic Group Companies Inc. 4.500% 3/15/23 Baa3 BB- 4,058,750
5,275 Liberty Media Corporation 0.750% 3/30/23 Baa3 BB+ 5,591,500
8,250 Liberty Media Corporation, Senior Debentures, 3.250% 3/15/31 Baa3 BB+ 6,352,500
Exchangeable for Class B Viacom Common Stock
2,500 Lions Gate Entertainment Corporation, 144A 3.625% 3/15/25 NR NR 2,528,125
2,625 Lions Gate Entertainment Corporation, 144A 2.938% 10/15/24 NR NR 2,857,969
500 Sinclair Broadcast Group 6.000% 9/15/12 NR B- 421,250
3,425 Sinclair Broadcast Group, Convertible Senior 4.875% 7/15/18 B3 B 3,125,313
Subordinated Notes, 144A
2,600 Sirius Satellite Radio Inc. 3.250% 10/15/11 NR CCC 3,714,750
6,100 The Walt Disney Company, Convertible Senior Notes 2.125% 4/15/23 Baa1 A- 6,290,625
96,000 Tribune Company, Exchangeable Subordinated Debentures 2.000% 5/15/29 Baa1 A- 8,208,000
------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
6,295 Devon Energy Corporation 4.900% 8/15/08 Baa2 BBB 7,105,481
4,150 McMoran Exploration Corporation, Notes, 144A 6.000% 7/02/08 NR NR 6,199,063
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 2.6%
1,380 Abgenix Inc., Senior Convertible Note, 144A 1.750% 12/15/11 NR NR 1,235,100
3,390 Alexion Pharmaceuticals Inc., 144A 1.375% 2/01/12 NR NR 3,212,025
7,125 Allergan Inc., Convertible Senior Notes 0.000% 11/06/22 A3 A 6,991,406
7,050 Alza Corporation 0.000% 7/28/20 Aa1 AAA 6,327,375
4,005 OSI Pharmaceuticals, Inc. 3.250% 9/08/23 NR NR 4,430,531
3,275 Sepracor Inc. 0.000% 10/15/24 NR CCC+ 3,348,688
1,475 Teva Pharmaceutical Finance, Series B 0.250% 2/01/24 NR BBB 1,469,469
1,940 Valeant Pharmaceuticals International, 144A 4.000% 11/15/13 NR B 1,670,825
3,295 Valeant Pharmaceuticals International, 144A 3.000% 8/16/10 NR B 2,837,819
6,400 Wyeth, 144A 1.000% 1/15/24 Baa1 A 6,586,816
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.2%
2,725 Avatar Holdings Inc., 144A 4.500% 4/01/24 NR NR 3,024,750
------------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.1%
585 Yellow Roadway Corporation 3.375% 11/25/23 Ba1 BBB- 813,881
20
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 1.7%
3,100 Agere Systems Inc. 6.500% 12/15/09 B3 B $ 3,138,750
5,875 ASM International NV 4.250% 12/06/11 NR B- 5,720,781
4,890 ASM Lithography Holding NV 5.750% 10/15/06 B2 NR 5,240,858
4,000 FEI Company, Convertible Notes 5.500% 8/15/08 NR B- 3,975,000
6,475 LSI Logic Corporation 4.000% 5/15/10 Ba3 B 6,410,250
------------------------------------------------------------------------------------------------------------------------------------
SOFTWARE - 0.7%
6,600 Mentor Graphics Corporation, Convertible 6.875% 6/15/07 NR NR 6,567,000
Subordinated Notes
3,350 Sybase Inc., 144A 1.750% 2/22/25 NR NR 3,211,809
------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 1.3%
7,500 Lowes Companies Inc. 0.861% 10/19/21 A2 A+ 7,781,250
6,000 Sonic Automotive Inc., Convertible Senior 5.250% 5/07/09 B3 B 5,850,000
Subordinated Notes
6,000 The TJX Companies, Inc. 0.000% 2/13/21 Baa1 A- 4,980,000
------------------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL - 0.3%
4,800 Reebok International Limited, Series B 2.000% 5/01/24 Baa3 BBB 5,052,000
------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.3%
3,125 NII Holdings Inc., 144A 2.875% 2/01/34 NR NR 4,195,308
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (cost $406,664,354) 423,414,982
--------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 15.7% (10.6% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.2%
3,500 K&F Acquisition Inc. 7.750% 11/15/14 Caa1 B- 3,596,250
------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.3%
2,100 Affinia Group Inc. 9.000% 11/30/14 Caa1 B 1,774,500
2,500 Tenneco Auto, Inc. 10.250% 7/15/13 B2 B- 2,837,500
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES - 0.8%
3,500 Ford Motor Company, Debentures 7.700% 5/15/97 Baa3 BB+ 2,770,681
5,590 Ford Motor Company, Debentures 9.980% 2/15/47 Baa3 BB+ 5,430,797
2,575 Keystone Automotive Operations Inc. 9.750% 11/01/13 B3 B- 2,562,125
------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.6%
2,000 Freeport McMoran Resources Inc. 7.000% 2/15/08 Ba3 B+ 2,107,500
1,335 OM Group Inc. 9.250% 12/15/11 Caa1 B- 1,341,675
3,000 Resolution Performance Products LLC 8.000% 12/15/09 B2 B+ 3,135,000
1,500 Rockwood Specialties Group 7.500% 11/15/14 B3 B- 1,496,250
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.1%
1,000 Allied Waste North America 7.875% 4/15/13 B2 BB- 1,027,500
667 Allied Waste North America, Series B 9.250% 9/01/12 B2 BB- 723,695
------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.4%
7,057 Ciena Corporation 3.750% 2/01/08 B2 B 6,263,088
------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.2%
2,500 Texas Industries Inc. 10.250% 6/15/11 B1 BB- 2,909,375
------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.5%
1,520 Berry Plastics Corporation 10.750% 7/15/12 B3 B- 1,666,300
2,000 MDP Acquisitions plc, Senior Notes 9.625% 10/01/12 B3 B- 2,010,000
2,000 Owens-Brockway Glass Containers, Guaranteed 8.250% 5/15/13 B2 B 2,182,500
Senior Note
2,000 Owens-Illinois Inc. 7.800% 5/15/18 B3 B 2,110,000
21
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.2%
2,000 INTELSAT Bermuda Limited, 144A 8.250% 1/15/13 B2 B+ $ 2,075,000
1,500 Valor Telecommunications Enterprises LLC, 144A 7.750% 2/15/15 B1 B 1,481,250
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.2%
3,000 Midwest Generation LLC 8.750% 5/01/34 B1 B 3,375,000
------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.1%
1,500 Pride International Inc. 7.375% 7/15/14 Ba2 BB- 1,653,750
------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.1%
2,000 Stater Brothers Holdings Inc. 8.125% 6/15/12 B1 BB- 1,960,000
------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.5%
5,943 Dole Foods Company 7.875% 7/15/13 B2 B+ 6,463,013
356 Dole Foods Company 8.875% 3/15/11 B2 B+ 381,810
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES - 0.3%
4,000 Fisher Scientific International Inc. 8.000% 9/01/13 Ba3 BB+ 4,590,000
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES - 0.5%
1,500 Quintiles Transnational Corporation 10.000% 10/01/13 B3 B 1,650,000
2,000 Select Medical Corporation, 144A 7.625% 2/01/15 B3 B- 1,990,000
1,000 US Oncology Inc. 9.000% 8/15/12 B2 B- 1,075,000
2,500 US Oncology Inc. 10.750% 8/15/14 B3 B- 2,737,500
------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.7%
2,000 Boyd Gaming Corporation 8.750% 4/15/12 B1 B+ 2,182,500
2,000 Boyd Gaming Corporation 7.750% 12/15/12 B1 B+ 2,147,500
2,552 Dominos Inc. 8.250% 7/01/11 B2 B- 2,730,640
1,500 Herbst Gaming Inc. 7.000% 11/15/14 B3 B- 1,518,750
2,900 Intrawest Corporation 7.500% 10/15/13 B1 B+ 2,990,625
2,000 Landry's Restaurants Inc., Series B 7.500% 12/15/14 B2 B 1,945,000
1,600 Park Place Entertainment 8.125% 5/15/11 Ba1 BB+ 1,848,000
2,500 Park Place Entertainment 7.000% 4/15/13 Baa3 BBB- 2,787,500
4,040 Park Place Entertainment 7.875% 12/15/05 Ba1 BB+ 4,110,700
6,000 Penn National Gaming Inc., Senior Subordinated Notes 8.875% 3/15/10 B2 B 6,450,000
750 Pinnacle Entertainment Inc. 8.750% 10/01/13 Caa1 B- 798,750
2,000 Pinnacle Entertainment Inc. 8.250% 3/15/12 Caa1 B- 2,090,000
2,000 Town Sports International Inc. 9.625% 4/15/11 B2 B- 2,080,000
4,000 Universal City Development Partners 11.750% 4/01/10 B2 B- 4,610,000
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.8%
2,000 K. Hovnanian Enterprises Inc., Senior Subordinated Notes 8.875% 4/01/12 Ba2 B+ 2,175,000
3,000 KB Home 8.625% 12/15/08 Ba2 BB- 3,267,369
5,175 Technical Olympic USA Inc., Senior Subordinated Notes 10.375% 7/01/12 B2 B- 5,433,750
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.1%
1,650 Central Garden & Pet Company 9.125% 2/01/13 B1 B+ 1,782,000
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.1%
2,000 Fairfax Financial Holdings Ltd 7.750% 4/26/12 Ba3 BB 1,910,000
------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.2%
2,500 Global Cash Access LLC 8.750% 3/15/12 Caa1 B- 2,731,250
------------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.5%
1,220 Terex Corporation, Senior Subordinated Notes 10.375% 4/01/11 B3 B 1,329,800
6,095 Terex Corporation, Senior Subordinated Notes 9.250% 7/15/11 B3 B 6,643,550
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.2%
4,000 Allbritton Communications Company, Series B 7.750% 12/15/12 B3 B- 3,960,000
2,000 American Media Operations Inc. 8.875% 1/15/11 Caa1 CCC+ 1,905,000
4,180 American Media Operations Inc., Series B 10.250% 5/01/09 Caa1 CCC+ 4,200,900
22
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
MEDIA (continued)
5,000 Cablevision Systems Corporation 7.250% 7/15/08 B1 BB- $ 5,037,500
1,000 Cablevision Systems Corporation, Series B 8.125% 8/15/09 B1 BB- 1,017,500
2,750 Canwest Media Incorporated 7.625% 4/15/13 Ba3 B- 2,956,250
2,000 Charter Communications Operating LLC, 144A 8.000% 4/30/12 B2 B- 2,000,000
1,000 DIRECTV Holdings LLC, 144A 6.375% 6/15/15 Ba2 BB- 1,000,000
1,500 Loews Cineplex Entertainment Corporation, 144A 9.000% 8/01/14 B3 CCC+ 1,458,750
2,800 Mail-Well I Corporation, Senior Unsecured Note, 144A 9.625% 3/15/12 B1 B+ 3,038,000
1,950 Panamsat Corporation 9.000% 8/15/14 B1 B+ 2,137,688
6,000 Primedia Inc., Senior Notes 8.875% 5/15/11 B2 B 6,315,000
5,550 Vertis Inc. 9.750% 4/01/09 B3 CCC 5,799,750
4,000 Young Broadcasting Inc., Senior Subordinated Notes 10.000% 3/01/11 Caa1 CCC 3,820,000
------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.1%
2,000 Chaparral Steel Company, 144A (WI, settling 7/06/05) 10.000% 7/15/13 B1 B 2,020,000
------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 0.1%
1,500 NRG Energy Inc., 144A 8.000% 12/15/13 B1 B 1,590,000
------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.5%
2,400 Baytex Energy Ltd 9.625% 7/15/10 B3 B- 2,505,000
2,345 Chesapeake Energy Corporation 7.750% 1/15/15 Ba3 BB- 2,544,325
250 Tesoro Petroleum Corporation 8.000% 4/15/08 Ba2 BBB- 265,000
2,000 Tesoro Petroleum Corporation, Senior Subordinated 9.625% 11/01/08 B2 BB- 2,135,000
Notes, Series B
------------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.5%
2,000 Georgia Pacific Corporation, Debentures 7.700% 6/15/15 Ba3 BB+ 2,290,000
5,000 Georgia Pacific Corporation, Notes 8.125% 5/15/11 Ba3 BB+ 5,662,500
------------------------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS - 0.1%
1,500 Prestige Brands Inc. 9.250% 4/15/12 B3 B- 1,563,750
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
1,000 Alpharma Inc., 144A 8.625% 5/01/11 B3 B- 982,500
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.2%
1,625 CB Richard Ellis Services Inc. 9.750% 5/15/10 Ba3 BB- 1,811,873
1,000 TruStreet Properties Inc., 144A 7.500% 4/01/15 B1 B+ 1,027,500
500 Ventas Realty LP, 144A 7.125% 6/01/15 Ba3 BB 522,500
------------------------------------------------------------------------------------------------------------------------------------
ROAD AND RAIL - 0.3%
1,000 Greenbrier Companies Inc., 144A 8.375% 5/15/15 B1 B+ 1,022,500
3,000 Laidlaw International Inc. 10.750% 6/15/11 B1 B+ 3,515,040
------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.9%
4,100 Asbury Automotive Group Inc. 9.000% 6/15/12 B3 B 4,212,750
2,000 Movie Gallery Inc., 144A 11.000% 5/01/12 B2 B- 2,110,000
5,000 Warnaco Inc., Senior Notes 8.875% 6/15/13 B1 BB- 5,550,000
------------------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL - 0.2%
3,000 Jostens IH Corporation 7.625% 10/01/12 B3 B- 2,977,500
------------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.1%
2,000 United Rentals North America Inc. 6.500% 2/15/12 B2 BB- 1,977,500
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $225,726,673) 229,871,319
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 33.1% (22.4% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 5.3%
2,500 Ahmanson Capital Trust I, 144A 8.360% 12/01/26 Baa1 BBB 2,723,213
1,000 BT Capital Trust, Series B1 7.900% 1/15/27 A2 A- 1,075,703
4,850 BT Institutional Capital Trust A,144A 8.090% 12/01/26 A2 A- 5,242,035
3,000 BT Institutional Capital Trust B,144A 7.750% 12/01/26 A2 A- 3,224,070
1,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 A 1,319,238
23
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS (continued)
27,500 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 A $ 28,772,150
3,000 First Security Capital I 8.410% 12/15/26 Aa2 A 3,278,808
20,000 M&I Capital Trust A 7.650% 12/01/26 A2 BBB+ 21,938,800
1,000 Mellon Capital II, Series B 7.995% 1/15/27 A2 A- 1,082,593
8,000 UBS Preferred Funding Trust I 8.622% 10/29/49 A1 AA- 9,515,240
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 17.2%
3,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 Aa3 AA- 3,116,814
9,500 Abbey National Capital Trust I 8.963% 12/30/49 A2 A- 13,898,177
6,500 AgFirst Farm Credit Bank 7.300% 12/15/53 NR NR 6,939,407
3,000 Bank One Capital III 8.750% 9/01/30 A1 A- 4,269,618
1,000 BankAmerica Capital II, Series 2 8.000% 12/15/26 Aa3 A 1,081,465
6,000 BankBoston Capital Trust I, Series B 8.250% 12/15/26 Aa3 A 6,518,190
2,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 BBB- 2,159,704
13,030 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 A+ 15,694,857
15 BBVA Privanza International Gibraltar, 144A 7.764% 9/30/47 A1 NR 15,637,500
3,000 Centura Capital Trust I, 144A 8.845% 6/01/27 A2 BBB+ 3,352,053
1,500 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 A- 1,721,148
1,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 NR 1,080,860
6,200 First Empire Capital Trust I 8.234% 2/01/27 Baa1 BBB 6,702,200
2,000 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 BBB- 2,310,800
2,400 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 A- 2,927,309
5,750 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 A- 9,228,583
11,000 KBC Bank Fund Trust III, 144A 9.860% 11/02/49 A2 A- 13,269,685
1,000 KeyCorp Capital II 6.875% 3/17/29 A3 BBB 1,131,248
6,300 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 BBB 6,807,528
18,600 Lloyds TSB Bank plc, Subordinated Note 6.900% 11/22/49 Aa2 A+ 19,443,677
5,000 NB Capital Trust IV 8.250% 4/15/27 Aa3 A 5,469,975
1,000 North Fork Capital Trust I, Capital Securities 8.700% 12/15/26 A3 BBB- 1,088,009
12,000 North Fork Capital Trust II 8.000% 12/15/27 A3 BBB- 13,181,148
1,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 BBB- 1,115,317
16,500 RBS Capital Trust B 6.800% 12/31/49 A1 A 17,077,748
100 Reliance Capital Trust I, Series B 8.170% 5/01/28 NR NR 111,746
3,250 Royal Bank of Scotland Group plc 7.648% 8/31/49 A1 A 4,146,240
2,365 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 A 2,532,054
8,000 Sparebanken Rogaland, Notes, 144A 6.443% 5/01/49 Baa1 NR 8,301,648
10,500 St. George Funding Company LLC 8.485% 6/30/17 Baa1 NR 11,829,458
1,650 Swedbank Forenings Sparbanken AB, 144A 9.000% 12/29/49 A2 BBB+ 1,951,650
2,000 Unicredito Italiano Capital Trust, 144A 9.200% 10/05/49 A1 A 2,403,984
300 Union Planters Preferred Fund, 144A 7.750% 7/15/53 A2 BBB+ 34,406,250
100 Wachovia Capital Trust I, Capital Securities, 144A 7.640% 1/15/27 A1 A- 108,021
3,800 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 BBB 4,249,958
5,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 BBB 5,471,860
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 4.6%
7,750 BNP Paribas Capital Trust 7.200% 12/31/49 A1 A+ 8,086,242
18,125 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 A- 19,520,915
36,000 HBOS Capital Funding LP, Notes 6.850% 3/01/49 A1 A 37,324,044
2,800 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 NR 2,965,595
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.9%
9,957 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 Baa1 BBB+ 13,563,301
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.5%
250 Allstate Financing II 7.830% 12/01/45 A2 A- 269,391
2,300 American General Capital II 8.500% 7/01/30 Aa3 A+ 3,205,607
18,596 Berkeley Capital Trust 8.197% 12/15/45 Baa3 BBB- 19,313,954
4,000 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 Baa1 BBB+ 4,124,068
1,000 MIC Financing Trust I 8.375% 2/01/27 A1 A+ 1,048,414
7,250 Prudential plc 6.500% 6/29/49 Baa1 A 7,313,372
9,500 Sun Life Canada Capital Trust, Capital Securities, 144A 8.526% 5/06/47 A1 A+ 10,447,711
5,000 Zurich Capital Trust I, 144A 8.376% 6/01/37 Baa2 A- 5,531,910
24
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.6%
1,200 KN Capital Trust I, Preferred Securities 8.560% 4/15/27 Baa3 BB+ $ 1,315,577
6,110 KN Capital Trust III 7.630% 4/15/28 Baa3 BB+ 7,172,572
------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.0%
12,250 Dime Capital Trust I, Series A 9.330% 5/06/27 Baa1 BBB 13,607,811
1,000 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 BBB 1,086,690
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $480,528,268) 484,804,913
--------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 1.5% (1.0% OF TOTAL INVESTMENTS)
$ 21,944 State Street Bank, 2.600%, dated 6/30/05, due 7/01/05, repurchase price $21,945,097, collateralized by
============= $15,495,000, U.S. Treasury Bonds, 8.125%, due 8/15/19, value $22,382,822 21,943,512
--------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (cost $21,943,512) 21,943,512
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,108,500,294) - 148.0% 2,166,129,469
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.4% 5,644,419
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (48.4)% (708,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $1,463,773,888
====================================================================================================================
INTEREST RATE SWAP CONTRACTS OUTSTANDING AT JUNE 30, 2005:
NOTIONAL TERMINATION UNREALIZED
COUNTERPARTY AMOUNT FIXED RATE FLOATING RATE** DATE APPRECIATION
-------------------------------------------------------------------------------------------------------------------
JPMorgan $71,000,000 1.9735% 3.2800% 1/22/06 $ 728,461
JPMorgan 71,000,000 3.3950 3.1500 7/06/06 315,060
Morgan Stanley 71,000,000 2.5670 3.2800 1/22/07 1,482,152
JPMorgan 71,000,000 2.9935 3.2800 1/22/08 1,750,259
Morgan Stanley 71,000,000 3.4060 3.2800 1/22/09 1,515,269
--------------------------------------------------------------------------------------------------------------------
$5,791,201
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
* Ratings below Baa by Moody's Investor Service, Inc. or
BBB by Standard and Poor's Group are considered to be
below investment grade.
** Based on LIBOR (London Interbank Offered Rate)
(a) Security is eligible for the Dividends Received
Deduction.
144A 144A securities are those which are exempt from
registration under Rule 144A of the Securities Act of
1933, as amended. These securities may only be resold
in transactions exempt from registration which are
normally those transactions with qualified
institutional buyers.
(CBTCS) Corporate Backed Trust Certificates.
(CORTS) Corporate Backed Trust Securities.
(PCARS) Public Credit and Repackaged Securities.
(PPLUS) PreferredPlus Trust.
(SATURNS) Structured Asset Trust Unit Repackaging.
NR Security is not rated.
WI Security purchased on a when-issued basis.
See accompanying notes to financial statements.
25
Nuveen Preferred and Convertible Income Fund 2 (JQC)
Portfolio of
INVESTMENTS June 30, 2005 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 0.5% (0.4% OF TOTAL INVESTMENTS)
DIVERSIFIED FINANCIAL SERVICES - 0.3%
143,223 Gabelli Asset Management Inc. $ 6,329,024
------------------------------------------------------------------------------------------------------------------------------------
SOFTWARE - 0.2%
172,555 Computer Associates International Inc. 4,741,812
------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost $11,782,712) 11,070,836
------------------------------------------------------------------------------------------------------------------------------------
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) SECURITIES - 49.6% (33.8% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.0%
3,000 DaimlerChrysler AG (CORTS) 7.875% A3 BBB 78,000
2,200 DaimlerChrysler Corp. (PPLUS) 7.250% A3 BBB 56,100
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 4.1%
113,300 Bear Stearns Capital Trust III 7.800% A2 BBB 2,934,470
27,000 BNY Capital Trust IV, Series E 6.875% A1 A- 681,750
306,984 BNY Capital Trust V, Series F 5.950% A1 A- 7,720,648
204,700 Compass Capital Trust III 7.350% A3 BBB- 5,322,200
31,000 CSFB USA, Series 2002-10 (SATURNS) 7.000% Aa3 A+ 809,100
49,000 First Union Capital II, Series II (CORTS) 7.500% A1 A- 1,287,230
22,600 First Union Institutional Capital II (CORTS) 8.200% A1 A- 622,856
18,800 First Union Institutional Capital II, 7.500% A1 A- 479,024
Series III (CORTS)
12,300 Goldman Sachs Group Inc., Series 2003-06 (SATURNS) 6.000% Aa3 A+ 304,487
22,000 JPMorgan Chase Capital Trust IX, Series I 7.500% A1 A- 572,220
198,350 Lehman Brothers Holdings Inc., Series C (a) 5.940% NR BBB+ 10,066,263
96,800 Lehman Brothers Holdings Inc., Series D (a) 5.670% A3 BBB+ 4,840,000
425,000 Lehman Brothers Holdings Inc., Series F (a) 6.500% A3 BBB+ 11,028,750
247,400 Merrill Lynch Capital Trust 7.000% A1 A- 6,504,146
47,800 Merrill Lynch Preferred Capital Trust 7.750% A1 A- 1,252,360
188,800 Merrill Lynch Preferred Capital Trust IV 7.120% A1 A- 4,993,760
283,400 Merrill Lynch Preferred Capital Trust V 7.280% A1 A- 7,586,618
117,580 Morgan Stanley (PPLUS) 7.050% Aa3 A+ 3,051,201
211,850 Morgan Stanley Capital Trust II 7.250% A1 A- 5,482,678
203,200 Morgan Stanley Capital Trust III 6.250% A1 A- 5,108,448
137,900 Morgan Stanley Capital Trust IV 6.250% A1 A- 3,468,185
21,900 Safeco Capital Trust I (CORTS) 8.750% Baa2 BBB- 665,651
16,800 Safeco Capital Trust IV (CORTS) 8.375% Baa2 BBB- 461,076
14,400 UBS Preferred Funding Trust III 7.250% A1 AA- 371,520
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 10.7%
301,600 Abbey National plc 7.375% A2 A- 7,938,112
53,700 Abbey National plc, Series B 7.250% A1 A- 1,385,460
34,200 Abbey National plc, Series B 7.375% A2 A 916,560
863,770 ABN AMRO Capital Fund Trust V 5.900% A2 A 21,015,524
80,779 ABN AMRO Capital Fund Trust VI 6.250% A2 A 2,064,711
17,021 ABN AMRO Capital Trust Fund VII 6.080% A2 A 422,972
113,900 ASBC Capital I 7.625% Baa1 BBB- 3,018,350
203,410 BAC Capital Trust I 7.000% Aa3 A 5,250,012
560,200 BAC Capital Trust II 7.000% Aa3 A 14,593,210
163,900 BAC Capital Trust III 7.000% Aa3 A 4,297,458
1,010,000 Banco Santander 6.410% A2 BBB+ 25,502,500
26
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
71,750 Banco Totta & Acores Finance, Series A 8.875% A3 NR $ 1,910,344
20,400 BancWest Capital I 9.500% A3 A- 524,892
13,400 Banesto Holdings, Series A, 144A 10.500% A2 NR 417,913
167,700 Bank One Capital Trust VI 7.200% A1 A- 4,373,616
52,800 BankNorth Capital Trust II 8.000% A3 BB+ 1,386,528
145,900 Chittenden Capital Trust I 8.000% Baa1 BB+ 3,848,842
146,500 Cobank ABC, 144A (a) 7.000% NR NR 8,073,469
110,200 Comerica Capital Trust I 7.600% A3 BBB+ 2,832,140
18,900 Fleet Capital Trust II (CORTS) 8.000% Aa3 A 486,675
512,200 Fleet Capital Trust VII 7.200% Aa3 A 13,194,272
430,300 Fleet Capital Trust VIII 7.200% Aa3 A 11,170,588
36,000 KeyCorp (PCARS) 7.500% A3 NR 932,400
105,400 KeyCorp Capital Trust V 5.875% A3 BBB 2,612,866
29,600 KeyCorp, Series 2001-7 (CORTS) 7.750% A3 BBB 779,368
34,500 KeyCorp, Series B (CORTS) 8.250% A3 BBB 881,130
86,100 National Commerce Capital Trust II 7.700% A1 A- 2,246,349
63,900 National Westminster Bank plc, Series A 7.875% Aa2 A+ 1,655,010
21,700 ONB Capital Trust II 8.000% Baa2 BB+ 582,645
54,200 PNC Capital Trust 6.125% A3 BBB 1,370,176
26,000 Regions Finance Trust I 8.000% A2 BBB+ 665,080
270,700 Royal Bank of Scotland Group plc, Series L 5.750% A1 A 6,583,424
156,100 SunTrust Capital Trust IV 7.125% A1 A- 4,027,380
109,100 SunTrust Capital Trust V 7.050% A1 A- 2,823,508
664,800 USB Capital Trust III 7.750% Aa3 A- 17,244,912
337,800 USB Capital Trust IV 7.350% Aa3 A- 8,823,336
298,600 USB Capital Trust V 7.250% Aa3 A- 7,763,600
39,100 VNB Capital Trust I 7.750% Baa1 BBB 1,016,600
47,600 Washington Mutual Capital Trust I, 7.650% Baa1 BBB 1,230,460
Series 2001-22, Class A-1 (CORTS)
40,000 Wells Fargo Capital Trust IV 7.000% Aa2 A 1,042,800
480,300 Wells Fargo Capital Trust V 7.000% Aa2 A 12,410,952
112,800 Wells Fargo Capital Trust VI 6.950% Aa2 A- 2,949,720
236,550 Wells Fargo Capital Trust VII 5.850% Aa2 A 5,913,750
117,800 Zions Capital Trust B 8.000% Baa1 BBB- 3,151,150
------------------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.1%
17,000 IBM Inc. (CORTS) 7.125% A1 A+ 434,350
28,200 IBM Inc., Series 2001-1 (SATURNS) 7.125% A1 A+ 724,740
11,100 IBM Trust II (CORTS) 7.125% A1 A+ 286,380
4,200 IBM Trust III (CORTS) 7.200% A1 A+ 107,814
18,600 IBM Trust IV (CORTS) 7.000% A1 A+ 491,970
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.8%
40,900 Household Capital Trust VI 8.250% A2 BBB+ 1,060,537
98,900 Household Capital Trust VII 7.500% A2 BBB+ 2,587,224
62,200 HSBC Finance Corporation 6.875% A1 A 1,638,970
18,300 SLM Corporation 6.000% A2 A 457,500
174,000 SLM Corporation, Series A (a) 6.970% Baa1 BBB+ 9,939,750
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.3%
13,800 BBVA Preferred Capital Ltd., Series B 7.750% A1 A- 355,626
26,700 CIT Group Incorporated (CORTS) 7.750% A3 BBB+ 735,585
268,800 Citigroup Capital Trust IX 6.000% Aa2 A 6,754,944
193,600 Citigroup Capital Trust VII 7.125% Aa2 A 5,021,984
1,073,422 Citigroup Capital Trust VIII 6.950% Aa2 A 27,522,540
24,000 Citigroup Inc., Series H (a) 6.231% Aa3 NR 1,280,880
2,800 Citigroup, Series CIT (CORTS) 6.750% A3 BBB+ 72,800
40,100 General Electric Capital Corporation 6.625% Aaa AAA 1,052,625
2,300 Goldman Sachs Group Incorporated, 6.000% A1 A- 56,764
Series 2004-04 (SATURNS)
755,475 ING Group NV 7.050% NR A- 19,755,671
584,220 ING Group NV 7.200% A2 A- 15,394,197
43,200 JPM Capital Trust (CORTS) 7.200% A2 A- 1,132,704
9,900 JPM Capital Trust I, Series 2001-1, Class A-1 (CORTS) 7.850% A1 A- 259,776
27
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
71,965 JPMorgan Chase & Company (PCARS) 7.125% A2 A- $ 1,849,141
712,420 JPMorgan Chase Capital Trust X 7.000% A1 NR 18,522,920
32,200 JPMorgan Chase Capital Trust XVI 6.350% A1 A- 815,948
73,600 JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS) 7.125% A1 A- 1,940,096
71,500 Merrill Lynch Capital Trust II 8.000% A1 A- 1,912,625
124,740 Royal Bank of Scotland Group plc, Series N 6.350% A1 A 3,164,654
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.6%
37,900 BellSouth Capital Funding (CORTS) 7.100% A1 A 995,633
25,800 BellSouth Corporation (CORTS) 7.000% Aa3 A 659,448
49,200 BellSouth Corporation, Series 2001-3 (SATURNS) 7.125% A2 A 1,258,536
30,800 BellSouth Inc. (CORTS) 7.000% A2 A 799,260
71,000 BellSouth Telecommunications (PPLUS) 7.300% Aa3 A 1,819,375
60,600 Deutsche Telekom International Finance B.V., 7.875% A3 A- 1,561,056
Series 2001-24, Class A-1 (CORTS)
59,500 SBC Communications Inc. 7.000% A2 A 1,523,795
27,300 Verizon Communications (CORTS) 7.625% A2 A+ 716,625
48,100 Verizon Communications (CORTS) 7.375% A2 A+ 1,273,688
50,700 Verizon New England Inc., Series B 7.000% A2 NR 1,326,312
30,300 Verizon South Inc., Series F 7.000% A2 A+ 782,649
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.8%
5,000 Consolidated Edison Company 7.250% A2 A- 132,900
16,300 Consolidated Edison Company of New York Inc. 7.500% A1 A 420,866
21,100 DTE Energy Trust I 7.800% Baa3 BB+ 552,187
27,400 Entergy Louisiana Inc. 7.600% Baa1 A- 718,154
7,300 Entergy Mississippi Inc. 7.250% Baa2 A- 191,954
3,000 Georgia Power Capital Trust V 7.125% A3 BBB+ 78,360
130,000 Interstate Power and Light Company (a) 7.100% Baa3 BBB- 3,558,750
11,300 Mississippi Power Capital Trust II 7.200% A2 BBB+ 290,410
4,500 National Rural Utilities Cooperative Finance 7.600% A3 BBB+ 115,515
Corporation
41,200 National Rural Utilities Cooperative Finance 6.100% A3 BBB+ 1,034,120
Corporation
138,200 National Rural Utilities Cooperative Finance 5.950% A3 BBB+ 3,392,119
Corporation
33,600 Northern States Power Company 8.000% A3 BBB- 893,760
32,200 Southern Company Capital Trust I (CORTS) 7.375% Baa1 BBB+ 844,445
14,700 Southern Company Capital Trust I (CORTS) 8.190% Baa1 BBB+ 414,540
13,100 Southern Company Capital Trust VI 7.125% Baa1 BBB+ 347,150
3,400 Tennessee Valley Authority, Series A 3.064% Aaa AAA 86,530
122,500 Virginia Power Capital Trust 7.375% Baa1 BBB- 3,248,700
------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.4%
75,000 Dairy Farmers of America Inc., 144A (a) 7.875% Ba1 BBB- 7,860,938
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.1%
75,300 AGL Capital Trust II 8.000% Baa2 BBB 1,949,517
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES - 0.8%
587,500 Aetna Incorporated 8.500% Baa1 BBB+ 15,339,625
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.0%
3,000 General Electric Company (CORTS) 6.800% Aaa AAA 79,200
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 10.3%
157,500 ACE Capital Trust I, Series 1999 8.875% Baa1 BBB- 4,047,750
1,171,383 Ace Ltd., Series C 7.800% Baa2 BBB- 31,393,064
1,181,300 Aegon NV 6.375% A3 A- 29,851,451
6,100 Allstate Corporation (PCARS) 7.150% A2 A- 156,679
1,100 AMBAC Financial Group Inc. 7.000% Aa2 AA 28,886
89,800 AMBAC Financial Group Inc. 5.950% Aa2 AA 2,293,492
675,101 Delphi Financial Group Inc. 8.000% Baa3 BBB 18,092,707
196,956 EverestRe Capital Trust II 6.200% Baa1 BBB 4,685,583
94,500 EverestRe Group Limited 7.850% Baa1 BBB 2,517,480
12,600 Financial Security Assurance Holdings 6.875% Aa2 AA 326,088
285,600 Hartford Capital Trust III, Series C 7.450% Baa1 BBB 7,359,912
28
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE (continued)
45,700 Hartford Life Capital Trust II, Series B 7.625% Baa1 BBB $ 1,180,888
56,500 Lincoln National Capital Trust V, Series E 7.650% Baa1 BBB 1,474,085
1,403,200 Lincoln National Capital Trust VI 6.750% Baa1 BBB 36,693,680
827,600 MetLife Inc., Series B (a) 6.500% Baa1 BBB 20,838,968
82,600 PartnerRe Limited 7.900% A3 BBB+ 2,144,296
902,402 PartnerRe Limited, Series C 6.750% Baa1 BBB+ 23,011,251
80,000 PLC Capital Trust III 7.500% Baa1 BBB+ 2,076,800
67,900 PLC Capital Trust IV 7.250% Baa1 BBB+ 1,778,980
14,300 PLC Capital Trust V 6.125% Baa1 BBB+ 358,930
38,800 Prudential plc 6.750% Baa1 A 1,018,500
124,700 RenaissanceRe Holdings Ltd., Series B 7.300% Baa2 BBB+ 3,270,881
3,400 RenaissanceRe Holdings Ltd., Series C 6.080% Baa2 BBB+ 81,770
115,800 RenaissanceRe Holdings Ltd., Series A 8.100% Baa2 BBB+ 3,038,592
25,400 Safeco Capital Trust I (CORTS) 8.700% Baa2 BBB- 680,974
21,700 Safeco Capital Trust I, Series 2001-4 (CORTS) 8.750% Baa2 BBB- 574,833
46,900 Safeco Capital Trust III (CORTS) 8.072% Baa2 BBB- 1,268,176
38,200 Safeco Corporation, Series 2001-7 (SATURNS) 8.250% Baa2 BBB- 1,004,660
38,600 Safeco Corporation, Series 2002-5 (SATURNS) 8.250% Baa2 BBB- 1,017,882
61,500 Torchmark Capital Trust I 7.750% Baa1 A- 1,628,520
119,400 W.R. Berkley Capital Trust, Series 2002-1, (CBTCS) 8.125% Baa3 BBB- 1,246,536
68,800 XL Capital Ltd., Series A 8.000% Baa1 BBB+ 1,830,080
103,900 XL Capital Ltd., Series B 7.625% Baa1 BBB+ 2,726,336
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.1%
52,700 Viacom Inc. 7.300% A3 BBB+ 1,334,891
------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 0.2%
52,400 Dominion CNG Capital Trust I 7.800% Baa1 BBB- 1,371,832
30,700 Dominion Resources Capital Trust II 8.400% Baa2 BBB- 792,981
85,700 Energy East Capital Trust I 8.250% Baa3 BBB- 2,249,625
------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.9%
685,000 Nexen Inc. 7.350% Baa3 BB+ 18,063,450
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
50,000 Bristol Myers Squibb Company (CORTS) 6.250% A1 A+ 1,300,000
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 11.4%
318,355 AMB Property Corporation, Series L 6.500% Baa2 BBB- 8,102,135
77,100 AvalonBay Communities, Inc., Series H 8.700% Baa2 BBB 2,158,800
220,400 BRE Properties, Series B 8.080% Baa3 BBB- 5,818,560
111,466 BRE Properties, Series D 6.750% Baa3 BBB- 2,789,437
939,184 CarrAmerica Realty Corporation, Series E 7.500% Baa3 BBB- 24,296,690
104,100 Developers Diversified Realty Corporation, Series G 8.000% Ba1 BBB- 2,706,600
1,264,845 Developers Diversified Realty Corporation, Series H 7.375% Ba1 BBB- 32,051,172
124,800 Duke Realty Corporation, Series L 6.600% Baa2 BBB 3,123,744
98,000 Duke-Weeks Realty Corporation 6.625% Baa2 BBB 2,506,350
25,000 Duke-Weeks Realty Corporation, Series B 7.990% Baa2 BBB 1,314,845
5,400 Duke-Weeks Realty Corporation, Series I 8.450% Baa2 BBB 138,564
192,100 Equity Office Properties Trust, Series G 7.750% Baa3 BBB 5,132,912
3,200 Equity Residential Properties Trust, Series C 9.125% Baa2 BBB 83,712
15,400 Equity Residential Properties Trust, Series D 8.600% Baa2 BBB 410,102
348,622 Equity Residential Properties Trust, Series N 6.480% Baa2 BBB 8,719,036
140,000 Federal Realty Investment Trust 8.500% Baa3 BBB- 3,715,600
11,600 First Industrial Realty Trust Inc., Series C 8.625% Baa3 BBB- 312,156
426,229 HRPT Properties Trust, Series A 9.875% Baa3 BBB- 11,116,052
458,600 HRPT Properties Trust, Series B 8.750% Baa3 BBB- 12,418,888
99,800 New Plan Excel Realty Trust, Series E 7.625% NR BBB- 2,593,802
3,997 Prologis Trust, Series C 8.540% Baa2 BBB 255,933
96,275 Prologis Trust, Series G 6.750% Baa2 BBB 2,453,087
299,600 PS Business Parks Inc. 7.000% Ba1 BBB- 7,370,160
700 PS Business Parks Inc., Series K 7.950% Ba1 BBB- 18,270
240,000 PS Business Parks Inc., Series L 7.600% Ba1 BBB- 6,145,200
29
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE (continued)
149,000 Public Storage Inc., Series E 6.750% Baa2 BBB+ $ 3,753,310
31,400 Public Storage Inc., Series Q 8.600% Baa2 BBB+ 807,608
149,850 Public Storage Inc., Series R 8.000% Baa2 BBB+ 3,896,100
55,860 Public Storage Inc., Series S 7.875% Baa2 BBB+ 1,447,891
44,100 Public Storage Inc., Series T 7.625% Baa2 BBB+ 1,143,954
174,300 Public Storage Inc., Series U 7.625% Baa2 BBB+ 4,557,945
31,500 Public Storage Inc., Series V 7.500% Baa2 BBB+ 828,450
166,100 Regency Centers Corporation 7.450% Baa3 BBB- 4,276,245
20,500 Simon Property Group, Inc., Series F 8.750% Baa2 BBB- 539,765
20,650 Simon Property Group, Inc., Series G 7.890% Baa2 BBB 1,110,557
165,000 Vornado Realty Trust, Series G 6.625% Baa3 BBB- 4,100,250
1,987,734 Wachovia Preferred Funding Corporation 7.250% A2 BBB+ 57,047,966
130,000 Weingarten Realty Trust, Series E 6.950% Baa1 A- 3,426,800
------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.0%
28,100 Sherwin Williams Company, Series III (CORTS) 7.250% A2 A 747,460
------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.0%
79,000 Countrywide Capital Trust II, Series II (CORTS) 8.000% Baa1 BBB+ 2,065,060
69,800 Countrywide Capital Trust III (PPLUS) 8.050% Baa1 BBB+ 1,854,586
666,900 Countrywide Capital Trust IV 6.750% Baa1 BBB+ 17,312,724
30,700 Fannie Mae (a) 0.000% Aa3 AA- 1,710,567
23,100 Fannie Mae (a) 5.125% Aa3 AA- 1,016,400
44,300 Fannie Mae (a) 3.780% Aa3 AA- 2,201,932
55,000 Fannie Mae (a) 5.810% Aa3 AA- 2,695,000
61,800 Federal Home Loan Mortgage Corporation (a) 6.000% Aa3 AA- 3,191,970
108,000 Federal Home Loan Mortgage Corporation (a) 6.140% Aa3 NR 5,413,500
48,300 Federal Home Loan Mortgage Corporation (a) 5.100% Aa3 AA- 2,086,560
12,700 Federal Home Loan Mortgage Corporation (a) 5.000% Aa3 AA- 552,450
------------------------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 0.1%
40,000 Federal Home Loan Mortgage Corporation (a) 5.100% Aa3 AA- 1,750,000
23,000 Federal Home Loan Mortgage Corporation (a) 5.300% Aa3 AA- 1,024,938
------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.8%
28,000 AT&T Wireless Services Equity, Series 2002-B (SATURNS) 9.250% Baa2 A 778,400
58,200 AT&T Wireless, Series 2002-7 (CORTS) 8.000% Baa2 A 1,561,215
117,300 Telephone and Data Systems Inc. 7.600% Baa1 A- 3,020,475
50,600 United States Cellular Corporation 8.750% Baa1 A- 1,386,440
343,500 United States Cellular Corporation 7.500% Baa1 A- 9,181,750
------------------------------------------------------------------------------------------------------------------------------------
Total $25 Par (or similar) Securities (cost $1,008,443,007) 1,013,727,901
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES- 16.2% (11.0% OF TOTAL INVESTMENTS)
AUTOMOBILES - 0.6%
327,225 Ford Motor Company Capital Trust II 6.500% Ba1 B+ 13,196,984
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 0.6%
144,555 Goldman Sachs Group Inc., Series EMC 6.125% Aa3 NR 1,945,132
143,200 Lehman Brothers Holdings Inc., Series GIS 6.250% A1 A 3,630,120
29,725 State Street Corporation 6.750% NR BB+ 6,450,325
------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 1.0%
179,435 Celanese Corporation 4.250% NR NR 4,396,158
152,195 Huntsman Corporation 5.000% NR NR 7,016,190
84,400 The Mosaic Company 7.500% Caa1 NR 8,625,680
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 2.3%
12,090,000 Fortis Insurance NV, 144A 7.750% A1 A+ 13,283,888
130,500 HSBC Finance Corporation 8.875% A1 A 5,479,695
273,600 National Australia Bank Limited 7.875% NR NR 10,670,400
217,375 Sovereign Capital Trust IV, Convertible Security 4.375% Ba1 BB 9,618,844
115,725 Washington Mutual Inc., Unit 1 Trust 5.375% Baa1 BBB 6,131,805
30
RATINGS*
------------------- MARKET
SHARES DESCRIPTION(1) COUPON MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.5%
216,700 TXI Capital Trust I 6.500% B2 B- $ 10,444,940
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.7%
281,600 Citigroup Global Markets 2.000% Aa1 AA- 13,626,061
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.1%
260,000 Centerpoint Energy Inc. 2.000% Ba2 BBB- 8,754,980
154,500 FPL Group Inc. 8.000% NR A- 9,982,245
76,430 PNM Resources Inc. 6.750% Baa3 NR 4,092,062
------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.2%
180,520 Albertson's, Inc. 7.250% Baa2 BBB 4,038,232
------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES - 0.1%
30,150 Southern Union Company, Series B 5.750% Baa3 NR 2,193,111
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES - 0.3%
124,000 Baxter International Inc. 7.000% Baa1 NR 6,855,960
------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 0.4%
157,000 Host Marriott Financial Trust 6.750% B2 CCC+ 9,027,500
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.4%
187,325 Newell Financial Trust I 5.250% Baa3 BBB- 8,218,884
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.2%
108,450 Conseco Inc., Series B 5.500% Caa2 B- 2,982,375
543,600 Genworth Financial Inc. 6.000% A2 A 18,672,660
570,475 MetLife Inc., Convertible, Series B 6.375% NR NR 14,957,855
167,000 Reinsurance Group of America Inc. 5.750% Baa2 BBB 9,944,850
147,000 The Chubb Corporation 7.000% NR A 4,664,310
100,000 UnumProvident Corporation 8.250% Ba1 BB+ 3,596,000
340,650 XL Capital Ltd 6.500% A2 A 8,158,568
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 0.4%
137,000 Emmis Communications Corporation, Series A 6.250% Caa1 CCC+ 5,730,710
70,350 Interpublic Group Companies Inc., Series A 5.375% NR NR 3,158,715
------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 1.2%
76,500 Aquila Inc. 6.750% B2 B- 2,675,970
181,625 Dominion Resources Inc. 8.750% Baa1 BBB+ 10,071,106
151,300 Public Service Enterprise Group 10.250% Baa3 BBB- 11,680,360
------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 1.4%
54,125 Amerada Hess Corporation 7.000% Ba3 BB 4,959,474
8,955 Chesapeake Energy Corporation, 144A 4.125% NR NR 13,133,627
222,100 Teekay Shipping Corporation 7.250% NR BB- 11,282,680
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.5%
217,875 Schering-Plough Corporation 6.000% Baa3 BBB 11,107,268
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.6%
225,250 Equity Office Properties Trust, Series B 5.250% Baa2 BBB 11,539,555
------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.7%
111 Fannie Mae 5.375% Aa3 AA- 10,778,600
140,000 PMI Group Inc. 5.875% A1 A 3,434,200
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $302,860,600) 330,208,079
--------------------------------------------------------------------------------------------------------------------
31
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 27.8% (19.0% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.4%
3,860 AAR Corporation, 144A 2.875% 2/01/24 B2 BB- $ 3,816,575
4,900 EDO Corporation, Convertible Subordinate Note 5.250% 4/15/07 NR NR 5,071,500
------------------------------------------------------------------------------------------------------------------------------------
AIRLINES - 0.1%
3,550 Pinnacle Airlines Corporation, 144A 3.250% 2/15/25 NR NR 2,986,438
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES - 0.1%
1,025 Fleetwood Enterprises Inc., 144A 5.000% 12/15/23 B2 B 1,171,063
------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 1.2%
5,000 Cephalon Inc. 0.000% 6/15/33 NR B- 4,237,500
1,780 CV Therapeutics Inc. 2.750% 5/16/12 NR NR 2,505,350
2,250 CV Therapeutics Inc. 3.250% 8/16/13 NR NR 2,404,688
5,975 Ivax Corporation, Convertible Bonds, 144A 1.500% 3/01/24 NR NR 6,124,375
8,500 Ivax Corporation, Convertible Senior 4.500% 5/15/08 NR NR 8,521,250
Subordinated Notes
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.6%
5,500 DST Systems Inc. 4.125% 8/15/23 NR NR 6,290,625
7,000 Electronic Data Systems, Convertible 3.875% 7/15/23 Ba1 BBB- 6,685,000
Senior Notes, 144A
------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.8%
9,265 JDS Uniphase Corporation 0.000% 11/15/10 NR NR 7,157,213
14,725 Liberty Media Corporation, Senior Debentures 3.500% 1/15/31 Baa3 BB+ 13,105,250
Exchangeable for Motorola Common Stock
2,720 Lucent Technologies Inc. 2.750% 6/15/23 B1 B 2,958,000
2,645 Lucent Technologies Inc., Series B 2.750% 6/15/25 B1 B 2,978,931
3,905 Nortel Networks Corp 4.250% 9/01/08 B3 B- 3,660,938
4,475 Powerwave Technologies Inc. 1.825% 11/15/24 NR NR 4,956,063
1,700 Powerwave Technologies Inc. 1.875% 11/15/24 NR NR 1,882,750
------------------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS - 0.2%
3,250 Mercury Computer Systems Inc., 144A 2.000% 5/01/24 NR NR 3,481,563
------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 0.4%
8,500 Quanta Services Incorporated 4.000% 7/01/07 NR B 8,128,125
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.4%
8,000 Providian Financial Corporation, Convertible 3.250% 8/15/05 B2 B 8,020,000
Senior Notes
------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.2%
4,600 Sealed Air Corporation, 144A 3.000% 6/30/33 Baa3 BBB 4,571,250
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 0.3%
2,650 JMH Finance Limited 4.750% 9/06/07 NR NR 2,649,637
2,620 Leucadia National Corporation, 144A 3.750% 4/15/14 Ba3 B+ 2,665,850
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.4%
2,630 PG&E Corporation 9.500% 6/30/10 NR NR 7,771,650
1,035 Unisource Energy Corporation, Convertible Bonds, 144A 4.500% 3/01/35 NR NR 1,054,406
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.9%
340 Gateway Inc. 1.500% 12/31/09 NR NR 257,550
4,450 Gateway Inc., 144A 1.500% 12/31/09 NR NR 3,370,875
2,395 Gateway Inc., 144A 2.000% 12/31/11 NR NR 1,778,288
9,050 Solectron Corporation, Series B 0.500% 2/15/34 B1 B+ 6,798,813
7,020 Vishay Intertechnology Inc. 3.625% 8/01/23 B3 B+ 6,747,975
------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 2.4%
3,495 Cal Dive International Inc. 3.250% 12/15/25 NR NR 3,870,713
8,400 Diamond Offshore Drilling Inc. 1.500% 4/15/31 NR A- 10,332,000
8,500 Maverick Tube Corporation 4.000% 6/15/33 NR NR 10,444,375
3,185 Oil States International Inc., 144A 2.375% 7/01/25 NR NR 3,312,400
7,115 Pride International Inc. 3.250% 5/01/33 Ba2 BB- 8,546,894
32
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (continued)
9,250 Schlumberger Limited 2.125% 6/01/23 A1 A+ $ 10,429,375
625 Willbros Group Inc., 144A 2.750% 3/15/24 NR NR 564,844
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES - 0.7%
5,745 Advanced Medical Optics 2.500% 7/15/24 B3 B 5,795,269
8,195 Fisher Scientific International Inc. 3.250% 3/01/24 Ba3 BB+ 8,522,800
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES - 0.5%
4,200 Health Management Associates Inc. 1.500% 8/01/23 Baa3 BBB+ 4,557,000
8,510 Roche Holdings Inc., 144A 0.000% 7/25/21 NR NR 5,892,324
------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 3.1%
18,205 Carnival Corporation 1.132% 4/29/33 A3 A- 14,791,563
7,500 Hilton Hotels Corporation 3.375% 4/15/23 Baa3 BBB- 9,065,625
7,125 Kerzner International Limited, 144A 2.375% 4/15/24 B2 B 8,033,438
16,000 Royal Caribbean Cruises Limited, Senior Convertible 0.000% 2/02/21 Ba1 BB+ 9,280,000
Liquid Yield Option Notes
8,475 Scientific Games Corporation 0.750% 12/01/24 B2 B+ 9,195,375
4,750 Six Flags Inc. 4.500% 5/15/15 Caa1 CCC 4,672,813
7,755 Starwood Hotels and Resorts Worldwide Inc. 3.500% 5/16/23 Ba1 BB+ 9,335,081
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.8%
7,200 Tyco International Group SA 3.125% 1/15/23 Baa3 BBB 9,990,000
4,650 Tyco International Group SA, Convertible Notes, 144A 3.125% 1/15/23 Ba1 BBB 6,451,875
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.4%
6,925 American Equity Investment Life Holding Company 5.250% 12/06/24 NR BB+ 7,721,375
------------------------------------------------------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL - 0.1%
295 Overstock.com, Inc. 3.750% 12/01/11 NR NR 241,531
2,780 Overstock.com, Inc. 3.750% 12/01/11 NR NR 2,276,125
------------------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES - 0.2%
7,885 Open Solutions Inc., 144A 1.467% 2/02/35 NR NR 4,001,638
------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.3%
7,100 Digital River Inc., 144A 1.250% 1/01/24 NR NR 7,055,625
------------------------------------------------------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS - 0.7%
4,850 Collegiate Pacific Inc. 5.750% 12/01/09 NR NR 4,492,313
7,000 Hasbro Inc. 2.750% 12/01/21 Baa3 BBB- 7,726,250
1,165 K2 Corporation, Convertible Notes, 144A 5.000% 6/15/10 NR NR 1,421,300
------------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.3%
5,635 AGCO Corporation, Series B 1.750% 12/31/33 B1 BB- 5,846,313
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 4.0%
415,000 Comcast Corporation 2.000% 10/15/29 Ba1 BBB 17,803,500
4,500 Interpublic Group Companies Inc. 4.500% 3/15/23 Baa3 BB- 5,371,875
6,990 Liberty Media Corporation 0.750% 3/30/23 Baa3 BB+ 7,409,400
11,000 Liberty Media Corporation, Senior Debentures, 3.250% 3/15/31 Baa3 BB+ 8,470,000
Exchangeable for Class B Viacom Common Stock
26,800 Liberty Media Corporation, Senior Debentures, 4.000% 11/15/29 Baa3 BB+ 16,850,500
Exchangeable for PCS Common Stock, Series 1
3,540 Lions Gate Entertainment Corporation, 144A 2.938% 10/15/24 NR NR 3,854,175
3,300 Lions Gate Entertainment Corporation, 144A 3.625% 3/15/25 NR NR 3,337,125
4,875 Sinclair Broadcast Group 6.000% 9/15/12 NR B- 4,107,188
3,500 Sirius Satellite Radio Inc. 3.250% 10/15/11 NR CCC 5,000,625
8,050 The Walt Disney Company, Convertible Senior Notes 2.125% 4/15/23 Baa1 A- 8,301,563
------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.7%
8,565 Devon Energy Corporation 4.900% 8/15/08 Baa2 BBB 9,667,744
3,440 McMoran Exploration Corporation, Notes, 144A 6.000% 7/02/08 NR NR 5,138,500
33
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 2.1%
1,845 Abgenix Inc., Senior Convertible Note, 144A 1.750% 12/15/11 NR NR $ 1,651,275
4,580 Alexion Pharmaceuticals Inc., 144A 1.375% 2/01/12 NR NR 4,339,550
9,530 Allergan Inc., Convertible Senior Notes 0.000% 11/06/22 A3 A 9,351,313
1,255 Atherogenics, Inc., 144A 4.500% 9/01/08 NR NR 1,516,981
7,000 OSI Pharmaceuticals, Inc. 3.250% 9/08/23 NR NR 7,743,750
4,400 Sepracor Inc. 0.000% 10/15/24 NR CCC+ 4,499,000
4,350 Valeant Pharmaceuticals International, 144A 3.000% 8/16/10 NR B 3,746,438
2,545 Valeant Pharmaceuticals International, 144A 4.000% 11/15/13 NR B 2,191,881
8,500 Wyeth, 144A 1.000% 1/15/24 Baa1 A 8,748,115
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.2%
3,625 Avatar Holdings Inc., 144A 4.500% 4/01/24 NR NR 4,023,750
------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 1.5%
8,325 Agere Systems Inc. 6.500% 12/15/09 B3 B 8,429,063
7,850 ASM International NV 4.250% 12/06/11 NR B- 7,643,938
5,500 ASM Lithography Holding NV 5.750% 10/15/06 B2 NR 5,894,625
8,900 LSI Logic Corporation 4.000% 5/15/10 Ba3 B 8,811,000
------------------------------------------------------------------------------------------------------------------------------------
SOFTWARE - 0.6%
7,100 Mentor Graphics Corporation, Convertible 6.875% 6/15/07 NR NR 7,064,500
Subordinated Notes
4,525 Sybase Inc., 144A 1.750% 2/22/25 NR NR 4,338,344
------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 1.6%
7,820 Charming Shoppes Inc. 4.750% 6/01/12 B2 BB- 8,768,172
11,450 Lowes Companies Inc. 0.000% 2/16/21 A2 A+ 11,020,620
8,700 Sonic Automotive Inc., Convertible Senior 5.250% 5/07/09 B3 B 8,482,500
Subordinated Notes
5,900 The TJX Companies, Inc. 0.000% 2/13/21 Baa1 A- 4,897,000
------------------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL - 0.3%
6,565 Reebok International Limited, Series B 2.000% 5/01/24 Baa3 BBB 6,909,660
------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.3%
4,100 NII Holdings Inc., 144A 2.875% 2/01/34 NR NR 5,504,250
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (cost $548,834,876) 568,563,645
--------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 15.7% (10.6% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.2%
3,500 K&F Acquisition Inc. 7.750% 11/15/14 Caa1 B- 3,596,250
------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.3%
2,450 Affinia Group Inc. 9.000% 11/30/14 Caa1 B 2,070,250
3,000 Tenneco Auto, Inc. 10.250% 7/15/13 B2 B- 3,405,000
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES - 1.1%
5,570 Ford Motor Company, Debentures 7.700% 5/15/97 Baa3 BB+ 4,409,340
17,095 Ford Motor Company, Debentures 9.980% 2/15/47 Baa3 BB+ 16,608,134
1,300 Keystone Automotive Operations Inc. 9.750% 11/01/13 B3 B- 1,293,500
------------------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS - 0.2%
4,000 Jacuzzi Brands Inc. 9.625% 7/01/10 B3 B 4,400,000
------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.6%
6,500 OM Group Inc. 9.250% 12/15/11 Caa1 B- 6,532,500
3,500 Resolution Performance Products LLC 8.000% 12/15/09 B2 B+ 3,657,500
3,000 Rockwood Specialties Group 7.500% 11/15/14 B3 B- 2,992,500
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.2%
1,518 IOS Capital LLC, Senior Notes 7.250% 6/30/08 Ba1 BB 1,573,862
2,000 Williams Scotsman Inc. 10.000% 8/15/08 B2 B 2,210,260
34
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.4%
9,200 Ciena Corporation 3.750% 2/01/08 B2 B $ 8,165,000
------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.1%
2,000 Texas Industries Inc. 10.250% 6/15/11 B1 BB- 2,327,500
------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.6%
2,000 Berry Plastics Corporation 10.750% 7/15/12 B3 B- 2,192,500
3,450 MDP Acquisitions plc, Senior Notes 9.625% 10/01/12 B3 B- 3,467,250
3,000 Owens-Brockway Glass Containers, Guaranteed 8.250% 5/15/13 B2 B 3,273,750
Senior Note
3,000 Owens-Illinois Inc. 7.500% 5/15/10 B3 B 3,165,000
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.1%
2,000 INTELSAT Bermuda Limited, 144A 8.250% 1/15/13 B2 B+ 2,075,000
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.1%
2,000 Midwest Generation LLC 8.750% 5/01/34 B1 B 2,250,000
------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES - 0.1%
2,500 Pride International Inc. 7.375% 7/15/14 Ba2 BB- 2,756,250
------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 0.1%
3,000 Stater Brothers Holdings Inc. 8.125% 6/15/12 B1 BB- 2,940,000
------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 0.8%
7,610 Del Monte Corporation 8.625% 12/15/12 B2 B 8,409,050
7,000 Dole Foods Company 7.875% 7/15/13 B2 B+ 7,612,500
1,096 Dole Foods Company 8.625% 5/01/09 B2 B+ 1,172,720
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE EQUIPMENT & SUPPLIES - 0.1%
2,500 Fisher Scientific International Inc. 8.000% 9/01/13 Ba3 BB+ 2,868,750
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE PROVIDERS & SERVICES - 0.5%
3,000 Quintiles Transnational Corporation 10.000% 10/01/13 B3 B 3,300,000
1,000 Select Medical Corporation, 144A 7.625% 2/01/15 B3 B- 995,000
2,000 Service Corporation International 7.700% 4/15/09 Ba3 BB 2,150,000
3,000 US Oncology Inc. 10.750% 8/15/14 B3 B- 3,285,000
------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.3%
5,190 Aztar Corporation 9.000% 8/15/11 Ba3 B+ 5,663,588
2,345 Boyd Gaming Corporation 8.750% 4/15/12 B1 B+ 2,558,981
4,075 Boyd Gaming Corporation 7.750% 12/15/12 B1 B+ 4,375,531
3,172 Dominos Inc. 8.250% 7/01/11 B2 B- 3,394,040
1,500 Herbst Gaming Inc. 7.000% 11/15/14 B3 B- 1,518,750
4,100 Intrawest Corporation 7.500% 10/15/13 B1 B+ 4,228,125
2,000 Landry's Restaurants Inc., Series B 7.500% 12/15/14 B2 B 1,945,000
2,000 MGM Mirage, Inc. 6.750% 8/01/07 Ba2 BB 2,072,500
3,500 Park Place Entertainment 7.875% 12/15/05 Ba1 BB+ 3,561,250
1,000 Park Place Entertainment 9.375% 2/15/07 Ba1 BB+ 1,077,500
1,000 Park Place Entertainment 7.875% 3/15/10 Ba1 BB+ 1,125,000
4,000 Penn National Gaming Inc., Senior Subordinated Notes 8.875% 3/15/10 B2 B 4,300,000
3,000 Pinnacle Entertainment Inc. 8.750% 10/01/13 Caa1 B- 3,195,000
2,000 Pinnacle Entertainment Inc. 8.250% 3/15/12 Caa1 B- 2,090,000
4,000 Universal City Development Partners 11.750% 4/01/10 B2 B- 4,610,000
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.5%
4,500 K. Hovnanian Enterprises Inc., Senior 8.875% 4/01/12 Ba2 B+ 4,893,750
Subordinated Notes
5,000 KB Home 8.625% 12/15/08 Ba2 BB- 5,445,615
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.1%
2,500 Fairfax Financial Holdings Ltd 7.750% 4/26/12 Ba3 BB 2,387,500
------------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.2%
3,000 Global Cash Access LLC 8.750% 3/15/12 Caa1 B- 3,277,500
35
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.4%
3,000 Terex Corporation, Senior Subordinated Notes 10.375% 4/01/11 B3 B $ 3,270,000
3,000 Terex Corporation, Senior Subordinated Notes 9.250% 7/15/11 B3 B 3,270,000
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 4.0%
6,900 Allbritton Communications Company, Series B 7.750% 12/15/12 B3 B- 6,831,000
2,000 AMC Entertainment Inc. 8.000% 3/01/14 B3 CCC+ 1,785,000
1,345 American Media Operations Inc. 8.875% 1/15/11 Caa1 CCC+ 1,281,113
6,000 American Media Operations Inc., Series B 10.250% 5/01/09 Caa1 CCC+ 6,030,000
3,000 Cablevision Systems Corporation 7.250% 7/15/08 B1 BB- 3,022,500
2,000 Cablevision Systems Corporation 8.125% 7/15/09 B1 BB- 2,035,000
5,000 Cablevision Systems Corporation, Series B 8.125% 8/15/09 B1 BB- 5,087,500
2,000 Charter Communications Operating LLC, 144A 8.000% 4/30/12 B2 B- 2,000,000
6,000 Cinemark USA Inc. 9.000% 2/01/13 B3 B- 6,195,000
1,000 Dex Media West LLC 8.500% 8/15/10 B1 B 1,095,000
2,198 Dex Media West LLC 9.875% 8/15/13 B2 B 2,516,710
1,000 DIRECTV Holdings LLC, 144A 6.375% 6/15/15 Ba2 BB- 1,000,000
3,000 Loews Cineplex Entertainment Corporation, 144A 9.000% 8/01/14 B3 CCC+ 2,917,500
3,855 Mail-Well I Corporation, Senior Unsecured Note, 144A 9.625% 3/15/12 B1 B+ 4,182,675
4,000 Medianews Group Inc. 6.375% 4/01/14 B2 B+ 3,855,000
1,950 Panamsat Corporation 9.000% 8/15/14 B1 B+ 2,137,688
7,000 Primedia Inc., Senior Notes 8.875% 5/15/11 B2 B 7,367,500
2,000 R. H. Donnelley Finance Corp 1 10.875% 12/15/12 B2 B+ 2,335,000
2,000 Sun Media Corporation 7.625% 2/15/13 Ba3 B 2,127,500
8,200 Vertis Inc. 9.750% 4/01/09 B3 CCC 8,569,000
2,000 Young Broadcasting Inc. 8.750% 1/15/14 Caa1 CCC 1,780,000
5,500 Young Broadcasting Inc., Senior Subordinated Notes 10.000% 3/01/11 Caa1 CCC 5,252,500
------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.2%
3,000 Chaparral Steel Company, 144A (WI, settling 7/06/05) 10.000% 7/15/13 B1 B 3,030,000
1,682 United States Steel Corporation 9.750% 5/15/10 Ba2 BB 1,824,970
------------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER - 0.1%
500 Northwestern Corporation 5.875% 11/01/14 Ba1 BB+ 515,000
1,500 NRG Energy Inc., 144A 8.000% 12/15/13 B1 B 1,590,000
------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.3%
2,345 Chesapeake Energy Corporation 7.750% 1/15/15 Ba3 BB- 2,544,325
2,000 Premcor Refining Group Inc. 7.500% 6/15/15 Ba3 BB- 2,200,000
1,000 Tesoro Petroleum Corporation 8.000% 4/15/08 Ba2 BBB- 1,060,000
1,000 Tesoro Petroleum Corporation, 9.625% 11/01/08 B2 BB- 1,067,500
Senior Subordinated Notes, Series B
------------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.4%
2,000 Georgia Pacific Corporation, Debentures 7.700% 6/15/15 Ba3 BB+ 2,290,000
5,000 Georgia Pacific Corporation, Notes 8.125% 5/15/11 Ba3 BB+ 5,662,500
------------------------------------------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS - 0.1%
1,600 Prestige Brands Inc. 9.250% 4/15/12 B3 B- 1,668,000
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.0%
1,000 Alpharma Inc., 144A 8.625% 5/01/11 B3 B- 982,500
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.1%
1,000 TruStreet Properties Inc., 144A 7.500% 4/01/15 B1 B+ 1,027,500
500 Ventas Realty LP, 144A 7.125% 6/01/15 Ba3 BB 522,500
------------------------------------------------------------------------------------------------------------------------------------
ROAD AND RAIL - 0.2%
1,000 Greenbrier Companies Inc., 144A 8.375% 5/15/15 B1 B+ 1,022,500
3,000 Laidlaw International Inc. 10.750% 6/15/11 B1 B+ 3,515,040
36
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.8%
6,000 Asbury Automotive Group Inc. 9.000% 6/15/12 B3 B $ 6,165,000
2,000 Movie Gallery Inc., 144A 11.000% 5/01/12 B2 B- 2,110,000
8,000 Warnaco Inc., Senior Notes 8.875% 6/15/13 B1 BB- 8,880,000
------------------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL - 0.2%
4,000 Jostens IH Corporation 7.625% 10/01/12 B3 B- 3,970,000
------------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.1%
2,000 United Rentals North America Inc. 6.500% 2/15/12 B2 BB- 1,977,500
------------------------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.2%
4,000 Nextel Communications Inc. 7.375% 8/01/15 Ba3 BB 4,340,000
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $319,228,200) 320,782,017
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES- 34.1% (23.3% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 5.0%
6,273 BT Capital Trust, Series B1 7.900% 1/15/27 A2 A- 6,747,885
15,000 BT Institutional Capital Trust A, 144A 8.090% 12/01/26 A2 A- 16,212,480
2,000 BT Institutional Capital Trust B, 144A 7.750% 12/01/26 A2 A- 2,149,380
1,250 C.A. Preferred Fund Trust II 7.000% 10/30/49 A1 A 1,319,238
32,750 C.A. Preferred Funding Trust 7.000% 1/30/49 A1 A 34,265,015
3,000 Compass Trust I, Series A 8.230% 1/15/27 A3 BBB- 3,230,895
3,500 First Union Capital Trust II, Series A 7.950% 11/15/29 A1 A- 4,675,314
500 First Union Institutional Capital II 7.850% 1/01/27 A1 A- 541,575
2,000 First Union Institutional Capital Securities I 8.040% 12/01/26 A1 A- 2,168,302
19,335 Mellon Capital Trust I, Series A 7.720% 12/01/26 A2 A- 20,772,499
9,000 State Street Institutional Capital Trust, 144A 8.035% 3/15/27 A1 A 9,834,255
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 17.3%
2,000 AB Svensk Exportkredit, 144A 6.375% 10/27/49 Aa3 AA- 2,077,876
10,000 Abbey National Capital Trust I 8.963% 12/30/49 A2 A- 14,629,660
43,100 AgFirst Farm Credit Bank 7.300% 12/15/53 NR NR 46,013,603
12,120 Bank One Capital III 8.750% 9/01/30 A1 A- 17,249,257
1,974 BankAmerica Capital II, Series 2 8.000% 12/15/26 Aa3 A 2,134,812
2,600 BankAmerica Institutional Capital Trust,
Series B, 144A 7.700% 12/31/26 Aa3 A 2,799,464
5,000 BankAmerica Institutional Trust, 144A 8.070% 12/31/26 Aa3 A 5,421,660
2,000 BankBoston Capital Trust I, Series B 8.250% 12/15/26 Aa3 A 2,172,730
1,000 BanPonce Trust I, Series A 8.327% 2/01/27 Baa1 BBB- 1,079,852
4,000 Barclays Bank plc, 144A 8.550% 6/15/49 Aa3 A+ 4,818,068
500 Barnett Capital I 8.060% 12/01/26 Aa3 A 540,862
13,000 CBA Capital Trust I, 144A 5.805% 12/30/49 A2 A- 13,798,785
2,200 DBS Capital Funding Corporation, 144A 7.657% 3/15/49 A1 A- 2,524,350
4,315 First Chicago NBD Institutional Capital Trust,
Series B, 144A 7.750% 12/01/26 A1 NR 4,651,898
6,000 First Chicago NBD Institutional Capital, 144A 7.950% 12/01/26 A1 NR 6,485,160
5,750 First Empire Capital Trust I 8.234% 2/01/27 Baa1 BBB 6,215,750
11,550 First Empire Capital Trust II 8.277% 6/01/27 Baa1 BBB 12,589,558
4,250 First Midwest Bancorp Inc. 6.950% 12/01/33 Baa2 BBB- 4,910,450
12,838 HSBC Capital Funding LP, 144A 9.547% 12/31/49 A1 A- 15,658,663
14,000 HSBC Capital Funding LP, Debt 10.176% 6/30/50 A1 A- 22,469,594
19,605 KBC Bank Fund Trust III, 144A 9.860% 11/02/49 A2 A- 23,650,198
4,000 KeyCorp Capital III 7.750% 7/15/29 A3 BBB 4,977,552
15,000 KeyCorp Institutional Capital Trust A 7.826% 12/01/26 A3 BBB 16,208,400
17,000 Lloyds TSB Bank plc, Subordinated Note 6.900% 11/22/49 Aa2 A+ 17,771,103
1,000 Nordbanken AB, 144A 8.950% 11/29/49 A2 A- 1,174,124
18,500 North Fork Capital Trust II 8.000% 12/15/27 A3 BBB- 20,320,937
500 PNC Institutional Capital Securities, 144A 7.950% 12/15/26 A3 BBB+ 537,975
2,000 Popular North American Capital Trust I 6.564% 9/15/34 Baa1 BBB- 2,230,634
16,750 RBS Capital Trust B 6.800% 12/31/49 A1 A 17,336,501
37
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS June 30, 2005 (Unaudited)
PRINCIPAL RATINGS*
AMOUNT (000)/ -------------- MARKET
SHARES DESCRIPTION(1) COUPON MATURITY MOODY'S S&P VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS (continued)
2,000 Reliance Capital Trust I, Series B 8.170% 5/01/28 NR NR $ 2,234,926
1,202 Republic New York Capital II, Capital Securities 7.530% 12/04/26 A1 A- 1,288,955
6,200 Royal Bank of Scotland Group plc 9.118% 3/31/49 A1 A 7,391,076
3,000 Royal Bank of Scotland Group plc 7.648% 8/31/49 A1 A 3,827,298
4,000 SocGen Real Estate Company LLC, 144A 7.640% 12/29/49 A1 A 4,282,544
4,472 St. George Funding Company LLC, 144A 8.485% 6/30/47 Baa1 NR 5,063,480
2,250 Swedbank ForeningsSparbanken AB, 144A 9.000% 12/29/49 A2 BBB+ 2,661,341
13,330 Unicredito Italiano Capital Trust, 144A 9.200% 10/05/49 A1 A 16,022,553
3,800 Union Planters Capital Trust A 8.200% 12/15/26 A2 BBB+ 4,102,054
12,419 Washington Mutual Capital Trust I 8.375% 6/01/27 Baa1 BBB 13,889,534
2,000 Zions Institutional Capital Trust, Series A 8.536% 12/15/26 Baa1 BBB 2,188,744
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.6%
15,750 BNP Paribas Capital Trust 7.200% 12/31/49 A1 A+ 16,433,330
900 Chase Capital Trust I, Series A 7.670% 12/01/26 A1 A- 969,314
1,000 Citigroup Capital III 7.625% 12/01/36 Aa2 A 1,322,646
51,900 HBOS Capital Funding LP, Notes 6.850% 3/01/49 A1 A 53,808,830
10,000 ING Capital Funding Trust III 8.439% 12/30/49 A2 A- 11,843,440
2,150 JPM Capital Trust I 7.540% 1/15/27 A1 A- 2,317,087
3,000 JPM Capital Trust II 7.950% 2/01/27 A1 A- 3,260,367
23,600 Old Mutual Capital Funding, Notes 8.000% 6/22/53 Baa2 NR 24,995,728
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.3%
19,080 Centaur Funding Corporation, Series B, 144A 9.080% 4/21/20 Baa1 BBB+ 25,990,538
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 4.0%
987 Allstate Financing II 7.830% 12/01/45 A2 A- 1,063,556
10,000 American General Capital II 8.500% 7/01/30 Aa3 A+ 13,937,420
4,980 American General Institutional Capital, 144A 8.125% 3/15/46 Aa3 A+ 6,786,759
612 Berkeley Capital Trust 8.197% 12/15/45 Baa3 BBB- 635,628
14,250 Mangrove Bay, Class 3, 144A 6.102% 7/15/33 Baa1 BBB+ 14,691,992
3,750 Prudential plc 6.500% 6/29/49 Baa1 A 3,782,779
13,500 Sun Life Canada Capital Trust, Capital
Securities, 144A 8.526% 5/06/47 A1 A+ 14,846,747
23,000 Zurich Capital Trust I, 144A 8.376% 6/01/37 Baa2 A- 25,446,786
------------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 0.7%
12,355 KN Capital Trust III 7.630% 4/15/28 Baa3 BB+ 14,503,620
------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.2%
500 Countrywide Capital Trust I 8.000% 12/15/26 Baa1 BBB+ 518,659
3,365 Great Western Financial Trust II, Series A 8.206% 2/01/27 Baa1 BBB 3,656,719
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $689,533,446) 698,130,754
--------------------------------------------------------------------------------------------------------------------
38
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 2.8% (1.9% OF TOTAL INVESTMENTS)
$ 57,001 State Street Bank, 2.600%, dated 6/30/05, due 7/01/05, repurchase price $57,005,339, $ 57,001,222
============= collateralized by $4,210,000 U.S. Treasury Bonds, 7.125%, due 2/15/23, value $5,782,208,
and $38,390,000 U.S. Treasury Bonds, 6.875%, due 8/15/25, value $52,362,831
--------------------------------------------------------------------------------------------------------------------
Total Repurchase Agreements (cost $57,001,222) 57,001,222
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,937,684,063) - 146.7% 2,999,484,454
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.5% 9,965,818
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (47.2)% (965,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $2,044,450,272
====================================================================================================================
INTEREST RATE SWAP CONTRACTS OUTSTANDING AT JUNE 30, 2005:
NOTIONAL TERMINATION UNREALIZED
COUNTERPARTY AMOUNT FIXED RATE FLOATING RATE** DATE APPRECIATION
-------------------------------------------------------------------------------------------------------------------
Morgan Stanley $97,000,000 2.0250% 3.3000% 1/23/06 $ 963,302
JPMorgan 97,000,000 3.3950 3.1500 7/06/06 430,433
Royal Bank of Canada 97,000,000 2.6790 3.3000 1/23/07 1,860,401
Morgan Stanley 97,000,000 3.0480 3.3000 1/23/08 2,263,715
JPMorgan 97,000,000 3.3595 3.3000 1/23/09 2,223,257
--------------------------------------------------------------------------------------------------------------------
$7,741,108
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
* Ratings below Baa by Moody's Investor Service, Inc. or
BBB by Standard and Poor's Group are considered to be
below investment grade.
** Based on LIBOR (London Interbank Offered Rate)
(a) Security is eligible for the Dividends Received
Deduction.
144A 144A securities are those which are exempt from
registration under Rule 144A of the Securities Act of
1933, as amended. These securities may only be resold
in transactions exempt from registration which are
normally those transactions with qualified
institutional buyers.
(CBTCS) Corporate Backed Trust Certificates.
(CORTS) Corporate Backed Trust Securities.
(PCARS) Public Credit and Repackaged Securities.
(PPLUS) PreferredPlus Trust.
(SATURNS) Structured Asset Trust Unit Repackaging.
NR Security is not rated.
WI Security purchased on a when-issued basis.
See accompanying notes to financial statements.
39
Statement of
ASSETS AND LIABILITIES June 30, 2005 (Unaudited)
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $2,108,500,294 and $2,937,684,063, respectively) $2,166,129,469 $2,999,484,454
Cash 534,727 486,715
Interest rate swaps, at value 5,791,201 7,741,108
Receivables:
Dividends 3,368,870 3,212,593
Interest 10,859,245 16,719,719
Investments sold 2,342,994 6,525,323
Reclaims -- 69,108
Other assets 106,941 85,399
------------------------------------------------------------------------------------------------------------------------------------
Total assets 2,189,133,447 3,034,324,419
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 15,749,306 22,687,380
Accrued expenses:
Management fees 938,981 1,261,042
Other 455,842 634,966
FundPreferred shares dividends payable 215,430 290,759
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 17,359,559 24,874,147
------------------------------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 708,000,000 965,000,000
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $1,463,773,888 $2,044,450,272
====================================================================================================================================
Common shares outstanding 100,123,177 141,007,000
====================================================================================================================================
Net asset value per Common share outstanding (net assets applicable to
Common shares, divided by Common shares outstanding) $ 14.62 $ 14.50
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 1,001,232 $ 1,410,070
Paid-in surplus 1,416,726,904 1,996,733,307
Undistributed (Over-distribution of) net investment income (20,885,896) (26,544,119)
Accumulated net realized gain from investments, futures and interest rate swaps 3,511,272 3,309,515
Net unrealized appreciation (depreciation) of investments and interest rate swaps 63,420,376 69,541,499
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $1,463,773,888 $2,044,450,272
====================================================================================================================================
Authorized shares:
Common Unlimited Unlimited
FundPreferred shares Unlimited Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
40
Statement of
OPERATIONS Six Months Ended June 30, 2005 (Unaudited)
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $16,529 and $27,074, respectively) $ 34,281,945 $ 43,383,389
Interest 31,462,798 47,304,379
------------------------------------------------------------------------------------------------------------------------------------
Total investment income 65,744,743 90,687,768
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 9,183,374 12,487,594
Dividend expense on securities sold short 148,139 174,994
FundPreferred shares - auction fees 877,726 1,196,336
FundPreferred shares - dividend disbursing agent fees 15,354 28,548
Shareholders' servicing agent fees and expenses 6,114 4,916
Custodian's fees and expenses 277,210 358,167
Trustees' fees and expenses 13,504 21,901
Professional fees 66,468 123,849
Shareholders' reports - printing and mailing expenses 193,165 287,209
Stock exchange listing fees 19,238 26,599
Investor relations expense 141,576 214,521
Other expenses 135,598 186,199
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 11,077,466 15,110,833
Custodian fee credit (2,080) (1,761)
Expense reimbursement (3,461,866) (4,797,622)
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 7,613,520 10,311,450
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 58,131,223 80,376,318
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments (2,472,980) (7,568,869)
Futures (425,117) 245,100
Interest rate swaps (32,437) (109,550)
Change in net unrealized appreciation (depreciation) of:
Investments (58,940,527) (78,544,345)
Futures 325,875 424,500
Interest rate swaps 1,207,357 1,718,027
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (60,337,829) (83,835,137)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (9,769,959) (13,335,981)
From accumulated net realized gains from investments -- --
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from distributions to
FundPreferred shareholders (9,769,959) (13,335,981)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations $(11,976,565) $(16,794,800)
====================================================================================================================================
See accompanying notes to financial statements.
41
Statement of
CHANGES IN NET ASSETS (Unaudited)
PREFERRED AND PREFERRED AND
CONVERTIBLE INCOME (JPC) CONVERTIBLE INCOME 2 (JQC)
-------------------------------------------- ---------------------------------------------
SIX FIVE SIX FIVE
MONTHS ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED MONTHS ENDED YEAR ENDED
6/30/05 12/31/04 7/31/04 6/30/05 12/31/04 7/31/04
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $58,131,223 $ 51,569,038 $ 125,132,929 $ 80,376,318 $ 72,289,589 $ 163,337,100
Net realized gain (loss) from:
Investments (2,472,980) 2,985,875 27,972,286 (7,568,869) 8,940,540 8,739,463
Futures (425,117) -- -- 245,100 -- --
Interest rate swaps (32,437) (974,786) (2,330,892) (109,550) (1,354,773) (3,205,449)
Change in net unrealized appreciation
(depreciation) of:
Investments (58,940,527) 85,689,077 39,651,341 (78,544,345) 120,207,237 90,207,632
Futures 325,875 (325,875) -- 424,500 (424,500) --
Interest rate swaps 1,207,357 (989,371) 5,573,214 1,718,027 (1,354,625) 7,377,706
Distributions to FundPreferred
shareholders:
From net investment income (9,769,959) (4,040,083) (8,171,424) (13,335,981) (7,259,855) (11,296,561)
From accumulated net realized gains
from investments -- (1,465,951) (384,871) -- (211,517) --
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets applicable
to Common shares from operations (11,976,565) 132,447,924 187,442,583 (16,794,800) 190,832,096 255,159,891
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (57,971,320) (50,311,897) (121,827,639) (79,316,439) (68,740,915) (164,952,618)
From accumulated net realized gains
from investments -- (23,388,774) (4,581,333) -- (2,777,838) (25,575)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions to
Common shareholders (57,971,320) (73,700,671) (126,408,972) (79,316,439) (71,518,753) (164,978,193)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares -- (4,237) (188,221) -- (4,047) 176,684
Net proceeds from shares issued to
shareholders due to reinvestment
of distributions -- -- 1,175,103 -- -- --
FundPreferred shares offering costs -- (4,237) (20,355) (1,595) (4,047) (19,723,013)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets applicable
to Common shares from
capital share transactions -- (8,474) 966,527 (1,595) (8,094) (19,546,329)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common shares (69,947,885) 58,738,779 62,000,138 (96,112,834) 119,305,249 70,635,369
Net assets applicable to
Common shares at
the beginning of period 1,533,721,773 1,474,982,994 1,412,982,856 2,140,563,106 2,021,257,857 1,950,622,488
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable
to Common shares
at the end of period $1,463,773,888 $1,533,721,773 $1,474,982,994 $2,044,450,272 $2,140,563,106 $2,021,257,857
====================================================================================================================================
Undistributed (Over-distribution of)
net investment income
at the end of period $ (20,885,896) $ (11,275,840) $ (5,581,774) $ (26,544,119) $ (14,268,017) $ (6,443,674)
====================================================================================================================================
See accompanying notes to financial statements.
42
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The funds (the "Funds") covered in this report and their corresponding Common
share New York Stock Exchange symbols are Nuveen Preferred and Convertible
Income Fund (JPC) and Nuveen Preferred and Convertible Income Fund 2 (JQC). The
Funds are registered under the Investment Company Act of 1940, as amended, as
diversified, closed-end management investment companies.
Each Fund seeks to provide high current income by investing primarily in a
portfolio of preferred securities, convertible securities and, to a lesser
degree, high yield securities. Each Fund may also invest in other debt
instruments and common stocks acquired upon conversion of a convertible
security.
The Board of Trustees of the Funds approved a change in the Funds' fiscal year
end from July 31 to December 31 upon completion of the Funds' July 31, 2004
fiscal year.
Effective January 1, 2005, Nuveen Institutional Advisory Corp. ("NIAC") the
Funds' previous adviser, and its affiliate, Nuveen Advisory Corp. ("NAC"), were
merged into Nuveen Asset Management ("NAM"), each wholly owned subsidiaries of
Nuveen Investments, Inc. ("Nuveen"). As a result of the merger, NAM is now the
Adviser to all funds previously advised by either NIAC or NAC.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities and instruments are generally valued at the last
sales price on the exchange on which such securities or instruments are
primarily traded. Securities or instruments traded on an exchange for which
there are no transactions on a given day or securities or instruments not listed
on an exchange are valued at the mean of the closing bid and asked prices.
Futures contracts are valued using the closing settlement price or, in the
absence of such a price, at the mean of the bid and asked prices. Securities
traded on Nasdaq are valued at the Nasdaq Official Closing Price. The prices of
fixed-income securities are generally provided by an independent pricing service
approved by the Funds' Board of Trustees and based on the mean between the bid
and asked prices. When price quotes are not readily available, the pricing
service or, in the absence of a pricing service for a particular security or
instrument, the Board of Trustees of the Funds, or its designee, may establish
fair market value using a wide variety of market data including yields or prices
of securities of comparable quality, type of issue, coupon, maturity and rating,
market quotes or indications of value from security dealers, evaluations of
anticipated cash flows or collateral, general market conditions and other
information and analysis, including the obligor's credit characteristics
considered relevant by the pricing service or the Board of Trustee's designee.
Short-term securities are valued at amortized cost, which approximates market
value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from transactions are determined on the specific identification method.
Securities purchased on a when-issued or delayed delivery basis may have
extended settlement periods. Any securities so purchased are subject to market
fluctuation during this period. The Funds have instructed the custodian to
segregate assets with a current value at least equal to the amount of the
when-issued and delayed delivery purchase commitments. At June 30, 2005,
Preferred and Convertible Income (JPC) and Preferred and Convertible Income 2
(JQC) had outstanding when-issued purchase commitments of $2,000,000, and
$3,000,000, respectively.
Investment Income
Dividend income on securities purchased and dividend expense on securities sold
short are recorded on the ex-dividend date or, for foreign securities, when
information is available. Interest income, which includes the amortization of
premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis.
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to distribute substantially all net investment income and net capital
gains to shareholders and to otherwise comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no federal income tax provision is required.
43
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
Dividends to Common shareholders are declared monthly. With respect to the REIT
securities held in the Funds' Portfolio of Investments, distributions received
by the Funds are generally comprised of investment income, long-term and
short-term capital gains, and a return of REIT capital. The actual character of
amounts received during the period is not known until after the fiscal year-end.
For the twelve months ended December 31, 2004, the character of distributions to
the Funds from the REITs was as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
2004 (JPC) (JQC)
--------------------------------------------------------------------------------
Ordinary income* 83.15% 83.29%
Long-term and short-term capital gains 14.69 15.13
Return of REIT capital 2.16 1.58
================================================================================
* Ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
For the six months ended June 30, 2005, each Fund applied the actual percentages
for the twelve months ended December 31, 2004, described above, to its receipts
from the REITs and treated as income in the Statement of Operations only the
amount of ordinary income so calculated. Each Fund adjusts that estimated
breakdown of income type (and consequently its net investment income) as
necessary early in the following calendar year when the REITs inform their
shareholders of the actual breakdown of income type. For the fiscal period ended
December 31, 2004, each Fund applied the actual character of distributions
reported by the REITs in which the Fund invests to its receipts from the REITS.
If a REIT held in the portfolio of investments did not report the actual
character of its distributions during the period, the Fund treated the
distributions as ordinary income.
For the fiscal year ended July 31, 2004, each Fund applied a percentage estimate
for the breakdown of income type, to its receipts from the REITs and treated as
income in the Statement of Operations only the amount of ordinary income so
calculated. Each Fund adjusted that estimated breakdown of income type (and
consequently its net investment income) as necessary in the following calendar
year when the REITs informed their shareholders of the actual breakdown of
income type.
With respect to the portion of each Fund's monthly distribution to its
shareholders derived from the Fund's investments in REIT securities for the six
months ended June 30, 2005, each Fund treated that portion of its distributions
as being entirely from net investment income. The Funds will recharacterize
those distributions as being from ordinary income, long-term and short-term
capital gains, and return of capital, if necessary, at the beginning of the
subsequent year, based upon the income type breakdown information conveyed at
that time by the REITs whose securities are held in each Fund's portfolio.
Consequently, the financial statements at June 30, 2005, reflect an
over-distribution of net investment income that was at least partly attributable
to the fact that some of the amounts received by the Funds from the portfolio
REITs, but none of the dividends paid by the Funds to shareholders from the
portfolio REITs were treated as something other than ordinary income. For the
fiscal period ended December 31, 2004, each Fund applied the actual character of
distributions reported by the REITs in which the Fund invests to the
distributions paid to each Funds shareholders.
With respect to the portion of each Fund's monthly distribution to its
shareholders derived from the Fund's investments in REIT securities for the
fiscal year ended July 31, 2004, each Fund treated that portion of its
distribution as being entirely from net investment income. The Funds
recharacterized those distributions as being from ordinary income, long-term and
short-term capital gains, and return of capital, if necessary, in the subsequent
calendar year, based upon the income type breakdown information conveyed at that
time by the REITs whose securities are held in each Fund's portfolio.
Consequently, the financial statements for the fiscal year ended July 31, 2004,
reflected an over-distribution of net investment income that was at least partly
attributable to the fact that, as of the date of the financial statements, some
of the amounts received by the Funds from the portfolio REITs, but none of the
dividends paid by the Funds to shareholders from the portfolio REITs were
treated as something other than ordinary income.
44
FundPreferred Shares
The Funds have issued and outstanding FundPreferred shares, $25,000 stated value
per share, as a means of effecting financial leverage. Each Fund's FundPreferred
shares are issued in more than one Series. The dividend rate on each Series is
determined every seven days, pursuant to a dutch auction process overseen by the
auction agent, and is payable at the end of each rate period. The number of
shares outstanding, by Series and in total, for each Fund is as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Number of shares:
Series M 4,720 3,860
Series M2 -- 3,860
Series T 4,720 3,860
Series T2 -- 3,860
Series W 4,720 3,860
Series W2 -- 3,860
Series TH 4,720 3,860
Series TH2 -- 3,860
Series F 4,720 3,860
Series F2 4,720 3,860
--------------------------------------------------------------------------------
Total 28,320 38,600
================================================================================
Interest Rate Swap Transactions
The Funds may invest in certain derivative financial instruments. The Funds' use
of interest rate swap transactions is intended to mitigate the negative impact
that an increase in short-term interest rates could have on Common share net
earnings as a result of leverage. Interest rate swap transactions involve each
Fund's agreement with the counterparty to pay a fixed rate payment in exchange
for the counterparty paying the Fund a variable rate payment that is intended to
approximate each Fund's variable rate payment obligation on FundPreferred shares
or any variable rate borrowing. The payment obligation is based on the notional
amount of the interest rate swap contract. Interest rate swaps do not involve
the delivery of securities or other underlying assets or principal. Accordingly,
the risk of loss with respect to the swap counterparty on such transactions is
limited to the net amount of interest payments that each Fund is to receive.
Interest rate swap positions are valued daily. Although there are economic
advantages of entering into interest rate swap transactions, there are also
additional risks. The Funds help manage the credit risks associated with
interest rate swap transactions by entering into agreements only with
counterparties the Adviser believes have the financial resources to honor their
obligations and by having the Adviser continually monitor the financial
stability of the swap counterparties.
Futures Contracts
Each Fund may use futures contracts to hedge against changes in the values of
securities the Fund owns. Each Fund bears the market risk arising from changes
in the value of these financial instruments. At the time a Fund enters into a
futures contract, the Fund deposits and maintains as collateral an initial
margin as required by the exchange on which the transaction is affected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract.
Such receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses on futures contracts. Risk may arise from the
potential inability of the counterparty to meet the terms of the contract. When
a contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
time is was closed.
45
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Short Sales
The Funds are authorized to make short sales of securities if the Funds own at
least an equal amount of such securities or securities convertible into
securities of the same issuer. To secure its obligation to deliver securities
sold short, the Funds have instructed the custodian to segregate assets in an
equivalent amount of the securities sold short or securities convertible into or
exchangeable for such securities. The Fund is obligated to pay to the party to
which the securities were sold short, dividends declared on the stock by the
issuer and records such amounts as expense in the Statement of Operations. Short
sales are valued daily and the corresponding unrealized gains or losses are
included in "Change in net unrealized appreciation (depreciation) of
investments."
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Funds'
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Offering Costs
Costs incurred by Preferred and Convertible Income 2 (JQC) in connection with
its offering of FundPreferred shares ($19,728,655) were recorded as reductions
to paid-in surplus.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on each Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Funds' organizational documents, their Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Funds. In addition, in the normal course of business, the Funds
enter into contracts that provide general indemnifications to other parties. The
Funds' maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Funds that have not yet
occurred. However, the Funds have not had prior claims or losses pursuant to
these contracts and expect the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
46
2. FUND SHARES
Transactions in Common and FundPreferred shares were as follows:
PREFERRED AND PREFERRED AND
CONVERTIBLE INCOME (JPC) CONVERTIBLE INCOME 2 (JQC)
------------------------------------------- ----------------------------------------
SIX FIVE YEAR SIX FIVE YEAR
MONTHS ENDED MONTHS ENDED ENDED MONTHS ENDED MONTHS ENDED ENDED
6/30/05 12/31/04 7/31/04 6/30/05 12/31/04 7/31/04
----------------------------------------------------------------------------------------------------------------
Common shares issued to
shareholders due to
reinvestment of
distributions -- -- 79,185 -- -- --
----------------------------------------------------------------------------------------------------------------
-- -- 79,185 -- -- --
----------------------------------------------------------------------------------------------------------------
FundPreferred shares sold -- -- -- -- -- 38,600
================================================================================================================
3. SECURITIES TRANSACTIONS
Purchases and sales (including maturities and transactions in securities sold
short but excluding short-term investments) of investment securities during the
six months ended June 30, 2005, were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Purchases of investment securities $370,394,160 $469,204,951
Sales and maturities of investment securities 342,976,651 446,651,011
================================================================================
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis based on the
information currently available to the Funds. Differences between amounts for
financial statement and federal income tax purposes are primarily due to the
recognition of income on certain securities which are treated as debt securities
for income tax purposes and equity securities for financial statement purposes,
and timing differences in recognizing certain gains and losses on security
transactions.
At June 30, 2005, the cost of investments was as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Cost of investments $2,129,873,755 $2,967,788,600
================================================================================
47
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Gross unrealized appreciation and gross unrealized depreciation of investments
at June 30, 2005, were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 88,261,805 $103,245,945
Depreciation (52,006,091) (71,550,091)
--------------------------------------------------------------------------------
Net unrealized appreciation of investments $ 36,255,714 $ 31,695,854
================================================================================
The tax components of undistributed net ordinary income and net realized gains
at December 31, 2004, the Funds' last fiscal year end, were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Undistributed net ordinary income * $8,790,389 $11,988,764
Undistributed net long-term capital gains 3,341,644 6,828,270
================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
The tax character of distributions paid during the fiscal periods ended December
31, 2004, the Funds' last fiscal period end, and July 31, 2004, was designated
for purposes of the dividends paid deduction as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
FIVE MONTHS ENDED DECEMBER 31, 2004 (JPC) (JQC)
--------------------------------------------------------------------------------
Distributions from net ordinary income * $82,128,245 $89,938,792
Distributions from net long-term capital gains 7,112,884 2,762,657
================================================================================
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
YEAR ENDED JULY 31, 2004 (JPC) (JQC)
--------------------------------------------------------------------------------
Distributions from net ordinary income * $134,895,598 $162,336,998
Distributions from net long-term capital gains -- 22,781
================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
Calculation of certain of the amounts presented above (namely, undistributed net
ordinary income for tax purposes) involves the application of complex aspects of
the Internal Revenue Code to certain securities held by the Funds. In
calculating the amount of taxable income derived from these securities,
management made assumptions as to the correct tax treatment of certain of those
securities and made estimates about the tax characteristics of income received
from those securities, based on information currently available to the Funds.
The use of these assumptions and estimates will not affect the qualification of
the Funds as regulated investment companies under Subchapter M of the Internal
Revenue Code, nor is it expected that these assumptions and estimates will be
used in computing taxable income for purposes of preparing the federal and state
income and excise tax returns.
48
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Each Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by the
Adviser, and a specific fund-level component, based only on the amount of assets
within each individual fund. This pricing structure enables Nuveen fund
shareholders to benefit from growth in the assets within each individual fund as
well as from growth in the amount of complex-wide assets managed by the Adviser.
As of July 31, 2005, the complex-level fee rate was .1899%.
The annual fund-level fee, payable monthly, for each of the Funds is based upon
the average daily Managed Assets of each Fund as follows:
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
================================================================================
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as follows:
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion (2) .1400
================================================================================
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds
in the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level
fee rate for such complex-wide Managed Assets shall be .1400% until such
time as a different rate or rates is determined.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser is
responsible for the overall strategy and asset allocation decisions. The Adviser
has entered into Sub-Advisory Agreements with Spectrum Asset Management, Inc.
("Spectrum"), Froley, Revy Investment Co., Inc. (Froley, Revy) and Symphony
Asset Management, LLC ("Symphony"). Spectrum manages the portion of the Fund's
investment portfolio allocated to preferred securities. Froley, Revy manages the
portion of the investment portfolio allocated to convertible securities.
Symphony manages the portion of the investment portfolio allocated to debt
securities. Spectrum, Froley, Revy and Symphony are compensated for their
services to the Funds from the management fees paid to the Adviser. Spectrum
also receives compensation on certain portfolio transactions for providing
brokerage services to the Funds.
The Funds pay no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its officers, all of whom receive remuneration
for their services to the Funds from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
For the first eight years of Preferred and Convertible Income's (JPC)
operations, the Adviser has agreed to reimburse the Fund, as a percentage of
average daily Managed Assets, for fees and expenses in the amounts and for the
time periods set forth below:
YEAR ENDING YEAR ENDING
MARCH 31, MARCH 31,
--------------------------------------------------------------------------------
2003* .32% 2008 .32%
2004 .32 2009 .24
2005 .32 2010 .16
2006 .32 2011 .08
2007 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Preferred and Convertible Income (JPC)
for any portion of its fees and expenses beyond March 31, 2011.
49
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
For the first eight years of Preferred and Convertible Income 2's (JQC)
operations, the Adviser has agreed to reimburse the Fund, as a percentage of
average daily Managed Assets, for fees and expenses in the amounts and for the
time periods set forth below:
YEAR ENDING YEAR ENDING
JUNE 30, JUNE 30,
--------------------------------------------------------------------------------
2003* .32% 2008 .32%
2004 .32 2009 .24
2005 .32 2010 .16
2006 .32 2011 .08
2007 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Preferred and Convertible Income 2 (JQC)
for any portion of its fees and expenses beyond June 30, 2011.
6. ANNOUNCEMENT REGARDING PARENT COMPANY OF ADVISER
In early April, 2005, The St. Paul Travelers Companies, Inc. ("St. Paul
Travelers"), which owned 79% of Nuveen, (A) completed a public offering of a
substantial portion of its equity stake in Nuveen, (B) sold Nuveen $200 million
of its Nuveen shares, (C) entered into an agreement with Nuveen to sell an
additional $400 million of its Nuveen shares on a "forward" basis with payment
for and settlement of these shares delayed for several months, and (D) entered
into agreements with two unaffiliated investment banking firms to sell an amount
equal to most or all of its remaining Nuveen shares for current payment but for
future settlement. Transactions (C) and (D) above were settled in late July,
which effectively reduced St. Paul Travelers' controlling stake in Nuveen and
was deemed an "assignment" (as defined in the 1940 Act) of the investment
management agreements between the Funds and the Adviser, which resulted in the
automatic termination of each agreement under the 1940 Act. In anticipation of
such deemed assignment, the Board of Trustees had approved new ongoing
investment management agreements for each Fund and the submission of those
agreements for approval by each respective Fund's shareholders, which
shareholder approval was received prior to the settlement of transactions (C)
and (D). The new ongoing management agreements took effect upon such settlement.
7. SUBSEQUENT EVENT -- DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Funds declared Common share dividend distributions from their net investment
income which were paid on August 1, 2005, to shareholders of record on July 15,
2005, as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Dividend per share $.0900 $.0885
================================================================================
At the same time, the Funds declared capital gains distributions as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Dividend per share $.0176 $.0430
================================================================================
50
Financial
HIGHLIGHTS (Unaudited)
51
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
---------------------------------------------------------------------- --------------------------------
Distributions Distributions
from Net from Net
Beginning Investment Capital Investment Capital
Common Net Income to Gains to Income to Gains to
Share Net Realized/ FundPreferred FundPreferred Common Common
Net Asset Investment Unrealized Share- Share- Share- Share-
Value Income(a) Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
PREFERRED AND
CONVERTIBLE
INCOME (JPC)
------------------------------------------------------------------------------------------------------------------------------------
1/01/05-6/30/05 $15.32 $ .58 $ (.60) $(.10) $ -- $(.12) $(.58) $ -- $(.58)
8/01/04-12/31/04 14.73 .52 .85 (.04) (.01) 1.32 (.50) (.23) (.73)
8/01/03-7/31/04 14.12 1.25 .71 (.08) -- 1.88 (1.22) (.05) (1.27)
3/26/03-7/31/03 14.33 .30 (.02) (.02) -- .26 (.30) -- (.30)
PREFERRED AND
CONVERTIBLE
INCOME 2 (JQC)
------------------------------------------------------------------------------------------------------------------------------------
1/01/05-6/30/05 15.18 .57 (.60) (.09) -- (.12) (.56) -- (.56)
8/01/04-12/31/04 14.33 .51 .90 (.05) -- 1.36 (.49) (.02) (.51)
8/01/03-7/31/04 13.83 1.16 .73 (.08) -- 1.81 (1.17) -- (1.17)
6/25/03-7/31/03 14.33 .04 (.53) -- -- (.49) -- -- --
====================================================================================================================================
Total Returns
--------------------
Based
Offering on
Costs and Ending Common
FundPreferred Common Based Share
Share Share Ending on Net
Underwriting Net Asset Market Market Asset
Discounts Value Value Value** Value**
===========================================================================================
PREFERRED AND CONVERTIBLE
INCOME (JPC)
-------------------------------------------------------------------------------------------
1/01/05-6/30/05 $ -- $14.62 $13.35 (2.81)% (.68)%
8/01/04-12/31/04 -- 15.32 14.33 8.06 9.07
8/01/03-7/31/04 -- 14.73 13.95 4.34 13.44
3/26/03-7/31/03 (.17) 14.12 14.57 (.89) .58
PREFERRED AND CONVERTIBLE
INCOME 2 (JQC)
-------------------------------------------------------------------------------------------
1/01/05-6/30/05 -- 14.50 13.06 (1.77) (.80)
8/01/04-12/31/04 -- 15.18 13.87 6.20 9.59
8/01/03-7/31/04 (.14) 14.33 13.54 .10 12.25
6/25/03-7/31/03 (.01) 13.83 14.69 (2.07) (3.49)
===========================================================================================
Ratios/Supplemental Data
-----------------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
----------------------------- --------------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
===========================================================================================================================
PREFERRED AND CONVERTIBLE
INCOME (JPC)
---------------------------------------------------------------------------------------------------------------------------
1/01/05-6/30/05 $1,463,774 1.52%* 7.49%* 1.04%* 7.96%* 16%
8/01/04-12/31/04 1,533,722 1.51* 7.66* 1.04* 8.13* 13
8/01/03-7/31/04 1,474,983 1.53 7.90 1.05 8.37 19
3/26/03-7/31/03 1,412,983 1.29* 5.67* .87* 6.09* 21
PREFERRED AND CONVERTIBLE
INCOME 2 (JQC)
---------------------------------------------------------------------------------------------------------------------------
1/01/05-6/30/05 2,044,450 1.48* 7.41* 1.01* 7.88* 15
8/01/04-12/31/04 2,140,563 1.47* 7.81* 1.00* 8.28* 13
8/01/03-7/31/04 2,021,258 1.47 7.51 1.00 7.98 27
6/25/03-7/31/03 1,950,622 .97* 2.86* .65* 3.18* 5
===========================================================================================================================
FundPreferred Shares at End of Period
-------------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
=========================================================================
PREFERRED AND CONVERTIBLE
INCOME (JPC)
-------------------------------------------------------------------------
1/01/05-6/30/05 $708,000 $25,000 $76,687
8/01/04-12/31/04 708,000 25,000 79,157
8/01/03-7/31/04 708,000 25,000 77,083
3/26/03-7/31/03 708,000 25,000 74,893
PREFERRED AND CONVERTIBLE
INCOME 2 (JQC)
-------------------------------------------------------------------------
1/01/05-6/30/05 965,000 25,000 77,965
8/01/04-12/31/04 965,000 25,000 80,455
8/01/03-7/31/04 965,000 25,000 77,364
6/25/03-7/31/03 -- -- --
=========================================================================
* Annualized.
** Total Investment Return on Market Value is the combination of changes in
the market price per share and the effect of reinvested dividend income and
reinvested capital gains distributions, if any, at the average price paid
per share at the time of reinvestment. Total Return on Common Share Net
Asset Value is the combination of changes in Common Share net asset value,
reinvested dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ o Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders.
o Income ratios reflect income earned on assets attributable to
FundPreferred shares.
o Each ratio includes the effect of the dividend expense on securities
sold short as follows:
Ratio of
Dividend
Expense on
Securities
Sold Short to
Average Net
Assets Applicable
to Common Shares
-----------------
PREFERRED AND CONVERTIBLE INCOME (JPC)
1/01/05-6/30/05 .02%*
8/01/04-12/31/04 .04*
8/01/03-7/31/04 .03
3/26/03-7/31/03 --
PREFERRED AND CONVERTIBLE INCOME 2 (JQC)
1/01/05-6/30/05 .02*
8/01/04-12/31/04 .05*
8/01/03-7/31/04 .03
6/25/03-7/31/03 --
(a) Per share Net Investment Income is calculated using the average daily
shares method.
See accompanying notes to financial statements.
52-53 SPREAD
ANNUAL INVESTMENT
MANAGEMENT AGREEMENT
APPROVAL PROCESS
At a meeting held on May 10-12, 2005, the Board of Trustees of the Funds,
including the independent Trustees, unanimously approved the Investment
Management Agreement between each Fund and NAM and the Sub-Advisory Agreement
between NAM and Spectrum, Froley, Revy and Symphony, respectively (each a
"Sub-Adviser") (NAM and the Sub-Advisers are each a "Fund Adviser").
THE APPROVAL PROCESS
To assist the Board in its evaluation of an advisory contract with a Fund
Adviser, the independent Trustees received a report in adequate time in advance
of their meeting which outlined, among other things, the services provided by
the Fund Adviser; the organization of the Fund Adviser, including the
responsibilities of various departments and key personnel; the Fund's past
performance as well as the Fund's performance compared to funds of similar
investment objectives compiled by an independent third party (a "Peer Group") as
described below and with recognized and/or customized benchmarks (as
appropriate); the profitability of the Fund Adviser and certain industry
profitability analyses for advisers to unaffiliated investment companies; the
expenses of the Fund Adviser in providing the various services; the advisory
fees of the Fund Adviser, including comparisons of such fees with the management
fees of comparable funds in its Peer Group as well as comparisons of the Fund
Adviser's management fees with the fees the Fund Adviser assesses to other types
of investment products or accounts, if any; the soft dollar practices of the
Fund Adviser; and the expenses of each Fund, including comparisons of the Fund's
expense ratios (after any fee waivers) with the expense ratios of its Peer
Group. This information supplements that received by the Board throughout the
year regarding Fund performance, expense ratios, portfolio composition, trade
execution and sales activity.
In addition to the foregoing materials, independent legal counsel to the
independent Trustees provided, in advance of the meeting, a legal memorandum
outlining, among other things, the duties of the Trustees under the 1940 Act as
well as the general principles of relevant state law in reviewing and approving
advisory contracts; the requirements of the 1940 Act in such matters; an
adviser's fiduciary duty with respect to advisory agreements and compensation;
the standards used by courts in determining whether investment company boards of
directors have fulfilled their duties and factors to be considered by the board
in voting on advisory agreements.
At the Board meeting, NAM made a presentation to and responded to questions from
the Board. In addition, the independent Trustees noted that each Sub-Adviser
also previously made written or oral presentations to the Board providing the
respective Sub-Adviser with the opportunity to explain its investment
strategies, discuss market conditions, and highlight any material issues. Many
of these presentations were part of site visits by the Board throughout the
year. After the presentations and after reviewing the written materials, the
independent Trustees met privately with their legal counsel to review the
Board's duties in reviewing advisory contracts and consider the renewal of the
advisory contract. It is with this background that the Trustees considered each
advisory contract (which includes sub-advisory contracts) with a Fund Adviser.
The independent Trustees, in consultation with independent counsel, reviewed the
factors set out in judicial decisions and SEC directives relating to the renewal
of advisory contracts. As outlined in more detail below, the Trustees considered
all factors they believed relevant with respect to each Fund, including the
following: (a) the nature, extent and quality of the services to be provided by
the Fund Adviser; (b) the investment performance of the Fund and the Fund
Adviser; (c) the costs of the services to be provided and profits to be realized
by the Fund Adviser and its affiliates from the relationship with the Fund; (d)
the extent to which economies of scale would be realized as the Fund grows; and
(e) whether fee levels reflect these economies of scale for the benefit of Fund
investors.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In evaluating the nature, extent and quality of the respective Fund Adviser's
services, the Trustees reviewed information concerning the types of services
that a Fund Adviser or its affiliates provide and are expected to provide to the
Nuveen Funds; narrative and statistical information concerning the Fund's
performance record and how such performance compares to the Fund's Peer Group
and recognized benchmarks and/or customized benchmarks (as described in further
detail in Section B below); information describing the Fund Adviser's
organization and its various departments, the experience and responsibilities of
key personnel, and available resources. In the discussion of key personnel, the
Trustees received materials regarding the changes or additions in personnel of
the applicable Fund Adviser. The Trustees further noted the willingness of the
personnel of NAM to engage in open, candid discussions with the Board. The
Trustees further considered the quality of the Fund Adviser's investment process
in making portfolio management decisions, including any refinements or
improvements to the portfolio management processes, enhancements to technology
and systems that are available to portfolio managers, and any additions of new
personnel which may strengthen or expand the research and investment
capabilities of the Fund Adviser. In their review of the advisory contracts for
the fixed income funds, the Trustees also noted that Nuveen won the Lipper Award
for Best Fund Family: Fixed Income-Large Asset Class, for 2004. Given the
Trustees' experience with the Funds, other Nuveen funds and the Fund Advisers,
the Trustees noted that they were familiar with and continue to have a good
understanding of the organization, operations and personnel of the Fund
Advisers.
54
In addition to advisory services, the independent Trustees considered the
quality of the administrative or non-advisory services provided. In this regard,
NAM provides the Funds with such administrative and other services (exclusive
of, and in addition to, any such services provided by others for the Funds) and
officers and other personnel as are necessary for the operations of the
respective Fund. In addition to investment management services, NAM and its
affiliates provide each Fund with a wide range of services, including: preparing
shareholder reports; providing daily accounting; providing quarterly financial
statements; overseeing and coordinating the activities of other service
providers; administering and organizing Board meetings and preparing the Board
materials for such meetings; providing legal support (such as helping to prepare
registration statements, amendments thereto and proxy statements and responding
to regulatory inquiries); and performing other Fund administrative tasks
necessary for the operation of the respective Fund (such as tax reporting and
fulfilling regulatory filing requirements). In addition, in evaluating the
administrative services, the Trustees considered, in particular, a Fund
Adviser's policies and procedures for assuring compliance with applicable laws
and regulations in light of the new SEC regulations governing compliance. The
Trustees noted NAM's focus on compliance and its compliance systems. In their
review, the Trustees considered, among other things, the additions of
experienced personnel to NAM's compliance group and modifications and other
enhancements to NAM's computer systems. In addition to the foregoing, the
Trustees also noted that NAM outsources certain services that cannot be
replicated without significant costs or at the same level of expertise. Such
outsourcing has been a beneficial and efficient use of resources by keeping
expenses low while obtaining quality services. Further, as the Funds utilize
Sub-Advisers, the Trustees considered NAM's ability and procedures to monitor
the respective Sub-Adviser's performance, business practices and compliance
policies and procedures. In this regard, the Trustees noted the role of NAM's
investment oversight committee, including its increased personnel, the
responsibilities and experience of the staff, and procedures to monitor
Sub-Advisers, including the use of site visits.
In addition to the above, in reviewing the variety of additional services that
NAM or its affiliates must provide to closed-end funds, such as the Funds, the
independent Trustees determined that Nuveen's commitment to supporting the
secondary market for the common shares of its closed-end funds is particularly
noteworthy. In this regard, the Trustees noted Nuveen's efforts to sponsor
numerous forums for analysts and specialists regarding the various Nuveen
closed-end funds, its creation of a new senior position dedicated to providing
secondary market support services and enhancing communications with investors
and analysts, and its advertising and media relations efforts designed to raise
investor and analyst awareness of the closed-end funds.
In evaluating the services of the various Sub-Advisers, the independent Trustees
noted that the Sub-Advisory Agreements were essentially agreements for portfolio
management services only and the respective Sub-Adviser was not expected to
supply other significant administrative services to the Funds.
Based on their review, the Trustees found that, overall, the nature, extent and
quality of services provided (and expected to be provided) to the respective
Fund under the Investment Management Agreement or Sub-Advisory Agreement, as
applicable, were of a high level and were quite satisfactory.
B. THE INVESTMENT PERFORMANCE OF THE FUND AND FUND ADVISERS
As previously noted, the Board received a myriad of performance information
regarding each Fund and its Peer Group, if available. Among other things, the
Board received materials reflecting a Fund's historic performance, the Fund's
performance compared to its Peer Group (as available) and its performance
compared to recognized and/or benchmarks (as applicable). The Trustees reviewed
performance information including, among other things, total return information
compared with a Fund's Peer Group as well as recognized and/or customized
benchmarks (as appropriate) for the one-, three- and five-year periods (as
applicable) ending December 31, 2004. This information supplements the Fund
performance information provided to the Board at each of their quarterly
meetings. Based on their review, the Trustees determined that the respective
Fund's absolute and relative investment performance over time had been
satisfactory.
C. FEES, EXPENSES AND PROFITABILITY
1. FEES AND EXPENSES
In evaluating the management fees and expenses that a Fund is expected to
bear, the Trustees considered the Fund's current management fee structure,
the sub-advisory fee arrangements and the Fund's expected expense ratios in
absolute terms as well as compared with the fees and expense ratios of the
unaffiliated funds in its Peer Group. The Trustees reviewed the financial
information of the respective Fund Adviser, including its respective
revenues, expenses and profitability. In reviewing fees, the Trustees, among
other things, reviewed comparisons of the Fund's gross management fees (fees
after fund-level and complex-wide level breakpoints but before reimbursement
and fee waivers), net management fees (after breakpoints and reimbursements
and fee waivers) and total expense ratios (before and after waivers) with
those of the unaffiliated funds in its Peer Group and peer averages. In this
regard, the Trustees noted that the relative ranking of the Nuveen funds on
fees and expenses was aided by the significant level of fee reductions
provided by the fund-level and complex-wide breakpoint schedules, and the fee
waivers and reimbursements provided by Nuveen for certain funds launched
since 1999. The complex-wide breakpoint schedule was instituted in 2004 and
is described in further detail below in Section D entitled "Economies of
Scale and Whether Fee Levels Reflect These Economies of Scale." In its
review, the Trustees noted that all taxable closed-end exchange-traded Nuveen
funds had net expense ratios below or within an acceptable range compared to
peers.
2. COMPARISONS WITH THE FEES OF OTHER CLIENTS
The Trustees further compared the fees of NAM to the fees NAM or an affiliate
thereof assessed for other types of clients (such as separate managed
accounts as well as fees charged on funds that are not offered by Nuveen but
are sub-advised by one of Nuveen's investment management teams). With respect
to separately managed accounts, the advisory fees to such separate managed
accounts are generally lower than those charged to the comparable Fund. The
Trustees noted, however, the additional services that are provided and the
costs incurred by Nuveen in managing and operating registered investment
companies, such as the Funds, compared to individually managed separate
accounts. For instance, as described above, NAM and its affiliates provide
numerous
55
ANNUAL INVESTMENT MANAGEMENT
AGREEMENT APPROVAL PROCESS (continued)
services to the Funds including, but not limited to, preparing shareholder
reports; providing daily accounting; preparing quarterly financial
statements; overseeing and coordinating the activities of other service
providers; administering and organizing Board meetings and preparing the
Board materials for such meetings; providing legal support; and administering
all other aspects of the Fund's operations. Further, the Trustees noted the
increased compliance requirements for funds in light of new SEC regulations
and other legislation. These services are generally not required to the same
extent, if at all, for separate accounts. In addition to the differences in
services, the Trustees also considered, among other things, the differences
in product distribution, investor profiles and account sizes. Accordingly,
the Trustees believe that the nature and number of services provided to
operate a Fund merit the higher fees than those to separate managed accounts.
In considering the fees of the Sub-Adviser, the Trustees also considered the
pricing schedule the Sub-Adviser charges for similar investment management
services for other fund sponsors or clients. With respect to Symphony, the
Trustees also compared the sub-advisory fees to the significantly higher fees
assessed to hedge funds advised by Symphony. Generally, the sub-advisory fees
were at the lower end of the Sub-Adviser's fee schedule. In addition, the
Trustees noted that such sub-advisory fees and arrangements with the
unaffiliated Sub-Advisers were established through arms-length negotiations
between the respective Sub-Adviser and NAM.
3. PROFITABILITY OF ADVISERS
In conjunction with its review of fees, the Trustees also considered the
profitability of NAM (which incorporated Nuveen's wholly-owned subsidiaries,
such as Symphony) as well as the profitability of the other Sub-Advisers. The
Trustees reviewed the respective Fund Adviser's revenues, expenses and
profitability margins (on both a pre-tax and after-tax basis). In reviewing
profitability, the Trustees recognized that one of the most difficult issues in
determining profitability is establishing a method of allocating expenses.
Accordingly, the Trustees reviewed a Fund Adviser's assumptions and methodology
of allocating expenses. In this regard, the methods of allocation used appeared
reasonable but the Board noted the inherent limitations in allocating costs
among various advisory products. The Trustees also recognized that individual
fund or product line profitability of other advisers is generally not publicly
available. Further, profitability may be affected by numerous factors including
the types of funds managed, expense allocations, business mix, etc. and
therefore comparability of profitability is somewhat limited. Nevertheless, to
the extent available, the Trustees considered the respective Fund Adviser's
profit margin compared to the profitability of various publicly-traded
investment management companies and/or investment management companies that
publicly disclose some or all of their financial results compiled by three
independent third-party service providers. The Trustees also reviewed the
revenues, expenses and profit margins of various unaffiliated advisory firms
with similar amounts of assets under management for the last year prepared by
NAM. Based on their review, the Trustees were satisfied that each Fund Adviser's
level of profitability from its relationship with each Fund was reasonable in
light of the services provided.
In evaluating the reasonableness of the compensation, the Trustees also
considered any other revenues paid to a Fund Adviser as well as any indirect
benefits (such as soft dollar arrangements, if any) the Fund Adviser and its
affiliates are expected to receive that are directly attributable to their
management of the Funds, if any. See Section E below for additional information.
Based on their review of the overall fee arrangements of the applicable Fund,
the Trustees determined that the advisory fees and expenses of the respective
Fund were reasonable.
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
In reviewing the compensation, the Trustees have long understood the benefits of
economies of scale as the assets of a fund grows and have sought to ensure that
shareholders share in these benefits. One method for shareholders to share in
economies of scale is to include breakpoints in the advisory fee schedules that
reduce fees as fund assets grow. Accordingly, the Trustees received and reviewed
the schedules of advisory fees for each Fund, including fund-level breakpoints
thereto. In addition, after lengthy negotiations with management, the Board in
May, 2004 approved a complex-wide fee arrangement pursuant to which fees of the
funds in the Nuveen complex, including the Funds, are reduced as the assets in
the fund complex reach certain levels. The complex-wide fee arrangement was
introduced on August 1, 2004 and the Trustees reviewed data regarding the
reductions of fees for the Funds for the period of August 1, 2004 to December
31, 2004. In evaluating the complex-wide fee arrangement, the Trustees
considered, among other things, the historic and expected fee savings to
shareholders as assets grow, the amount of fee reductions at various asset
levels, and that the arrangement would extend to all funds in the Nuveen
complex. The Trustees also considered the impact, if any, the complex-wide fee
arrangement may have on the level of services provided. Based on their review,
the Trustees concluded that the breakpoint schedule and complex-wide fee
arrangement currently was acceptable and desirable in providing benefits from
economies of scale to shareholders.
56
E. INDIRECT BENEFITS
In evaluating fees, the Trustees also considered any indirect benefits or
profits the respective Fund Adviser or its affiliates may receive as a result of
its relationship with each Fund. In this regard, the Trustees considered any
benefits from soft dollar arrangements. The Trustees noted that although NAM
manages a large amount of assets, it has very little, if any, brokerage to
allocate. This is due to the fact that NAM typically manages the portfolios of
the municipal funds in the Nuveen complex and municipal bonds generally trade on
a principal basis. Accordingly, NAM does not currently have any soft dollar
arrangements and does not pay excess brokerage commissions (or spreads on
principal transactions) in order to receive research services. The Trustees also
considered the soft dollar arrangements of the Sub-Advisers. The Trustees noted
that Froley, Revy has engaged in soft dollar arrangements. With respect to such
Sub-Adviser, the Trustees considered that the respective Sub-Adviser benefits
from its soft dollar arrangements pursuant to which such Sub-Adviser receives
research from brokers that execute the applicable Fund's portfolio transactions.
The Trustees received and reviewed materials concerning such Sub-Adviser's
brokerage practices, including its broker allocation policies and procedures,
the types of research and brokerage services received, the brokers providing
such services, and the dollar amount of commissions allocated to brokers for
soft dollar arrangements for the last calendar year. In considering the types of
research received, the Trustees noted that such Sub-Adviser either has already
limited (or has agreed to modify its practices to limit) the use of soft dollars
to research with intellectual content. The Trustees recognized that such
Sub-Adviser's profitability may be lower if the Sub-Adviser was required to pay
for this research with hard dollars. With respect to Symphony, the Trustees
noted that such Sub-Adviser does not use soft dollar arrangements. The Trustees
also noted that Spectrum does not use soft dollar arrangements. However, the
Trustees also received materials and considered any revenues received by
Spectrum in executing trades through its internal broker-dealer.
In addition to soft dollar arrangements, the Trustees also considered any other
revenues, if any, received by NAM or its affiliates. In this regard, for Nuveen
funds with outstanding preferred shares and new closed-end funds, the Trustees
also considered revenues received by Nuveen for serving as agent for
broker-dealers at its preferred trading desk and for acting as co-manager in the
initial public offering of new closed-end exchange-traded funds.
F. OTHER CONSIDERATIONS
Nuveen, until recently, was a majority owned subsidiary of St. Paul Travelers
Companies, Inc. ("St. Paul"). As noted, St. Paul earlier this year announced its
intention to divest its equity stake in Nuveen. Nuveen is the parent of NAM.
Pursuant to a series of transactions, St. Paul had begun to reduce its interest
in Nuveen which would ultimately result in a change of control of Nuveen and
therefore NAM. As mandated by the 1940 Act, such a change in control would
result in an assignment of the Investment Management Agreement with NAM and the
automatic termination of such agreement. Accordingly, the Board also considered
the approval of a New Investment Management Agreement with each Fund in light
of, and which would take effect upon, the anticipated change of control. More
specifically, the Board considered for each Fund a New Investment Management
Agreement on substantially identical terms to the existing Investment Management
Agreement, to take effect after the change of control has occurred and the
contract has been approved by Fund shareholders. In its review, the Board
considered whether the various transactions necessary to divest St. Paul's
interest will have an impact on the various factors they considered in approving
NAM, such as the scope and quality of services to be provided following the
change of control. In reviewing the St. Paul transactions, the Board considered,
among other things, the impact, if any, on the operations and organizational
structure of NAM; the possible benefits and costs of the transactions to the
respective Fund; the potential implications of any arrangements used by Nuveen
to finance certain of the transactions; the ability of NAM to perform its duties
after the transactions; whether a Fund's fee structure or expense ratio would
change; any changes to the current practices of the respective Fund; any changes
to the terms of the advisory agreement; and any anticipated changes to the
operations of NAM. Based on its review, the Board determined that St. Paul's
divestiture would not affect the nature and quality of services provided by NAM,
the terms of the Investment Management Agreement, including the fees thereunder,
and would not materially affect the organization or operations of NAM.
Accordingly, the Board determined that their analysis of the various factors
regarding their approval of NAM would continue to apply after the change of
control.
In addition to the foregoing, a change in control of NAM may be deemed an
assignment of the Sub-Advisory Agreement between NAM and the respective
Sub-Adviser. Further, Symphony is a wholly-owned subsidiary of Nuveen.
Accordingly, the change of control of Nuveen would also result in a change of
control of such Sub-Adviser resulting in the automatic termination of its
existing Sub-Advisory Agreements. The Board therefore considered approval of a
New Sub-Advisory Agreement with each Sub-Adviser in light of the anticipated
change of control. More specially, the Board considered approval of each New
Sub-Advisory Agreement on substantially identical terms as the respective
Original Sub-Advisory Agreement, to take effect after the change of control has
occurred and the agreement has been approved by Fund shareholders. In reviewing
the impact of the St. Paul divesture on the respective Sub-Adviser, the Board
considered the same factors as outlined previously with respect to their review
of NAM. As with NAM, the Board concluded that the St. Paul divestiture would not
affect the nature and quality of services provided by the respective
Sub-Adviser, the terms of the Sub-Advisory Agreement, including the fees paid
thereunder, and would not materially affect the organization or operations of
the Sub-Adviser. Accordingly, the Board determined that their analysis of the
various factors regarding their review and approval of the respective
Sub-Adviser would continue to apply following the change in control.
G. APPROVAL
The Trustees did not identify any single factor discussed previously as
all-important or controlling. The Trustees, including a majority of independent
Trustees, concluded that the terms of the Investment Management and Sub-Advisory
Agreements were fair and reasonable, that the respective Fund Adviser's fees are
reasonable in light of the services provided to each Fund, that the renewal of
the NAM Investment Management Agreement and each Sub-Advisory Agreement should
be approved, and that the new, post-change of control NAM Investment Management
Agreement and the Sub-Advisory Agreements be approved and recommended to
shareholders.
57
Reinvest Automatically
EASILY AND CONVENIENTLY
Sidebar text: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET
UP YOUR REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of the shares may increase before
purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
.CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
58
Other Useful
INFORMATION
In April, 2005, The St. Paul Travelers Companies, Inc. (`'St. Paul Travelers")
sold the majority of its controlling equity interest in Nuveen Investments, Inc.
(`'Nuveen") to the general public. Nuveen is the parent of Nuveen Asset
Management ("NAM"), which is each Fund's investment manager. This sale was
deemed to be an `'assignment" of the investment management agreement between
each Fund and NAM and, if applicable, of the sub-advisory agreement between NAM
and the Fund's sub-adviser. As required by law, the shareholders of each Fund
were asked to approve a new investment management agreement and, if applicable,
a new subadvisory agreement that reflected this change in ownership. The
shareholders of each Fund voted this approval at a Shareholders' Meeting on July
26, 2005. There were no changes to the investment objectives or management of
any Fund as a result of these actions.
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
The Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
most recent 12-month period ended June 30, 2005, and (iii) a description of the
policies and procedures that the Fund used to determine how to vote proxies
relating to portfolio securities are available without charge, upon request, by
calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
MARKET YIELD: Market yield is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Funds'
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any MuniPreferred shares
issued in order to leverage the Fund) from its total assets and then dividing
the remainder by the number of shares outstanding. Fund NAVs are calculated at
the end of each business day.
BOARD OF TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
David J. Kundert
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Eugene S. Sunshine
FUND MANAGER
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
The Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the period covered by this report. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
59
Nuveen Investments:
SERVING Investors
For GENERATIONS
Photo of: 2 women looking at a photo album.
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past century,
Nuveen Investments has adhered to the belief that the best approach to investing
is to apply conservative risk-management principles to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity and
fixed-income solutions that are integral to a well-diversified core portfolio.
Our clients have come to appreciate this diversity, as well as our continued
adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT NEEDS.
Managing more than $120 billion in assets, Nuveen Investments offers access to a
number of different asset classes and investing solutions through a variety of
products. Nuveen Investments markets its capabilities under four distinct
brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in
value-style equities; Rittenhouse, a leader in growth-style equities; and
Symphony, a leading institutional manager of market-neutral alternative
investment portfolios.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers, talk to
your financial advisor, or call us at (800) 257-8787. Please read the
information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should consider the
investment objective and policies, risk considerations, charges and expenses of
the Fund carefully before investing. The prospectus contains this and other
information relevant to an investment in the Fund. For a prospectus, please
contact your securities representative or Nuveen Investments, 333 W. Wacker Dr.,
Chicago, IL 60606. Please read the prospectus carefully before you invest or
send money.
o Share prices
o Fund details
Learn more o Daily financial news
about Nuveen Funds at o Investor education
WWW.NUVEEN.COM/ETF o Interactive planning tools
Logo: NUVEEN Investments
ESA-F-0605D
ITEM 2. CODE OF ETHICS.
Not applicable to this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board implemented after the registrant
last provided disclosure in response to this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")(17 CFR
240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable to
this filing.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons: Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Preferred and Convertible Income Fund 2
-----------------------------------------------------------
By (Signature and Title)* /s/ Jessica R. Droeger
----------------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: September 7, 2005
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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: September 7, 2005
-------------------------------------------------------------------
By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: September 7, 2005
-------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.