nvq
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number   811-21333  
Nuveen Preferred and Convertible Income Fund 2
(Exact name of registrant as specified in charter)
     333 West Wacker Drive, Chicago, Illinois 60606     
(Address of principal executive offices) (Zip code)
Jessica R. Droeger—Vice President and Secretary
     333 West Wacker Drive, Chicago, Illinois 60606     
(Name and address of agent for service)
Registrant’s telephone number, including area code:      312-917-7700     
Date of fiscal year end:        12/31      
Date of reporting period:    3/31/06   
Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (§§ 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
 
 

 

TABLE OF CONTENTS

Item 1. Schedule of Investments
Item 2. Controls and Procedures
Item 3. Exhibits
SIGNATURES
Certification

Table of Contents

Item 1. Schedule of Investments
     
 

Portfolio of Investments (Unaudited)

Nuveen Preferred and Convertible Income Fund 2 (JQC)
March 31, 2006
                               
Shares     Description (1)     Coupon     Ratings (2)   Value  
 
 
       
Convertible Preferred Securities - 10.0% (6.8% of Total Investments)
 
       
Automobiles - 0.5%
                      
 
  603,425    
General Motors Corporation
     6.250 %     B   $ 10,469,424  
 
 
       
Capital Markets - 0.2%
                      
 
  65,475    
Affiliated Managers Group
     5.100 %     BB     3,299,744  
 
 
       
Chemicals - 0.6%
                      
 
  227,585    
Celanese Corporation
     4.250 %     N/R     6,941,343  
  136,495    
Huntsman Corporation
     5.000 %     N/R     5,872,015  
 
       
Total Chemicals
                   12,813,358  
       
 
 
       
Commercial Banks - 2.1%
                      
 
  10,400,000    
Fortis Insurance NV, 144A
     7.750 %     A+     13,759,200  
  351,450    
Marshall and Ilsley Corporation
     6.500 %     A2     9,316,940  
  273,600    
National Australia Bank Limited
     7.875 %     N/R     12,052,080  
  150,000    
Washington Mutual, Inc., Unit 1 Trust
     5.375 %     Baa1     8,113,500  
 
       
Total Commercial Banks
                   43,241,720  
       
 
 
       
Construction Materials - 0.3%
                      
 
  86,900    
TXI Capital Trust I
     6.500 %     B2     5,218,345  
 
 
       
Consumer Finance - 0.7%
                      
 
  13,400,000    
SLM Corporation
     4.570 %     A     13,583,580  
 
 
       
Electric Utilities - 0.8%
                      
 
  90,550    
Entergy Corporation
     7.625 %     BBB     4,598,129  
  2,630,000    
PG&E Corporation
     9.500 %     N/R     7,446,188  
  76,430    
PNM Resources Inc.
     6.750 %     Baa3     3,710,677  
 
       
Total Electric Utilities
                   15,754,994  
       
 
 
       
Gas Utilities - 0.1%
                      
 
  37,500    
Southern Union Company
     5.000 %     BBB     1,861,875  
 
 
       
Insurance - 3.1%
                      
 
  100,500    
Aspen Insurance Holdings Limited
     5.625 %     BBB-     5,215,950  
  276,200    
Chubb Corporation
     7.000 %     A     9,390,800  
  503,775    
Genworth Financial Inc.
     6.000 %     A     18,468,391  
  85,000    
Hartford Financial Services Group, Inc.
     6.000 %     A-     6,047,750  
  188,920    
IPC Holdings Limited
     7.250 %     BBB-     5,242,530  
  570,475    
MetLife Inc., Convertible, Series B
     6.375 %     BBB+     15,305,844  
62,000
   Platinum Underwriters Holdings Limited, Series A     6.000 %     BB+     1,822,800  
67,875
   XL Capital Ltd     6.500 %     A2     1,505,468  
 
    Total Insurance                   62,999,533  
       
 
                           
    Media - 0.3%                      
                           
137,000
   Emmis Communications Corporation, Series A     6.250 %     CCC+     5,487,124  
   
                           
    Metals & Mining - 0.2%                      
                           
3,200
   Freeport-McMoRan Copper & Gold, Inc.     5.500 %     B-     4,110,800  
   
                           
    Oil, Gas & Consumable Fuels - 0.7%                      
                           
34,725
   Amerada Hess Corporation     7.000 %     BB     4,155,020  
48,335
   Chesapeake Energy Corporation, 144A     5.000 %     B     5,123,510  
51,000
   Chesapeake Energy Corporation     4.500 %     B+     4,891,410  
 
    Total Oil, Gas & Consumable Fuels                   14,169,940  
       
 
                           
    Thrifts & Mortgage Finance - 0.4%                      
                           
86,650
   New York Community Bancorp Inc Capital Trust V     6.000 %     Baa2     4,228,520  
140,000
   PMI Group Inc.     5.875 %     A1     3,703,000  
   
    Total Thrifts & Mortgage Finance                   7,931,520  
           
    Total Convertible Preferred Securities (cost $187,165,990)                   200,941,957  
       

 

Table of Contents

                               
Shares     Description (1)     Coupon     Ratings (2)   Value  
 
 
                            
 
     $25 Par (or similar) Securities - 50.4% (34.5% of Total Investments)                      
 
                            
 
     Automobiles - 0.0%                      
 
                            
3,000
     DaimlerChrysler AG (CORTS)     7.875 %     A3   $ 74,250  
2,200
     DaimlerChrysler Corp. (PPLUS)     7.250 %     A3     54,450  
 
 
     Total Automobiles                   128,700  
         
 
                            
 
     Capital Markets - 4.5%                      
 
                            
75,083
     Bear Stearns Capital Trust III     7.800 %     A2     1,905,607  
27,000
     BNY Capital Trust IV, Series E     6.875 %     A1     680,400  
268,611
     BNY Capital Trust V, Series F     5.950 %     A1     6,468,153  
218,500
     Compass Capital Trust III     7.350 %     A3     5,506,200  
31,600
     CSFB USA, Series 2002-10 (SATURNS)     7.000 %     Aa3     803,904  
22,600
     First Union Institutional Capital II (CORTS)     8.200 %     A1     621,500  
18,800
     First Union Institutional Capital II, Series III (CORTS)     7.500 %     A1     471,880  
5,300
     Goldman Sachs Capital I (CORTS)     6.000 %     A1     123,596  
4,400
     Goldman Sachs Capital I, Series A (CORTS)     6.000 %     A1     103,664  
4,800
     Goldman Sachs Group Inc., Series 2004-04 (SATURNS)     6.000 %     A1     111,120  
1,300
     Goldman Sachs Group Inc., Series 2004-06 (SATURNS)     6.000 %     A1     30,329  
11,800
     Goldman Sachs Group Inc., Series GSC-3 (PPLUS)     6.000 %     A1     272,816  
8,800
     Goldman Sachs Group Inc., (3)     6.200 %     A2     225,632  
198,350
     Lehman Brothers Holdings Inc., Series C, (3)     5.940 %     BBB+     10,125,768  
92,800
     Lehman Brothers Holdings Inc., Series D, (3)     5.670 %     A3     4,616,800  
422,800
     Lehman Brothers Holdings Inc., Series F, (3)     6.500 %     A-     10,840,592  
71,500
     Merrill Lynch Capital Trust II     8.000 %     A1     1,843,270  
267,200
     Merrill Lynch Preferred Capital Trust III     7.000 %     A1     6,776,192  
189,600
     Merrill Lynch Preferred Capital Trust IV     7.120 %     A1     4,887,888  
283,400
     Merrill Lynch Preferred Capital Trust V     7.280 %     A1     7,266,376  
48,400
     Merrill Lynch Preferred Capital Trust     7.750 %     A1     1,228,876  
118,480
     Morgan Stanley (PPLUS)     7.050 %     Aa3     2,959,630  
211,850
     Morgan Stanley Capital Trust II     7.250 %     A1     5,376,753  
185,370
     Morgan Stanley Capital Trust III     6.250 %     A1     4,515,613  
138,400
     Morgan Stanley Capital Trust IV     6.250 %     A1     3,357,584  
14,100
     Morgan Stanley Capital Trust V     5.750 %     A+     320,916  
327,800
     Morgan Stanley Capital Trust VI     6.600 %     A1     8,293,340  
13,400
     UBS Preferred Funding Trust III     7.250 %     AA-     337,144  
 
 
     Total Capital Markets                   90,071,543  
         
 
                            
 
     Commercial Banks - 10.9%                      
 
                            
36,200
     Abbey National PLC, Series B     7.375 %     A     952,784  
40,000
     Abbey National PLC, Series B     7.250 %     A1     1,012,000  
303,200
     Abbey National PLC, Series C     7.375 %     A2     7,764,952  
755,800
     ABN AMRO Capital Fund Trust V     5.900 %     A     17,579,908  
79,579
     ABN AMRO Capital Fund Trust VI     6.250 %     A     1,964,806  
17,021
     ABN AMRO Capital Trust Fund VII     6.080 %     A     407,653  
115,200
     ASBC Capital I     7.625 %     Baa1     2,921,472  
203,410
     BAC Capital Trust I     7.000 %     Aa3     5,123,898  
560,200
     BAC Capital Trust II     7.000 %     Aa3     14,251,488  
163,900
     BAC Capital Trust III     7.000 %     Aa3     4,186,006  
1,010,000
     Banco Santander     6.410 %     A2     25,553,000  
71,750
     Banco Totta & Acores Finance, Series A     8.875 %     A3     1,831,871  
6,200
     BancorpSouth Capital Trust I     8.150 %     Baa2     157,046  
28,800
     Banesto Holdings, Series A, 144A     10.500 %     A2     886,501  
167,700
     Bank One Capital Trust VI     7.200 %     A1     4,279,704  
53,200
     BankNorth Capital Trust II     8.000 %     A3     1,357,132  
9,900,000
     BOI Capital Funding 3, 144A     6.107 %     A2     9,566,202  
145,700
     Chittenden Capital Trust I     8.000 %     Baa1     3,700,780  
146,500
     Cobank ABC, 144A, (3)     7.000 %     N/R     7,109,059  
118,600
     Comerica Capital Trust I     7.600 %     A3     2,974,488  
512,200
     Fleet Capital Trust VII     1.800 %     Aa3     12,871,586  
430,300
     Fleet Capital Trust VIII     7.200 %     Aa3     10,877,984  
62,400
     HSBC Finance Corporation     6.875 %     Aa3     1,588,080  
37,900
     KeyCorp (PCARS)     7.500 %     A3     974,030  
90,467
     KeyCorp Capital Trust V     5.875 %     A3     2,127,784  
92,600
     National Commerce Capital Trust II     7.700 %     A1     2,351,114  
21,700
     ONB Capital Trust II     8.000 %     Baa2     559,860  
27,200
     PNC Capital Trust     6.125 %     A3     653,072  
200,749
     Royal Bank of Scotland Group PLC, Series L     5.750 %     A1     4,689,497  
124,740
     Royal Bank of Scotland Group PLC, Series N     6.350 %     A1     3,140,953  
160,600
     SunTrust Capital Trust IV     7.125 %     A1     4,043,908  
110,300
     SunTrust Capital Trust V     7.050 %     A1     2,782,869  
664,800
     USB Capital Trust III     7.750 %     Aa3     16,872,624  
356,700
     USB Capital Trust IV     7.350 %     Aa3     9,074,448  
301,200
     USB Capital Trust V     7.250 %     Aa3     7,599,276  
31,800
     USB Capital Trust VI     5.750 %     Aa3     722,178  
39,600
     USB Capital Trust VII     5.875 %     Aa3     912,384  
39,100
     VNB Capital Trust I     7.750 %     Baa1     990,794  
11,000
     Well Fargo Capital Trust IX     5.625 %     Aa2     248,380  
40,000
     Wells Fargo Capital Trust IV     7.000 %     Aa2     1,008,800  
483,400
     Wells Fargo Capital Trust V     7.000 %     Aa2     12,196,182  
115,100
     Wells Fargo Capital Trust VI     6.950 %     Aa2     2,887,859  
129,309
     Wells Fargo Capital Trust VII     5.850 %     Aa2     3,068,503  
117,800
     Zions Capital Trust B     8.000 %     Baa1     3,075,758  
 
      Total Commercial Banks                   218,898,673  
         
                             
      Computers & Peripherals - 0.1%                      
                             
28,700
     IBM Inc., Series 2001-1 (SATURNS)     7.125 %     A+     734,433  
14,000
     IBM Trust II (CORTS)     7.125 %     A+     348,040  
7,400
     IBM Trust III (CORTS)     7.200 %     A+     189,625  
24,800
     IBM Trust IV (CORTS)     7.000 %     A+     640,336  
 
      Total Computers & Peripherals                   1,912,434  
         

 

Table of Contents

                             
 
   Consumer Finance - 0.6%                        
 
                            
99,400
   Household Capital Trust VII     7.500 %     A1       2,526,748  
174,000
   SLM Corporation, Series A, (3)     6.970 %     BBB+       9,570,000  
14,200
   SLM Corporation     6.000 %     A       339,380  
 
 
   Total Consumer Finance                     12,436,128  
     
 
                            
 
   Diversified Financial Services - 5.1%                        
 
                            
13,800
   BBVA Preferred Capital Ltd., Series B     7.750 %     A1       346,518  
236,500
   CIT Group Inc., Series A, (3)     6.350 %     BBB+       5,983,450  
27,700
   CIT Group Incorporated (CORTS)     7.750 %     A3       724,909  
108,280
   Citigroup Capital Trust IX     6.000 %     Aa2       2,581,395  
197,400
   Citigroup Capital Trust VII     7.125 %     Aa2       4,990,272  
1,138,322
   Citigroup Capital Trust VIII     6.950 %     Aa2       28,628,798  
16,400
   Citigroup Inc., Series H, (3)     6.231 %     Aa3       827,790  
3,200
   Citigroup, Series CIT (CORTS)     6.750 %     A3       80,384  
1,400
   General Electric Capital Corporation (CORTS)     6.000 %     AAA       33,992  
40,500
   General Electric Capital Corporation     6.625 %     AAA       1,023,030  
592,320
   ING Group N.V.     7.200 %     A       15,193,008  
755,475
   ING Group N.V.     7.050 %     A       19,189,065  
43,200
   JPM Capital Trust (CORTS)     7.200 %     A2       1,093,392  
71,965
   JPMorgan Chase & Company (PCARS)     7.125 %     A2       1,819,275  
712,420
   JPMorgan Chase Capital Trust X     7.000 %     A1       18,059,847  
32,200
   JPMorgan Chase Capital Trust XVI     6.350 %     A1       805,000  
73,600
   JPMorgan Chase Trust, Series 2002-6, Class A (SATURNS)     7.125 %     A1       1,868,704  
 
 
   Total Diversified Financial Services                     103,248,829  
     
 
                            
 
   Diversified Telecommunication Services - 0.6%                        
 
                            
68,900
   AT&T Inc.     7.000 %     A       1,731,457  
37,900
   BellSouth Capital Funding (CORTS)     7.100 %     A       956,975  
29,900
   BellSouth Corporation (CORTS)     7.000 %     Aa3       761,254  
50,600
   BellSouth Corporation, Series 2001-3 (SATURNS)     7.125 %     A       1,282,710  
32,600
   BellSouth Inc. (CORTS)     7.000 %     A       826,084  
71,100
   BellSouth Telecommunications (PPLUS)     7.300 %     A       1,818,738  
60,600
   Deutsche Telekom International Finance B.V., Series 2001-24, Class A-1 (CORTS)     7.875 %     A-       1,550,754  
27,300
   Verizon Communications (CORTS)     7.625 %     A       701,610  
48,100
   Verizon Communications (CORTS)     7.375 %     A       1,231,841  
50,700
   Verizon New England Inc., Series B     7.000 %     A3       1,292,850  
30,400
   Verizon South Inc., Series F     7.000 %     A       767,296  
 
 
   Total Diversified Telecommunication Services                     12,921,569  
     
 
                            
 
   Electric Utilities - 0.6%                        
 
                            
16,300
   Consolidated Edison Company of New York Inc.     7.500 %     A1       409,456  
6,000
   Consolidated Edison, Inc.     7.250 %     A2       152,400  
21,100
   DTE Energy Trust I     7.800 %     Baa3       537,417  
28,900
   Entergy Louisiana LLC     7.600 %     A-       730,592  
8,300
   Entergy Mississippi Inc.     7.250 %     A-       213,310  
3,000
   Georgia Power Capital Trust V     7.125 %     A3       75,870  
6,416
   Georgia Power Company     5.700 %     AAA       154,690  
130,000
   Interstate Power and Light Company, (3)     7.100 %     BBB-       3,518,450  
11,700
   Mississippi Power Capital Trust II     7.200 %     A2       293,670  
4,500
   National Rural Utilities Cooperative Finance Corporation     7.600 %     A3       113,220  
5,200
   National Rural Utilities Cooperative Finance Corporation     7.400 %     A3       132,288  
1,500
   National Rural Utilities Cooperative Finance Corporation     6.100 %     A3       36,000  
1,900
   National Rural Utilities Cooperative Finance Corporation     5.950 %     A3       44,726  
33,600
   Northern States Power Company     8.000 %     A3       861,840  
15,400
   Southern Company Capital Trust I (CORTS)     8.190 %     BBB+       409,794  
34,300
   Southern Company Capital Trust I (CORTS)     7.375 %     BBB+       867,104  
13,100
   Southern Company Capital Trust VI     7.125 %     BBB+       331,037  
122,500
   Virginia Power Capital Trust     7.375 %     Baa2       3,138,450  
 
 
   Total Electric Utilities                     12,020,314  
     

 

Table of Contents

                             
 
                            
 
   Food Products - 0.4%                        
 
                            
75,000
   Dairy Farmers of America Inc., 144A, (3)     7.875 %     BBB-       7,408,598  
 
 
                            
 
   Gas Utilities - 0.1%                        
 
                            
75,300
   AGL Capital Trust II     8.000 %     BBB       1,909,608  
 
 
                            
 
   Health Care Providers & Services - 0.7%                        
 
                            
587,500
   Aetna Inc.     8.500 %     A3       14,875,500  
 
 
                            
 
   Industrial Conglomerates - 0.0%                        
 
                            
5,000
   General Electric Company, Series GE (CORTS)     6.800 %     AAA       126,950  
 
 
                            
 
   Insurance - 11.8%                        
 
                            
1,127,233
   Ace Ltd., Series C     7.800 %     Baa2       29,533,505  
1,398,400
   Aegon N.V.     6.375 %     A-       34,820,160  
6,500
   Allstate Corporation (PCARS)     7.150 %     A2       164,125  
1,500
   AMBAC Financial Group Inc.     7.000 %     AA       37,605  
36,800
   AMBAC Financial Group Inc.     5.950 %     AA       868,112  
324,173
   Arch Capital Group Limited     8.000 %     Baa3       8,337,341  
676,401
   Delphi Financial Group, Inc.     8.000 %     BBB       17,627,010  
198,456
   EverestRe Capital Trust II     6.200 %     Baa1       4,475,183  
97,100
   EverestRe Group Limited     7.850 %     Baa1       2,492,557  
13,300
   Financial Security Assurance Holdings     6.875 %     AA       334,229  
339,100
   Hartford Capital Trust III, Series C     7.450 %     Baa1       8,521,583  
45,700
   Hartford Life Capital Trust II, Series B     7.625 %     Baa1       1,159,409  
56,500
   Lincoln National Capital Trust V, Series E     7.650 %     A-       1,423,800  
1,404,200
   Lincoln National Capital Trust VI     6.750 %     A-       35,793,058  
827,600
   MetLife Inc., Series B, (3)     6.500 %     Baa1       21,170,008  
903,702
   PartnerRe Limited, Series C     6.750 %     BBB+       22,601,587  
82,700
   PartnerRe Limited     7.900 %     A3       2,083,213  
80,400
   PLC Capital Trust III     7.500 %     BBB+       2,038,140  
69,800
   PLC Capital Trust IV     7.250 %     BBB+       1,763,148  
23,900
   PLC Capital Trust V     6.125 %     BBB+       570,015  
38,800
   Prudential PLC     6.750 %     A       971,940  
124,700
   RenaissanceRe Holdings Limited, Series B     7.300 %     BBB       3,152,416  
3,400
   RenaissanceRe Holdings Limited, Series C     6.080 %     BBB+       73,100  
115,800
   RenaissanceRe Holdings Ltd., Series A     8.100 %     BBB+       2,944,794  
23,400
   Safeco Capital Trust I (CORTS)     8.750 %     Baa2       681,759  
30,200
   Safeco Capital Trust I (CORTS)     8.700 %     Baa2       826,574  
47,300
   Safeco Capital Trust III (CORTS)     8.072 %     Baa2       1,232,165  
17,200
   Safeco Capital Trust IV (CORTS)     8.375 %     Baa2       448,662  
40,000
   Safeco Corporation, Series 2001-7 (SATURNS)     8.250 %     Baa2       1,035,800  
38,800
   Safeco Corporation, Series 2002-5 (SATURNS)     8.250 %     Baa2       1,010,352  
43,200
   Saint Paul Capital Trust I     7.600 %     Baa1       1,101,168  
61,600
   Torchmark Capital Trust I     7.750 %     A-       1,570,800  
121,900
   W.R. Berkley Capital Trust, Series 2002-1 (CBTCS)     8.125 %     BBB-       1,250,694  
709,600
   W.R. Berkley Corporation     6.750 %     BBB-       18,023,840  
68,800
   XL Capital Ltd, Series A     8.000 %     Baa1       1,770,224  
215,640
   XL Capital Ltd, Series B     7.625 %     Baa1       5,531,166  
 
 
   Total Insurance                     237,439,242  
     
 
                            
 
   IT Services - 0.0%                        
 
                            
2,500
   Vertex Industries Inc. (PPLUS)     7.625 %     A       64,375  
 
 
                            
 
   Media - 0.1%                        
 
                            
52,700
   CBS Corporation     0.000 %     BBB+       1,322,770  
2,500
   Walt Disney Company (CORTS)     6.875 %     A-       63,275  
6,300
   Walt Disney Company     7.000 %     A-       160,020  
 
 
   Total Media                     1,546,065  
     
 
                            

 

Table of Contents

                             
Shares   Description (1)   Coupon     Ratings (2)     Value  
 
 
                            
 
   Multiline Retail - 0.0%                        
 
                            
4,000
   Nordstrom Inc. (CORTS)     7.625 %     A       100,400  
 
 
                            
 
   Multi-Utilities - 0.2%                        
 
                            
52,400
   Dominion CNG Capital Trust I     7.800 %     Baa2       1,334,104  
30,700
   Dominion Resources Capital Trust II     8.400 %     Baa3       778,552  
88,100
   Energy East Capital Trust I     8.250 %     BBB-       2,243,907  
 
 
   Total Multi-Utilities                     4,356,563  
     
 
                            
 
   Oil, Gas & Consumable Fuels - 0.9%                        
 
                            
677,900
   Nexen Inc.     7.350 %     Baa3       17,930,455  
 
 
                            
 
   Pharmaceuticals - 0.1%                        
 
                            
50,000
   Bristol Myers Squibb Company (CORTS)     6.250 %     A+       1,253,500  
 
 
                            
 
   Real Estate Investment Trust - 11.5%                        
 
                            
243,757
   AMB Property Corporation, Series O     7.000 %     Baa2       6,374,246  
77,100
   AvalonBay Communities, Inc., Series H     8.700 %     BBB       2,097,120  
220,400
   BRE Properties, Series B     8.080 %     BBB-       5,606,976  
111,466
   BRE Properties, Series D     6.750 %     BBB-       2,716,426  
480,908
   CarrAmerica Realty Corporation, Series E     7.500 %     BBB-       12,109,263  
104,300
   Developers Diversified Realty Corporation, Series G     8.000 %     BBB-       2,677,381  
1,264,845
   Developers Diversified Realty Corporation, Series H     7.375 %     BBB-       31,734,961  
125,600
   Duke Realty Corporation, Series L     6.600 %     BBB       3,114,880  
25,000
   Duke-Weeks Realty Corporation, Series B     7.990 %     BBB       1,231,250  
82,800
   Duke-Weeks Realty Corporation     6.950 %     BBB       2,136,240  
98,000
   Duke-Weeks Realty Corporation     6.625 %     BBB       2,421,580  
193,200
   Equity Office Properties Trust, Series G     7.750 %     BBB-       4,915,008  
3,200
   Equity Residential Properties Trust, Series C     9.125 %     BBB       81,440  
15,400
   Equity Residential Properties Trust, Series D     8.600 %     BBB       403,480  
348,622
   Equity Residential Properties Trust, Series N     6.480 %     BBB       8,541,239  
140,000
   Federal Realty Investment Trust     8.500 %     BBB-       3,610,600  
10,400
   First Industrial Realty Trust, Inc., Series C     8.625 %     BBB-       271,960  
460,600
   HRPT Properties Trust, Series B     8.750 %     BBB-       12,099,962  
532,700
   HRPT Properties Trust, Series C     7.125 %     BBB-       13,557,215  
99,800
   New Plan Excel Realty Trust, Series E     7.625 %     BBB-       2,524,940  
3,997
   Prologis Trust, Series C     8.540 %     BBB       221,209  
96,275
   Prologis Trust, Series G     6.750 %     BBB       2,406,875  
2,000
   PS Business Parks, Inc., Series F     8.750 %     BBB-       50,720  
700
   PS Business Parks, Inc., Series K     7.950 %     BBB-       18,270  
243,000
   PS Business Parks, Inc., Series L     7.600 %     BBB-       6,123,600  
299,600
   PS Business Parks, Inc.     7.000 %     BBB-       7,400,120  
149,000
   Public Storage, Inc., Series E     6.750 %     BBB+       3,701,160  
18,400
   Public Storage, Inc., Series F     6.450 %     BBB+       429,088  
195,600
   Public Storage, Inc., Series H     6.950 %     BBB+       4,968,240  
158,950
   Public Storage, Inc., Series R     8.000 %     BBB+       4,010,309  
55,860
   Public Storage, Inc., Series S     7.875 %     BBB+       1,408,231  
45,000
   Public Storage, Inc., Series T     7.625 %     BBB+       1,132,650  
174,000
   Public Storage, Inc., Series U     7.625 %     BBB+       4,409,160  
31,500
   Public Storage, Inc., Series V     7.500 %     BBB+       798,525  
166,100
   Regency Centers Corporation     7.450 %     BBB-       4,261,296  
20,500
   Simon Property Group, Inc., Series F     8.750 %     Baa2       519,060  
20,650
   Simon Property Group, Inc., Series G     7.890 %     BBB       1,070,083  
2,600
   United Dominion Realty Trust     8.600 %     BBB-       67,028  
30,000
   Vornado Realty Trust, Series E     7.000 %     BBB-       754,500  
1,200
   Vornado Realty Trust, Series F     6.750 %     BBB-       29,760  
165,000
   Vornado Realty Trust, Series G     6.625 %     BBB-       3,968,250  
183,000
   Vornado Realty Trust, Series H     6.750 %     BBB-       4,536,570  
76,776
   Vornado Realty Trust, Series I     6.625 %     BBB-       1,831,108  

 

Table of Contents

                             
1,987,734
   Wachovia Preferred Funding Corporation     7.250 %     A2       54,245,261  
130,300
   Weingarten Realty Trust, Series E     6.950 %     A-       3,309,620  
 
 
   Total Real Estate Investment Trust                     229,896,860  
     
 
                            
 
   Specialty Retail - 0.0%                        
 
                            
28,200
   Sherwin Williams Company, Series III (CORTS)     7.250 %     A+       706,128  
 
 
                            
 
   Thrifts & Mortgage Finance - 1.1%                        
 
                            
81,500
   Countrywide Capital Trust II, Series II (CORTS)     8.000 %     BBB+       2,102,700  
70,800
   Countrywide Capital Trust III (PPLUS)     8.050 %     BBB+       1,874,076  
733,343
   Countrywide Capital Trust IV     6.750 %     BBB+       18,406,909  
6,600
   Countrywide Financial Corporation Capital Trust I (CORTS)     8.000 %     BBB+       170,676  
 
 
   Total Thrifts & Mortgage Finance                     22,554,361  
     
 
                            
 
   U.S. Agency - 0.4%                        
 
                            
30,000
   Fannie Mae, (3)     5.810 %     AA-       1,470,000  
6,700
   Fannie Mae, (3)     4.750 %     AA-       273,695  
59,100
   Federal Home Loan Mortgage Corporation, (3)     6.000 %     AA-       2,998,143  
23,000
   Federal Home Loan Mortgage Corporation, (3)     5.300 %     AA-       1,060,875  
48,300
   Federal Home Loan Mortgage Corporation, (3)     5.100 %     AA-       2,115,540  
 
 
   Total U.S. Agency                     7,918,253  
     
 
                            
 
   Wireless Telecommunication Services - 0.7%                        
 
                            
60,100
   AT&T Wireless (CORTS)     8.000 %     A       1,530,146  
28,000
   AT&T Wireless, Series 2002-B (SATURNS)     9.250 %     A       732,200  
47,685
   Telephone and Data Systems Inc.     7.600 %     A-       1,192,125  
50,600
   United States Cellular Corporation     8.750 %     A-       1,343,430  
344,100
   United States Cellular Corporation     7.500 %     A-       8,729,817  
 
 
   Total Wireless Telecommunication Services                     13,527,718  
     
 
   Total $25 Par (or similar) Securities (cost $1,030,336,555)                     1,013,252,766  
     
                                     
Principal                            
Amount (000)   Description (1)   Coupon     Maturity     Ratings (2)     Value  
 
 
                                    
    Convertible Bonds - 36.7% (25.0% of Total Investments)                        
 
                                    
 
   Aerospace & Defense - 1.8%                                
 
                                    
$   6,275
   AAR Corporation, 144A     1.750 %     2/01/26       BB-     $ 7,169,188  
7,250
   Armor Holdings Inc.     2.000 %     11/01/24       B+       8,826,875  
9,450
   L-3 Communications Corporation, Series 144A     3.000 %     8/01/35       BB+       9,757,125  
8,815
   Lockheed Martin Corporation     4.491 %     8/15/33       BBB+       10,243,911  
 
31,790
   Total Aerospace & Defense                             35,997,099  
 
 
                                    
 
   Auto Components - 0.5%                                
 
                                    
9,305
   ArvinMeritor Inc., 144A     4.625 %     3/01/26       BB       9,351,525  
 
 
                                    
 
   Automobiles - 0.1%                                
 
                                    
1,025
   Fleetwood Enterprises Inc., 144A     5.000 %     12/15/23       B2       1,178,750  
 
 
                                    
 
   Biotechnology - 2.8%                                
 
                                    
16,650
   Amgen Inc., 144A     0.125 %     2/01/11       A+       16,858,125  
5,000
   Cephalon, Inc.     0.000 %     6/15/33       B-       5,806,250  
3,400
   CV Therapeutics Inc.     2.750 %     5/16/12       N/R       4,692,000  
4,500
   CV Therapeutics Inc.     3.250 %     8/16/13       N/R       4,798,125  
10,700
   Genzyme Corporation     1.250 %     12/01/23       BBB       11,676,375  
8,000
   Invitrogen Corporation     2.000 %     8/01/23       N/R       9,070,000  
3,670
   Medimmune Inc.     1.000 %     7/15/23       BBB       3,633,300  
 
51,920
   Total Biotechnology                             56,534,175  
 
 
                                    
 
   Capital Markets - 0.3%                                
 
                                    
3,665
   BlackRock Inc.     2.625 %     2/15/35       A+       5,199,719  
 
 
                                    
 
   Communications Equipment - 2.2%                                
 
                                    
3,570
   ADC Telecommunications Inc.     1.000 %     6/15/08       N/R       3,873,450  
4,785
   ADC Telecommunications Inc.     5.045 %     6/15/13       N/R       5,305,369  

 

Table of Contents

                                         
  9,200    
Ciena Corporation
     3.750 %     2/01/08       B       8,740,000  
  6,500    
CommScope Inc.
     1.000 %     3/15/24       B+       8,921,250  
  5,595    
Lucent Technologies Inc.
     2.750 %     6/15/23       B1       5,965,669  
  3,905    
Nortel Networks Corp.
     4.250 %     9/01/08       B-       3,704,869  
  1,700    
Powerwave Technologies Inc.
     1.875 %     11/15/24       N/R       2,280,125  
  4,475    
Powerwave Technologies Inc.
     1.825 %     11/15/24       N/R       6,002,094  
 
  39,730    
Total Communications Equipment
                             44,792,826  
 
       
 
                                
        Construction & Engineering - 0.2%        
       
 
                                
  3,500    
Quanta Services Incorporated
     4.000 %     7/01/07       B       3,399,375  
 
       
 
                                
        Containers & Packaging - 0.5%        
       
 
                                
  9,825    
Sealed Air Corporation, 144A
     3.000 %     6/30/33       BBB       9,677,625  
 
       
 
                                
        Diversified Financial Services - 0.6%        
       
 
                                
  10,325    
CapitalSource Inc.
     3.500 %     7/15/34       BBB-       10,466,969  
  2,650    
JMH Finance Limited
     4.750 %     9/06/07       N/R       2,673,198  
 
  12,975    
Total Diversified Financial Services
                             13,140,167  
 
       
 
                                
       
Diversified Telecommunication Services - 0.4%
                                
       
 
                                
  3,325    
CenturyTel Inc.
     4.750 %     8/01/32       BBB+       3,528,656  
  3,075    
Time Warner Telecom Inc.
     2.375 %     4/01/26       CCC+       3,540,094  
 
  6,400    
Total Diversified Telecommunication Services
                             7,068,750  
 
       
 
                                
        Electronic Equipment & Instruments - 1.3%        
       
 
                                
  5,925    
Coherent Inc., 144A
     2.750 %     3/01/11       N/R       6,665,625  
  7,875    
Flextronics International Limited
     1.000 %     8/01/10       Ba2       7,146,563  
  17,940    
Roper Industries Inc.
     1.481 %     1/15/34       BB-       11,459,175  
  1,035    
Vishay Intertechnology Inc.
     3.625 %     8/01/23       B+       1,038,881  
 
  32,775    
Total Electronic Equipment & Instruments
                             26,310,244  
 
       
 
                                
        Energy Equipment & Services - 1.4%        
       
 
                                
  1,115    
Cal Dive International Inc.
     3.250 %     12/15/25       N/R       1,591,663  
  4,200    
Diamond Offshore Drilling, Inc.
     1.500 %     4/15/31       A-       7,738,500  
  4,375    
Hanover Compressor Company
     4.750 %     1/15/14       B       6,026,563  
  4,350    
Nabors Industries Inc.
     0.000 %     6/15/23       N/R       4,986,188  
  2,445    
Oil States International Inc., Series 144A
     2.375 %     7/01/25       N/R       3,331,313  
  3,325    
Schlumberger Limited
     2.125 %     6/01/23       A+       5,444,688  
 
  19,810    
Total Energy Equipment & Services
                             29,118,915  
 
       
 
                                
       
Gas Utilities - 0.1%
                                
       
 
                                
  30    
Southern Union Company, Series B
     5.750 %     8/16/06       Baa3       2,225,070  
 
       
 
                                
        Health Care Equipment & Supplies - 1.6%        
       
 
                                
  10,825    
Fisher Scientific International Inc.
     3.250 %     3/01/24       BB+       11,677,469  
  7,650    
Lincare Holdings Inc.
     3.000 %     6/15/33       N/R       7,391,813  
  14,025    
Medtronic, Inc.
     1.250 %     9/15/21       AA-       13,972,406  
 
  32,500    
Total Health Care Equipment & Supplies
                             33,041,688  
 
       
 
                                
        Health Care Providers & Services - 1.5%        
       
 
                                
  5,745    
Advanced Medical Optics
     2.500 %     7/15/24       B       6,254,869  
  9,200    
Laboratory Corporation of America Holdings
     0.000 %     9/11/21       BBB-       7,417,500  
  9,400    
Omnicare, Inc.
     3.250 %     12/15/35       BB+       9,059,250  
  8,510    
Roche Holdings Inc., 144A
     0.000 %     7/25/21       N/R       6,865,868  
 
  32,855    
Total Health Care Providers & Services
                             29,597,487  
 
       
 
                                
        Hotels, Restaurants & Leisure - 2.6%        
       
 
                                
  7,875    
Caesars Entertainment Inc.
     4.550 %     4/15/24       BBB-       10,615,500  
  18,365    
Carnival Corporation
     1.132 %     4/29/33       A-       12,947,325  
  8,535    
Hilton Hotels Corporation
     3.375 %     4/15/23       BB       10,402,031  
  3,895    
Kerzner International Limited, 144A
     2.375 %     4/15/24       B       5,253,381  
  6,000    
Scientific Games Corporation
     0.750 %     12/01/24       B+       7,695,000  
  3,875    
Starwood Hotels & Resorts Worldwide, Inc.
     3.500 %     5/16/23       BB+       5,279,688  
 
  48,545    
Total Hotels, Restaurants & Leisure
                             52,192,925  
 

 

Table of Contents

                                         
       
 
                                
        Industrial Conglomerates - 0.6%        
       
 
                                
  14,250    
3M Company
     0.000 %     11/21/32       Aa1       12,611,250  
 
       
 
                                
       
Insurance - 0.6%
                                
       
 
                                
  10,315    
American Equity Investment Life Holding Company
     5.250 %     12/06/24       BB+       12,932,431  
 
       
 
                                
        Internet Software & Services - 0.5%        
       
 
                                
  7,885    
Open Solutions Inc., 144A
     1.467 %     2/02/35       N/R       4,691,575  
  7,800    
Open Solutions Inc.
     1.467 %     2/02/35       N/R       4,641,000  
 
  15,685    
Total Internet Software & Services
                             9,332,575  
 
       
 
                                
       
IT Services - 0.2%
                                
       
 
                                
  2,900    
Digital River Inc.
     1.250 %     1/01/24       N/R       3,371,250  
 
       
 
                                
        Leisure Equipment & Products - 0.1%        
       
 
                                
  1,165    
K2 Corporation, Convertible Notes, 144A
     5.000 %     6/15/10       N/R       1,288,781  
 
       
 
                                
       
Media - 4.7%
                                
       
 
                                
  275    
Comcast Corporation
     2.000 %     10/15/29       BBB       11,351,027  
  3,455    
Lamar Advertising Company, Convertible Notes
     2.875 %     12/31/10       B       4,012,119  
  14,725    
Liberty Media Corporation, Senior Debentures Exchangeable for Motorola Common Stock
     3.500 %     1/15/31       BB+       14,945,875  
  26,800    
Liberty Media Corporation, Senior Debentures, Exchangeable for PCS Common Stock, Series 1
     4.000 %     11/15/29       BB+       16,482,000  
  11,700    
Liberty Media Corporation
     0.750 %     3/30/23       BB+       12,299,625  
  2,395    
Lions Gate Entertainment Corporation, 144A
     2.938 %     10/15/24       N/R       2,421,944  
  3,300    
Lions Gate Entertainment Corporation, 144A
     3.625 %     3/15/25       N/R       3,102,000  
  4,660    
Omnicom Group Inc.
     0.000 %     6/15/33       A-       4,630,875  
  3,335    
Shuffle Master Inc.
     1.250 %     4/15/24       N/R       4,485,575  
  4,140    
Sirius Satellite Radio Inc.
     3.250 %     10/15/11       CCC       4,895,550  
  8,950    
Walt Disney Company, Convertible Senior Notes
     2.125 %     4/15/23       A-       9,654,813  
  7,850    
XM Satellite Radio Holdings Inc.
     1.750 %     12/01/09       CCC-       6,613,625  
 
  91,585    
Total Media
                             94,895,028  
 
       
 
                                
       
Metals & Mining - 0.3%
                                
       
 
                                
  4,025    
Century Aluminum Company
     1.750 %     8/01/24       BB-       5,982,156  
 
       
 
                                
       
Multi-Utilities - 0.4%
                                
       
 
                                
  8,625    
Dominion Resources Inc., Series C
     2.125 %     12/15/23       BBB       8,808,281  
 
       
 
                                
        Oil, Gas & Consumable Fuels - 0.7%        
       
 
                                
  11,475    
Devon Energy Corporation
     4.900 %     8/15/08       BBB       13,368,375  
 
       
 
                                
       
Pharmaceuticals - 3.4%
                                
       
 
                                
  4,580    
Alexion Pharmaceuticals Inc., 144A
     1.375 %     2/01/12       N/R       5,776,525  
  4,150    
Alexion Pharmaceuticals Inc.
     1.375 %     2/01/12       N/R       5,234,188  
  13,055    
Allergan Inc., Convertible Zero Coupon Senior Notes
     0.000 %     11/06/22       A       16,220,838  
  4,965    
BioMarin Pharmaceutical Inc.
     2.500 %     3/29/13       N/R       5,213,250  
  5,825    
King Pharmaceuticals Inc.
     2.750 %     11/15/21       BB-       5,752,188  
  4,080    
Medicis Pharmaceutical Corporation
     2.500 %     6/04/32       N/R       4,814,400  
  4,925    
Medicis Pharmaceutical Corporation
     1.500 %     6/04/33       N/R       4,900,375  
  12,000    
Teva Pharmaceutical Finance Company B.V., Series D
     1.750 %     2/01/26       BBB       11,925,000  
  8,500    
Wyeth, 144A
     1.000 %     1/15/24       A       9,094,150  
 
  62,080    
Total Pharmaceuticals
                             68,930,914  
 
       
 
                                
        Real Estate Management & Development - 0.1%        
       
 
                                
  1,465    
Avatar Holdings Inc., 144A
     4.500 %     4/01/24       N/R       1,770,819  
 
       
 
                                
       
Road & Rail - 0.6%
                                
       
 
                                
  10,500    
CSX Corporation
     0.000 %     10/30/21       BBB       11,366,250  
  1,490    
Yellow Roadway Corporation
     3.375 %     11/25/23       BBB-       1,665,075  
 
  11,990    
Total Road & Rail
                             13,031,325  
 
       
 
                                
        Semiconductors & Equipment - 2.2%        
       
 
                                
  8,325    
Agere Systems Inc.
     6.500 %     12/15/09       B       8,241,750  
  5,160    
ASM International NV
     4.250 %     12/06/11       B-       5,721,150  
  3,720    
Conexant Systems Inc., 144A
     4.000 %     3/01/26       N/R       3,785,100  
  13,625    
Intel Corporation, 144A
     2.950 %     12/15/35       A-       11,751,563  

 

Table of Contents

                                         
  4,610    
LSI Logic Corporation
     4.000 %     5/15/10       Ba3       5,163,200  
  7,370    
RF Micro Devices, Inc.
     1.500 %     7/01/10       B-       9,148,013  
 
  42,810    
Total Semiconductors & Equipment
                             43,810,776  
 
       
 
                                
       
Software - 1.1%
                                
       
 
                                
  10,025    
Amdocs Limited
     0.500 %     3/15/24       BBB-       9,987,406  
  2,675    
Cadence Design Systems Inc.
     0.000 %     8/15/23       N/R       3,276,875  
  4,525    
Sybase, Inc., 144A
     1.750 %     2/22/25       N/R       4,553,281  
  4,880    
Sybase, Inc.
     1.750 %     2/22/25       N/R       4,910,500  
 
  22,105    
Total Software
                             22,728,062  
 
       
 
                                
       
Specialty Retail - 2.1%
                                
       
 
                                
  4,030    
Best Buy Co., Inc.
     2.250 %     1/15/22       BBB-       5,102,988  
  3,100    
Charming Shoppes Inc.
     4.750 %     6/01/12       BB-       4,855,375  
  6,130    
Dick’s Sporting Goods Inc.
     1.606 %     2/18/24       B       4,720,100  
  1,430    
Pier 1 Imports, Inc., 144A
     6.375 %     2/15/36       B-       1,546,188  
  5,135    
Sonic Automotive Inc., Convertible Senior Subordinated Notes
     5.250 %     5/07/09       B       5,077,231  
  11,975    
TJX Companies, Inc.
     0.000 %     2/13/21       A-       10,073,969  
  9,425    
United Auto Group Inc., Series 144A
     3.500 %     4/01/26       B       10,214,344  
 
  41,225    
Total Specialty Retail
                             41,590,195  
 
       
 
                                
        Trading Companies & Distributors - 0.2%        
       
 
                                
  3,860    
GATX Corporation
     7.500 %     2/01/07       BBB       4,911,850  
 
       
 
                                
        Wireless Telecommunication Services - 1.0%        
       
 
                                
  4,755    
American Tower Corporation
     3.000 %     8/15/12       BB-       7,518,844  
  9,000    
NII Holdings Inc., 144A
     2.750 %     8/15/25       N/R       12,003,750  
 
  13,755    
Total Wireless Telecommunication Services
                             19,522,594  
 
$  695,965    
Total Convertible Bonds (cost $686,137,203)
                             737,713,002  
 
                                         
Principal                              
Amount (000)     Description (1)   Coupon     Maturity     Ratings (2)     Value  
 
       
 
                                
        Corporate Bonds - 15.0% (10.2% of Total Investments)        
       
 
                                
       
Aerospace & Defense - 0.2%
                                
       
 
                                
$  3,500    
K&F Acquisition Inc.
     7.750 %     11/15/14       B-     $  3,561,250  
 
       
 
                                
       
Auto Components - 0.1%
                                
       
 
                                
  1,950    
Affinia Group Inc.
     9.000 %     11/30/14       CCC+       1,686,750  
  1,300    
Keystone Automotive Operations Inc.
     9.750 %     11/01/13       B-       1,144,000  
 
  3,250    
Total Auto Components
                             2,830,750  
 
       
 
                                
       
Building Products - 0.2%
                                
       
 
                                
  4,000    
Jacuzzi Brands, Inc.
     9.625 %     7/01/10       B       4,310,000  
 
       
 
                                
       
Chemicals - 0.8%
                                
       
 
                                
  1,800    
Ineos Group Holdings PLC, 144A
     8.500 %     2/15/16       B2       1,719,000  
  2,000    
Nell AF Sarl
     8.375 %     8/15/15       B2       1,995,000  
  6,500    
OM Group Inc.
     9.250 %     12/15/11       B-       6,760,000  
  3,500    
Resolution Performance Products LLC
     8.000 %     12/15/09       B+       3,622,500  
  3,000    
Rockwood Specialties Group Inc., Series WI
     7.500 %     11/15/14       B-       3,030,000  
 
  16,800    
Total Chemicals
                             17,126,500  
 
       
 
                                
       
Commercial Banks - 0.2%
                                
       
 
                                
  4,000    
HBOS PLC, Series 144A
     6.413 %     9/29/49       A1       3,819,800  
 
       
 
                                
       
Commercial Services & Supplies - 0.5%
                                
       
 
                                
  5,500    
DST Systems Inc.
     4.125 %     8/15/23       N/R       7,081,250  
  2,000    
National Mentor Inc.
     9.625 %     12/01/12       B-       2,270,000  
 
  7,500    
Total Commercial Services & Supplies
                             9,351,250  
 
       
 
                                
       
Containers & Packaging - 0.6%
                                
       
 
                                
  2,000    
Berry Plastics Corporation
     10.750 %     7/15/12       B-       2,210,000  
  3,450    
MDP Acquisitions PLC, Senior Notes
     9.625 %     10/01/12       B-       3,665,625  
  3,000    
Owens-Brockway Glass Containers, Guaranteed Senior Note
     8.250 %     5/15/13       B       3,150,000  

 

Table of Contents

                                         
       
 
                                
  3,000    
Owens-Illinois Inc.
     7.500 %     5/15/10       B       3,052,500  
 
  11,450    
Total Containers & Packaging
                             12,078,125  
 
       
 
                                
        Diversified Consumer Services - 0.1%        
       
 
                                
  2,000    
Service Corporation International
     7.700 %     4/15/09       BB       2,075,000  
 
       
 
                                
        Diversified Telecommunication Services - 0.1%        
       
 
                                
  2,000    
Intelsat Subsidiary Holding Company Limited
     8.500 %     1/15/13       B+       2,045,000  
  750    
Syniverse Technologies Inc., Series B
     7.750 %     8/15/13       B       754,688  
 
  2,750    
Total Diversified Telecommunication Services
                             2,799,688  
 
       
 
                                
       
Electric Utilities - 0.2%
                                
       
 
                                
  2,000    
Midwest Generation LLC
     8.750 %     5/01/34       B1       2,175,000  
  500    
Mirant North America LLC., 144A
     7.375 %     12/31/13       B1       512,500  
  1,000    
Sierra Pacific Resources, Series 144A
     6.750 %     8/15/17       B1       1,008,750  
 
  3,500    
Total Electric Utilities
                             3,696,250  
 
       
 
                                
        Energy Equipment & Services - 0.2%        
       
 
                                
  1,800    
Hanover Compressor Company
     7.500 %     4/15/13       B       1,809,000  
  2,500    
Pride International Inc.
     7.375 %     7/15/14       Ba2       2,637,500  
 
  4,300    
Total Energy Equipment & Services
                             4,446,500  
 
       
 
                                
        Food & Staples Retailing - 0.1%        
       
 
                                
  3,000    
Stater Brothers Holdings Inc.
     8.125 %     6/15/12       BB-       3,011,250  
 
       
 
                                
       
Food Products - 0.8%
                                
       
 
                                
  7,610    
Del Monte Corporation
     8.625 %     12/15/12       B       8,076,113  
  1,096    
Dole Foods Company
     8.625 %     5/01/09       B       1,106,960  
  7,000    
Dole Foods Company
     7.875 %     7/15/13       B       6,912,500  
 
  15,706    
Total Food Products
                             16,095,573  
 
       
 
                                
        Health Care Equipment & Supplies - 0.0%        
       
 
                                
  700    
Select Medical Corporation
     7.625 %     2/01/15       B-       635,250  
 
       
 
                                
        Health Care Providers & Services - 0.2%        
       
 
                                
  3,000    
US Oncology Inc.
     10.750 %     8/15/14       B-       3,292,500  
 
       
 
                                
        Hotels, Restaurants & Leisure - 1.8%        
       
 
                                
  5,190    
Aztar Corporation
     9.000 %     8/15/11       Ba3       5,509,185  
  2,345    
Boyd Gaming Corporation
     8.750 %     4/15/12       B+       2,515,013  
  4,075    
Boyd Gaming Corporation
     7.750 %     12/15/12       B+       4,288,938  
  3,172    
Dominos Inc.
     8.250 %     7/01/11       B       3,267,160  
  1,500    
Herbst Gaming Inc.
     7.000 %     11/15/14       B-       1,503,750  
  4,100    
Intrawest Corporation
     7.500 %     10/15/13       B+       4,176,875  
  2,000    
Landry’s Restaurants Inc., Series B
     7.500 %     12/15/14       B       1,940,000  
  2,000    
MGM Mirage, Inc.
     6.750 %     8/01/07       BB       2,027,500  
  1,000    
Park Place Entertainment
     9.375 %     2/15/07       BB+       1,033,750  
  1,000    
Park Place Entertainment
     7.875 %     3/15/10       BB+       1,067,500  
  2,000    
Pinnacle Entertainment Inc.
     8.250 %     3/15/12       B-       2,105,000  
  3,000    
Pinnacle Entertainment Inc.
     8.750 %     10/01/13       B-       3,247,500  
  4,000    
Universal City Development Partners
     11.750 %     4/01/10       B2       4,430,000  
 
  35,382    
Total Hotels, Restaurants & Leisure
                             37,112,171  
 
       
 
                                
       
Household Durables - 0.8%
                                
       
 
                                
  4,500    
K. Hovnanian Enterprises Inc., Senior Subordinated Notes
     8.875 %     4/01/12       Ba2       4,725,000  
  5,000    
KB Home
     8.625 %     12/15/08       Ba2       5,298,725  
  5,700    
Stanley Works Capital Trust I, 144A
     5.902 %     12/01/45       Baa1       5,283,940  
 
  15,200    
Total Household Durables
                             15,307,665  
 
       
 
                                
        Independent Power Producers & Energy Traders - 0.1%        
       
 
                                
  600    
NRG Energy Inc.
     7.250 %     2/01/14       B1       611,250  
  600    
NRG Energy Inc.
     7.375 %     2/01/16       B1       614,250  
 
  1,200    
Total Independent Power Producers & Energy Traders
                             1,225,500  
 
       
 
                                
       
Insurance - 0.4%
                                
       
 
                                
  2,500    
Fairfax Financial Holdings Ltd
     7.750 %     4/26/12       BB       2,212,500  
  4,300    
ILFC E-Capital Trust I, 144A
     5.900 %     12/21/65       A       4,177,446  
  2,050    
ILFC E-Capital Trust II, 144A
     6.250 %     12/21/65       A       1,968,156  
 
  8,850    
Total Insurance
                             8,358,102  
 
       
 
                                

 

Table of Contents

                                         
       
 
                                
       
IT Services - 0.4%
                                
       
 
                                
  1,950    
Global Cash Access LLC
     8.750 %     3/15/12       B-       2,103,563  
  4,750    
SunGard Data Systems Inc., Series 144A
     9.125 %     8/15/13       B-       5,046,875  
 
  6,700    
Total IT Services
                             7,150,438  
 
       
 
                                
       
Machinery - 0.4%
                                
       
 
                                
  1,800    
Greenbrier Companies, Inc.
     8.375 %     5/15/15       B+       1,894,500  
  3,000    
Terex Corporation, Senior Subordinated Notes
     10.375 %     4/01/11       B       3,180,000  
  3,000    
Terex Corporation, Senior Subordinated Notes
     9.250 %     7/15/11       B       3,206,250  
 
  7,800    
Total Machinery
                             8,280,750  
 
       
 
                                
       
Media - 3.5%
                                
       
 
                                
  6,900    
Allbritton Communications Company, Series B
     7.750 %     12/15/12       B-       6,969,000  
  2,000    
AMC Entertainment Inc.
     8.000 %     3/01/14       B3       1,795,000  
  4,200    
American Media Operations Inc., Series B
     10.250 %     5/01/09       Caa1       3,822,000  
  1,345    
American Media Operations Inc.
     8.875 %     1/15/11       Caa1       1,156,700  
  5,000    
Cablevision Systems Corporation, Series B
     8.125 %     8/15/09       B+       5,187,500  
  3,000    
Cablevision Systems Corporation
     7.250 %     7/15/08       B+       3,045,000  
  2,000    
Cablevision Systems Corporation
     8.125 %     7/15/09       B+       2,077,500  
  2,000    
Charter Communications Operating LLC, 144A
     8.000 %     4/30/12       B2       2,000,000  
  6,000    
Cinemark USA Inc.
     9.000 %     2/01/13       B-       6,405,000  
  1,000    
Dex Media West LLC
     8.500 %     8/15/10       B1       1,062,500  
  2,198    
Dex Media West LLC
     9.875 %     8/15/13       B       2,442,528  
  3,855    
Mail-Well I Corporation, Senior Unsecured Note, 144A
     9.625 %     3/15/12       B+       4,168,219  
  4,000    
Medianews Group Inc.
     6.375 %     4/01/14       B+       3,630,000  
  1,950    
Panamsat Corporation
     9.000 %     8/15/14       B+       2,062,125  
  7,000    
Primedia Inc., Senior Notes
     8.875 %     5/15/11       B       6,860,000  
  2,000    
R. H. Donnelley Finance Corp 1
     10.875 %     12/15/12       B       2,227,500  
  2,000    
Sun Media Corporation
     7.625 %     2/15/13       Ba3       2,070,000  
  6,200    
Vertis Inc.
     9.750 %     4/01/09       B3       6,386,000  
  5,500    
Young Broadcasting Inc., Senior Subordinated Note
     10.000 %     3/01/11       Caa2       5,101,250  
  2,000    
Young Broadcasting Inc.
     8.750 %     1/15/14       Caa2       1,720,000  
 
  70,148    
Total Media
                             70,187,822  
 
       
 
                                
       
Metals & Mining - 0.3%
                                
       
 
                                
  3,000    
Chaparral Steel Company
     10.000 %     7/15/13       B1       3,360,000  
  1,682    
United States Steel Corporation
     9.750 %     5/15/10       Ba1       1,824,970  
 
  4,682    
Total Metals & Mining
                             5,184,970  
 
       
 
                                
       
Multiline Retail - 0.2%
                                
       
 
                                
  3,600    
Bon-Ton Department Stores Inc., 144A
     10.250 %     3/15/14       B2       3,481,200  
 
       
 
                                
       
Multi-Utilities - 0.1%
                                
       
 
                                
  900    
Dynegy Holdings Inc., 144A (WI/DD, Settling 4/12/06)
     8.375 %     5/01/16       B2       900,000  
  500    
Northwestern Corporation
     5.875 %     11/01/14       BBB-       494,983  
 
  1,400    
Total Multi-Utilities
                             1,394,983  
 
       
 
                                
        Oil, Gas & Consumable Fuels - 0.7%        
       
 
                                
  600    
Chaparral Energy Inc., 144A
     8.500 %     12/01/15       B       627,000  
  4,345    
Chesapeake Energy Corporation
     7.750 %     1/15/15       BB       4,562,250  
  300    
Copano Energy LLC, 144A
     8.125 %     3/01/16       B       312,000  
  2,000    
Hilcorp Energy I LP/Hilcorp Finance Company, Series 144A
     7.750 %     11/01/15       B       2,005,000  
  2,000    
Premcor Refining Group Inc.
     7.500 %     6/15/15       BBB-       2,112,708  
  3,000    
SemGroup LP, 144A
     8.750 %     11/15/15       B1       3,075,000  
  1,500    
Whiting Petroleum Corporation
     7.000 %     2/01/14       B2       1,492,500  
 
  13,745    
Total Oil, Gas & Consumable Fuels
                             14,186,458  
 

 

Table of Contents

                                         
       
 
                                
       
Paper & Forest Products - 0.4%
                                
       
 
                                
  2,000    
Georgia Pacific Corporation, Debentures
     7.700 %     6/15/15       B       2,020,000  
  5,000    
Georgia Pacific Corporation, Notes
     8.125 %     5/15/11       B       5,225,000  
 
  7,000    
Total Paper & Forest Products
                             7,245,000  
 
       
 
                                
       
Personal Products - 0.1%
                                
       
 
                                
  1,600    
Prestige Brands Inc.
     9.250 %     4/15/12       B-       1,624,000  
 
       
 
                                
        Real Estate Investment Trust - 0.1%        
       
 
                                
  1,000    
Trustreet Properties, Inc.
     7.500 %     4/01/15       B+       1,007,500  
  500    
Ventas Realty LP, Series WI
     7.125 %     6/01/15       BB+       516,250  
 
  1,500    
Total Real Estate Investment Trust
                             1,523,750  
 
       
 
                                
        Semiconductors & Equipment - 0.1%        
       
 
                                
  2,400    
Avago Technologies Finance Pte. Ltd., 144A
     10.125 %     12/01/13       B       2,589,000  
 
       
 
                                
       
Specialty Retail - 0.8%
                                
       
 
                                
  6,000    
Asbury Automotive Group Inc.
     9.000 %     6/15/12       B       6,157,500  
  1,000    
GSC Holdings Corporation, 144A
     8.000 %     10/01/12       Ba3       997,500  
  1,000    
Quiksilver Inc.
     6.875 %     4/15/15       BB-       977,500  
  8,000    
Warnaco Inc., Senior Notes
     8.875 %     6/15/13       B+       8,540,000  
 
  16,000    
Total Specialty Retail
                             16,672,500  
 
       
 
                                
        Textiles Apparel & Luxury Goods - 0.2%        
       
 
                                
  4,000    
Jostens IH Corporation
     7.625 %     10/01/12       B-       3,970,000  
 
       
 
                                
        Trading Companies & Distributors - 0.1%        
       
 
                                
  2,000    
United Rentals North America Inc.
     6.500 %     2/15/12       B+       1,970,000  
 
       
 
                                
        Wireless Telecommunication Services - 0.2%        
       
 
                                
  4,000    
Nextel Communications, Inc., Series D
     7.375 %     8/01/15       A-       4,198,020  
 
$  292,663    
Total Corporate Bonds (cost $302,855,186)
                             300,792,015  
 
                                         
Principal                              
Amount (000)/                              
Shares     Description (1)   Coupon     Maturity     Ratings (2)     Value  
 
       
 
                                
        Capital Preferred Securities - 31.8% (21.7% of Total Investments)        
       
 
                                
       
Capital Markets - 5.4%
                                
       
 
                                
  6,273    
BT Capital Trust, Series B1
     7.900 %     1/15/27       A2     $  6,588,494  
  15,000    
BT Institutional Capital Trust A, 144A
     8.090 %     12/01/26       A2       15,826,080  
  2,000    
BT Institutional Capital Trust B, 144A
     7.750 %     12/01/26       A2       2,102,554  
  1,250    
C.A. Preferred Fund Trust II
     7.000 %     10/30/49       A1       1,258,615  
  32,750    
C.A. Preferred Funding Trust
     7.000 %     1/30/49       A1       32,996,018  
  3,000    
Compass Trust I, Series A
     8.230 %     1/15/27       A3       3,174,933  
  3,500    
First Union Capital Trust II, Series A
     7.950 %     11/15/29       A1       4,176,554  
  500    
First Union Institutional Capital II
     7.850 %     1/01/27       A1       526,915  
  2,000    
First Union Institutional Capital Securities I
     8.040 %     12/01/26       A1       2,105,276  
  15,500    
Mellon Capital Trust I, Series A
     7.720 %     12/01/26       A2       16,290,640  
  9,000    
State Street Institutional Capital Trust, 144A
     8.035 %     3/15/27       A1       9,523,458  
  12,419    
Washington Mutual Capital Trust I
     8.375 %     6/01/27       Baa1       13,240,144  
 
       
Total Capital Markets
                             107,809,681  
         
       
 
                                
       
Commercial Banks - 18.1%
                                
       
 
                                
  2,000    
AB Svensk Exportkredit, 144A
     6.375 %     10/27/49       AA-       2,022,404  
  8,000    
Abbey National Capital Trust I
     8.963 %     6/30/50       A2       10,414,080  
  43,100    
AgFirst Farm Credit Bank
     7.300 %     12/15/53       N/R       41,640,074  
  12,120    
Bank One Capital III
     8.750 %     9/01/30       A1       15,654,204  
  1,974    
BankAmerica Capital II, Series 2
     8.000 %     12/15/26       Aa3       2,080,904  
  2,600    
BankAmerica Institutional Capital Trust, Series B, 144A
     7.700 %     12/31/26       Aa3       2,732,475  
  5,000    
BankAmerica Institutional Trust, 144A
     8.070 %     12/31/26       Aa3       5,280,130  
  2,000    
BankBoston Capital Trust I, Series B
     8.250 %     12/15/26       Aa3       2,114,950  
  1,000    
BanPonce Trust I, Series A
     8.327 %     2/01/27       Baa1       1,056,353  
  4,000    
Barclays Bank PLC, 144A
     8.550 %     6/15/49       Aa3       4,505,284  
  500    
Barnett Capital I
     8.060 %     12/01/26       Aa3       527,167  

 

Table of Contents

                                         
  2,200    
DBS Capital Funding Corporation, 144A
     7.657 %     3/15/49       A1     2,379,542  
  4,315    
First Chicago NBD Institutional Capital Trust, Series B, 144A
     7.750 %     12/01/26       A1     4,526,465  
  5,000    
First Chicago NBD Institutional Capital, 144A
     7.950 %     12/01/26       A1     5,250,870  
  5,750    
First Empire Capital Trust I
     8.234 %     2/01/27     Baa1     6,083,149  
  11,550    
First Empire Capital Trust II
     8.277 %     6/01/27     Baa1     12,304,769  
  4,250    
First Midwest Bancorp Inc.
     6.950 %     12/01/33     Baa2     4,478,301  
  41,650    
HBOS Capital Funding LP, Notes
     6.850 %     3/23/49       A1     41,776,408  
  12,838    
HSBC Capital Funding LP, 144A
     9.547 %     12/31/49       A1     14,671,010  
  14,000    
HSBC Capital Funding LP, Debt
     10.176 %     6/30/50       A1     20,309,590  
  19,605    
KBC Bank Fund Trust III, 144A
     9.860 %     5/02/50       A2     22,180,313  
  4,000    
KeyCorp Capital III
     7.750 %     7/15/29       A3     4,660,864  
  15,000    
KeyCorp Institutional Capital Trust A
     7.826 %     12/01/26       A3     15,759,210  
  17,000    
Lloyds TSB Bank PLC, Subordinated Note
     6.900 %     11/22/49     Aa2     17,047,719  
  1,000    
Nordbanken AB, 144A
     8.950 %     11/29/49       A     1,105,076  
  12,500    
North Fork Capital Trust II
     8.000 %     12/15/27       A3     13,365,713  
  500    
PNC Institutional Capital Securities, 144A
     7.950 %     12/15/26       A-     526,078  
  2,000    
Popular North American Capital Trust I
     6.564 %     9/15/34     Baa1     1,951,394  
  16,750    
RBS Capital Trust B
     6.800 %     12/31/49       A1     16,777,956  
  2,000    
Reliance Capital Trust I, Series B
     8.170 %     5/01/28       N/R     2,152,666  
  1,202    
Republic New York Capital II, Capital Securities
     7.530 %     12/04/26       A1     1,258,740  
  6,200    
Royal Bank of Scotland Group PLC
     9.118 %     3/31/49       A1     6,952,891  
  4,000    
SocGen Real Estate Company LLC, 144A
     7.640 %     12/29/49       A1     4,115,300  
  4,472    
St. George Funding Company LLC, 144A
     8.485 %     12/31/47     Baa1     4,701,011  
  2,250    
Swedbank ForeningsSparbanken AB, 144A
     9.000 %     9/17/50       A2     2,546,489  
  13,330    
Unicredito Italiano Capital Trust, 144A
     9.200 %     4/05/51       A-     15,107,729  
  3,800    
Union Planters Capital Trust A
     8.200 %     12/15/26       A2     4,002,719  
  21,300    
Washington Mutual Preferred Funding Cayman, Series A-1, 144A
     7.250 %     3/15/49     BBB     20,873,617  
  7,200    
Washington Mutual Preferred Funding Delaware, Series A-1, 144A
     6.534 %     3/15/49     BBB     7,001,554  
  2,000    
Zions Institutional Capital Trust, Series A
     8.536 %     12/15/26     Baa1     2,116,480  
 
       
Total Commercial Banks
                             364,011,648  
         
       
 
                                
        Diversified Financial Services - 2.7%        
       
 
                                
  9,000    
BNP Paribas Capital Trust
     7.200 %     12/31/49       A+     9,092,142  
  1,000    
Citigroup Capital III
     7.625 %     12/01/36     Aa2     1,193,252  
  2,500    
Fulton Capital Trust I
     6.290 %     2/01/36       A3     2,381,433  
  10,000    
ING Capital Funding Trust III
     8.439 %     12/30/49       A     11,121,080  
  2,150    
JPM Capital Trust I
     7.540 %     1/15/27       A1     2,254,114  
  3,000    
JPM Capital Trust II
     7.950 %     2/01/27       A1     3,168,540  
  23,600    
Old Mutual Capital Funding, Notes
     8.000 %     6/22/53     Baa2     24,614,989  
 
       
Total Diversified Financial Services
                             53,825,550  
         
       
 
                                
        Diversified Telecommunication Services - 1.2%        
       
 
                                
  19,080    
Centaur Funding Corporation, Series B, 144A
     9.080 %     4/21/20       A-     23,665,163  
 
       
 
                                
       
Insurance - 3.6%
                                
       
 
                                
  10,000    
American General Capital II
     8.500 %     7/01/30     Aa3     12,822,914  
  4,980    
American General Institutional Capital, 144A
     8.125 %     3/15/46     Aa3     6,147,471  
  14,250    
Mangrove Bay, Class 3, 144A
     6.102 %     7/15/33     BBB+     13,808,387  
  3,750    
Prudential PLC
     6.500 %     6/29/49       A     3,737,479  
  13,500    
Sun Life Canada Capital Trust, Capital Securities, 144A
     8.526 %     5/06/47       A+     14,404,062  
  20,000    
Zurich Capital Trust I, 144A
     8.376 %     6/01/37       A-     21,401,015  
 
       
Total Insurance
                             72,321,328  
         
       
 
                                
        Oil, Gas & Consumable Fuels - 0.6%        
       
 
                                
  12,355    
KN Capital Trust III
     7.630 %     4/15/28     Baa3     13,212,103  
 
       
 
                                
        Thrifts & Mortgage Finance - 0.2%        
       
 
                                
  500    
Countrywide Capital Trust I
     8.000 %     12/15/26     BBB+     507,127  
  3,365    
Great Western Financial Trust II, Series A
     8.206 %     2/01/27     Baa1     3,560,914  

 

Table of Contents

                                         
       
 
                                
       
Total Thrifts & Mortgage Finance
                             4,068,041  
 
       
Total Capital Preferred Securities (cost $664,869,631)
                             638,913,514  
         
       
 
                        
Shares     Description (1)                       Value  
 
       
 
                                
       
Common Stocks - 0.4% (0.3% of Total Investments)
                        
                                         
       
Aerospace & Defense - 0.1%
                                
       
 
                                
  80,865    
AAR Corporation
                           $ 2,303,035  
 
       
 
                                
       
Oil, Gas & Consumable Fuels - 0.1%
                                
       
 
                                
  52,985    
McMoran Exploration Corporation
                             945,252  
 
       
 
                                
       
Semiconductors & Equipment - 0.2%
                                
       
 
                                
  322,760    
Micron Technology, Inc., (4)
                             4,751,027  
 
       
Total Common Stocks (cost $6,202,882)
                             7,999,314  
       
 
       
 
                        
Shares     Description (1)                       Value  
 
       
 
                                
       
Investment Companies - 0.2% (0.1% of Total Investments)
                                
       
 
                                
  21,286    
Flaherty and Crumrine/Claymore Preferred Securities Income Fund Inc.
                           $ 421,676  
  46,476    
Flaherty and Crumrine/Claymore Total Return Fund Inc.
                             920,690  
  56,516    
John Hancock Preferred Income Fund III
                             1,151,231  
  5,149    
John Hancock Preferred Income Fund II
                             118,015  
  15,102    
Preferred and Corporate Strategies Fund Inc.
                             307,024  
  67,966    
Preferred Income Strategies Fund Inc.
                             1,323,978  
 
       
Total Investment Companies (cost $4,312,666)
                             4,242,614  
         
 
Principal                                
Amount (000)     Description (1)   Coupon     Maturity             Value  
 
       
 
                                
       
Short-Term Investments - 2.1% (1.4% of Total Investments)
                                
$ 42,093    
Repurchase Agreement with State Street Bank, dated 3/31/06, repurchase price $42,108,323, collateralized by $41,335,000, U.S. Treasury Notes, 5.500%, due 5/15/09, value $42,936,731
     4.250 %     4/03/06             $  42,093,415  
 
       
 
                                
     
Total Short-Term Investments (cost $42,093,415)
                             42,093,415  
         
       
 
                                
       
Total Investments (cost $2,923,973,528) – 146.6%
                             2,945,948,597  
   
       
 
                                
       
Other Assets Less Liabilities – 1.4%
                             28,327,454  
         
       
 
                                
       
Preferred Shares, at Liquidation Value – (48.0)%
                             (965,000,000 )
         
       
 
                                
       
Net Assets Applicable to Common Shares – 100%
                           $ 2,009,276,051  
         
                                         
        Interest Rate Swaps outstanding at March 31, 2006:                                
                                                           
              Fixed Rate                                  
              Paid     Fixed Rate     Floating Rate     Floating Rate             Unrealized  
      Notional     by the Fund     Payment     Received     Payment     Termination     Appreciation  
  Counterparty   Amount     (annualized)     Frequency     by the Fund (5)     Frequency     Date     (Depreciation)  
   
 
JPMorgan
   $ 97,000,000       3.395 %   Monthly     4.661 %   Monthly     7/06/06     $ 501,023  
 
JPMorgan
     97,000,000       3.360   Monthly     4.800   Monthly     1/23/09       4,715,359  
 
Morgan Stanley
     97,000,000       3.048   Monthly     4.800   Monthly     1/23/08       3,659,174  
 
Royal Bank of Canada
     97,000,000       2.679   Monthly     4.800   Monthly     1/23/07       2,001,504  
   
 
 
                                                   $ 10,877,060  
   
     
(1)
  All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted.
 
    
(2)
  Ratings: Using the higher of Standard & Poor’s or Moody’s rating. Ratings below BBB by Standard & Poor’s Group or Baa by Moody’s Investor Service, Inc. are considered to be below investment grade.
 
    
(3)
  Investment is eligible for the Dividends Received Deduction.
 
    
(4)
  Non-income producing.
 
    
(5)
  Based on USD-LIBOR (United States Dollar-London Interbank Offered Rate).
 
    
N/R
  Not rated.
 
    
WI/DD
  Purchased on a when-issued or delayed delivery basis.
 
    
144A
  Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers.
 
    
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.
 
    

 

Table of Contents

       
 
 
   Income Tax Information
 
 
    
 
 
   The following information is presented on an income tax basis based on the information currently available to the Fund. Differences between amounts for financial statement and federal income tax purposes are primarily due to timing differences in the recognition of income and timing differences in recognizing certain gains and losses on investment transactions.
 
 
    
 
 
   At March 31, 2006, the cost of investments was $2,951,302,404.
 
 
    
 
 
   Gross unrealized appreciation and gross unrealized depreciation of investments at March 31, 2006, were as follows:
                     
     
   
Gross unrealized:
   
Appreciation
             $92,358,447  
   
Depreciation
             (97,712,254 )
 
 
                  
     
 
 
                  
   
Net unrealized appreciation (depreciation) of investments
             $(5,353,807 )
 
 
                  
     

 

Table of Contents

Item 2. 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 Rule 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934 (17 CFR 240.13a-15(b) or 240.15d-15(b)).
 
  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 registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 3. Exhibits.
File as exhibits as part of this Form a separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)), exactly as set forth below: EX-99 CERT Attached hereto.

 

Table of Contents

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 May 30, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
         
     
By (Signature and Title)*  /s/ Gifford R. Zimmerman    
  Gifford R. Zimmerman   
  Chief Administrative Officer (principal executive officer)   
 
Date May 30, 2006
         
     
By (Signature and Title)*  /s/ Stephen D. Foy    
  Stephen D. Foy   
  Vice President and Controller (principal financial officer)   
 
Date May 30, 2006
 
*   Print the name and title of each signing officer under his or her signature.