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
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Nuveen Preferred and Convertible Income Fund 2
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(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
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Date of fiscal year end: July 31, 2003
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Date of reporting period: July 31, 2003
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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.
Nuveen
Closed-End
Exchange-Traded
Funds
ANNUAL REPORT July 31, 2003
NUVEEN
PREFERRED AND
CONVERTIBLE
INCOME FUNDS
JPC
JQC
Photo of: boy in wheat field
Photo of: seaside cabin
HIGH CURRENT INCOME
FROM A PORTFOLIO OF
PREFERRED AND
CONVERTIBLE SECURITIES
Logo: NUVEEN Investments
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IF YOUR NUVEEN FUND DIVIDENDS AND STATEMENTS
COME FROM YOUR FINANCIAL ADVISOR OR BROKERAGE ACCOUNT,
FOLLOW THE STEPS OUTLINED BELOW:
1 Go to WWW.INVESTORDELIVERY.COM
2 Refer to the address sheet that accompanied this report. Enter the personal
13-CHARACTER ENROLLMENT NUMBER imprinted near your name.
3 You'll be taken to a page with several options. Select the NEW
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4 Click Submit. Confirm the information you just entered is correct, then
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or cancel internet viewing.
IF YOUR NUVEEN FUND DIVIDENDS AND STATEMENTS
COME DIRECTLY TO YOU FROM NUVEEN, FOLLOW THE STEPS OUTLINED BELOW:
1 Go to WWW.NUVEEN.COM
2 Select ACCESS YOUR ACCOUNT. Select the E-REPORT ENROLLMENT section. Click
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5 Use this same process if you need to change your registration information
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Logo: NUVEEN Investments
Photo of: TIMOTHY R. SCHWERTFEGER
CHAIRMAN OF THE BOARD
SIDEBAR TEXT: "WE REMAIN CONVINCED THAT MAINTAINING A WELL-BALANCED PORTFOLIO
....... IS AN IMPORTANT WAY TO HELP YOU REDUCE OVERALL INVESTMENT RISK."
Dear SHAREHOLDER
On behalf of all of us at Nuveen Investments, I'd like to use this first report
of the Nuveen Preferred and Convertible Income Funds to welcome you to the
growing family of Nuveen investors. For more than 100 years, Nuveen has
specialized in offering quality investments to those seeking to accumulate and
preserve wealth. Our mission continues to be to assist you and your financial
advisor by offering the investment services and products that can help you meet
your financial objectives. We thank you for choosing Nuveen Investments as a
partner as you work toward that goal.
Because your Fund's fiscal year ends on July 31, this "annual" report really
covers only about four months of operations for JPC and about one month for
JQC. However, we believe both Funds are off to good starts, and are already well
positioned to meet their objectives of high current income and total return
potential. For more details, I encourage you to read the portfolio managers'
interview that immediately follows this letter.
While the oldest of these two Funds was barely more than four months old as
of July 31, 2003, both already have experienced a good deal of market price
volatility. We know that the ups and downs that come with this volatility may
lead some investors to consider increasing or decreasing their investments in
their Fund. While we encourage you to take a strong interest in the performance
of your investment portfolio, I urge you to first discuss any investment changes
with your financial advisor before you act. We remain convinced that maintaining
a well-balanced portfolio, structured and monitored with the help of an
investment professional, is an important way to help you reduce overall
investment risk and position yourself to achieve your long-term financial goals.
In this context, the preferred and convertible securities in your Nuveen Fund
can be important building blocks in a portfolio crafted to perform well through
a variety of market conditions.
I also urge you to consider receiving future Fund reports and other information
electronically via the Internet and e-mail rather than in hard copy. Not only
will you be able to receive the information faster, but this also may help lower
Fund expenses. Sign up is quick and easy -- see the inside front cover of this
report for detailed instructions.
Again, thank you for the confidence you have shown in Nuveen Investments. We
look forward to reporting on the performance of your Fund in the months and
years ahead.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
September 15, 2003
1
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS (JPC, JQC)
Managers' PERSPECTIVE
The Nuveen Preferred and Convertible Income Funds are managed by Nuveen
Institutional Advisory Corp. (NIAC), and sub-advised by a team of specialists
from Spectrum Asset Management, Inc., Froley, Revy Investment Co., Inc., and
NIAC. Spectrum, an affiliate of Principal CapitalSM, manages the preferred
securities portions of the Funds' portfolios. Froley, Revy, one of the oldest
firms specializing in convertible securities, manages that portion of both
Fund's portfolios, while NIAC manages the high yield and other debt instruments
in both Funds. Here representatives from Spectrum, Froley, Revy and NIAC talk
about general economic conditions and their management strategy for the period
ended July 31, 2003.
WHAT WERE THE GENERAL MARKET CONDITIONS BETWEEN MARCH 2003 (THE INCEPTION OF
JPC) AND JULY 31, 2003?
The first months of this period were characterized generally by a steady rise in
price and fall in yield for most fixed income investments. This pattern reversed
itself dramatically in July 2003, with price declines and yield increases that
more than offset the gains of the previous three months.
This can be seen easily in the history of ten-year U.S. Treasury bonds. At the
end of March 2003, when JPC began investing its initial assets, the ten-year
U.S. Treasury was yielding 3.80%. By the end of June, when JQC began investing
its assets, these bonds had continued to rally, pushing their yield to 3.52%. As
of July 31, 2003, the ten-year Treasury yield had climbed almost 100 basis
points to 4.40%.
These market conditions affected each of the Funds' three asset classes
differently. Preferred securities generally performed well when compared with
many other types of fixed-income investments from March through July 2003.
However, this asset class still suffered across the board price declines.
Convertible securities performed much better. During the April - July 2003 time
frame, convertible securities generally advanced, with the Merrill Lynch All
Convertible Index up 10.95% over those four months. The Merrill Lynch High-Yield
Master Index returned 5.62% for the month of April 2003, 1.08% during May and
2.73% in June. However, the Index dropped -1.43% in July.
Generally, there was adequate supply of securities in all three asset classes
over this period to facilitate the investing of both Funds' assets.
HOW HAVE YOU BEEN INVESTING THE ASSETS OF BOTH FUNDS?
For JPC, finding attractive yields among the high quality preferred securities
we favor was the primary challenge as bonds rallied through much of the spring.
A heavy new issuer calendar for preferred securities created some opportunities
in both the primary and secondary markets and Spectrum was able to invest in a
timely manner. The focus of the convertible securities portion of the Funds,
managed by Froley, Revy, was on balancing income opportunities with the
potential for capital appreciation, while maintaining a roughly 50% weight (for
this portion of the portfolio) in investment grade securities. For the high
yield portion of the portfolio, NIAC focused on credits with strong fundamental
business models, diversified revenue streams and limited earnings volatility.
Industry and credit diversification were a key focus, with investments coming
from sectors such as gaming/lodging, home-building, retail, media and food.
As of July 31, 2003, JQC was only about one month old. All three sub-advisers
were still in the process of investing their initial allocations as of the end
of the reporting period. The back-up in the fixed-income markets during July
2003 was providing some attractive yield opportunities for preferred and high
yield securities, while the building consensus around improved equity market
prospects was creating some opportunities for convertible securities investing.
WHAT WILL BE YOUR STRATEGY FOR THE FUNDS GOING FORWARD?
In an uncertain environment, we will continue to invest the Funds' assets in
ways that we think will enhance their ability to provide attractive income and
total returns. We plan to retain our research-oriented approach toward finding
securities within each of the Funds' asset classes, and we will continue to seek
opportunities to enhance the diversification of each Fund's portfolio.
2
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND
Performance
OVERVIEW As of July 31, 2003
JPC
PORTFOLIO STATISTICS
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Share Price $14.57
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Common Share Net Asset Value $14.12
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Net Assets Applicable to
Common Shares ($000) $1,412,983
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% OF TOTAL
TOP 5 ISSUERS INVESTMENTS
--------------------------------------------------
Wachovia Corporation 2.8%
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General Motors Corporation 2.3%
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Citigroup 2.1%
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PartnerRe Limited 1.9%
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Morgan Stanley 1.9%
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CUMULATIVE TOTAL RETURN
(INCEPTION DATE 3/26/03)
--------------------------------------------------
Market NAV
--------------------------------------------------
Since Inception -0.89% 0.58%
--------------------------------------------------
Bar Chart:
2003 MONTHLY DIVIDENDS PER SHARE
May 0.1005
Jun 0.1005
Jul 0.1005
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
3/28/03 15.03
15.09
15.28
15.4
15.14
15.15
15.3
15.32
15.43
15.45
15.37
15.4
15.49
15.4
15.04
15.04
7/31/03 14.57
3
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND 2
Performance
OVERVIEW As of July 31, 2003
JQC
PORTFOLIO STATISTICS
--------------------------------------------------
Share Price $14.69
--------------------------------------------------
Common Share Net Asset Value $13.83
--------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $1,950,622
--------------------------------------------------
% OF TOTAL
TOP 5 ISSUERS1 INVESTMENTS
--------------------------------------------------
Citigroup 3.5%
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Wachovia Corporation 2.2%
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ABN AMRO Bank NV 2.0%
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Prudential Financial Inc. 1.9%
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ING Groep NV 1.7%
--------------------------------------------------
CUMULATIVE TOTAL RETURN
(INCEPTION DATE 6/25/03)
--------------------------------------------------
Market NAV
--------------------------------------------------
Since Inception -2.07% -3.49%
--------------------------------------------------
THE FUND PAID ITS FIRST MONTHLY DIVIDEND OF $.0975 PER SHARE ON SEPTEMBER 2,
2003.
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
6/27/03 15.09
15.25
15.01
15
7/31/03 14.69
1 Excluding U.S. Government and agency obligations.
4
Report of
INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND 2
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Nuveen Preferred and Convertible Income Fund,
and Nuveen Preferred and Convertible Income Fund 2 as of July 31, 2003, and the
related statements of operations, changes in net assets and the financial
highlights for the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned as of July 31, 2003, by correspondence with
the custodian and brokers or by other appropriate auditing procedures when
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Nuveen Preferred and Convertible Income Fund, and Nuveen Preferred and
Convertible Income Fund 2 at July 31, 2003, and the results of their operations,
the changes in their net assets and the financial highlights for the periods
indicated therein in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
Chicago, Illinois
September 12, 2003
5
Nuveen Preferred and Convertible Income Fund (JPC)
Portfolio of
INVESTMENTS July 31, 2003
MARKET
SHARES DESCRIPTION(1) VALUE
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EXCHANGE-LISTED PREFERRED SECURITIES - 54.0% (36.3% OF TOTAL INVESTMENTS)
AGENCY - 0.9%
200,000 Fannie Mae, Series L, 5.125% (a) $ 9,800,000
129,632 Tennessee Valley Authority, Series D, 6.750% 3,458,582
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AUTO - 2.2%
334,800 Ford Motor Company, Series F, 8.000% (CBTCS) 8,319,780
130,000 Ford Motor Company, Series F, 8.000% (CORTS) 3,222,700
2,100 General Motors Corporation, 7.250% 50,610
8,700 General Motors Corporation, 7.375% 214,194
6,000 General Motors Corporation, 7.250% 148,320
765,200 General Motors Corporation, 7.375% 18,517,840
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AUTO - FOREIGN - 0.0%
7,500 Magna International Inc., Series B, 8.875% 198,750
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BANKING - 10.7%
2,000 ABN AMRO North America, Series H-144A, 6.590% (a) 2,108,126
50,600 ASBC Capital I, 7.625% 1,343,936
55,885 BAC Capital Trust I, 7.000% 1,433,450
115,755 BAC Capital Trust II, 7.000% 2,940,177
284,700 BAC Capital Trust III, 7.000% 7,430,670
264,800 BAC Capital Trust IV, 5.875% 6,434,640
22,800 Bank One Capital V, 8.000% 613,776
72,300 Bank One Capital Trust VI, 7.200% 1,861,725
25,700 BankNorth Capital Trust II, 8.000% 675,910
500 BNY Capital Trust IV, Series E, 6.875% 12,740
736,379 BNY Capital Trust V, Series F, 5.950% 18,011,830
3,000 Chase Capital Trust V, Series E, 7.030% 75,390
62,200 Chittenden Capital Trust I, 8.000% 1,617,200
5,900 Citigroup Capital Trust III, 7.100% 149,447
22,200 Citigroup Capital Trust VII, 7.100% 578,754
186,000 Citigroup Capital Trust VIII, 6.950% 4,778,340
686,786 Citigroup Capital Trust IX, 6.000% 17,046,029
Citigroup Inc.:
37,000 Series F, 6.365% (a) 1,988,750
100,000 Series G, 6.213% (a) 5,110,000
60,000 Series H, 6.231% (a) 3,139,800
80,000 Series M, 5.864% (a) 4,140,000
70,300 Comerica Capital Trust I, 7.600% 1,868,574
123,600 Compass Capital Trust III, 7.350% 3,213,600
14,500 First Union Capital II, Series II, 7.500% (CORTS) 387,295
41,500 First Union Institutional, 8.200% (CORTS) 1,162,830
6
MARKET
SHARES DESCRIPTION(1) VALUE
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BANKING (continued)
292,579 Fleet Capital Trust VII, 7.200% $ 7,501,726
337,000 Fleet Capital Trust VIII, 7.200% 8,650,790
3,400 Harris Preferred Capital Corporation, Series A, 7.375% 85,952
18,200 JPMorgan Chase Capital Trust, 7.200% (CORTS) 464,282
390,067 JPMorgan Chase Capital Trust X, 7.000% 10,005,219
240,000 JPMorgan Chase Capital Trust XI, 5.875% 5,584,800
39,000 JPMorgan Chase Public Credit and Repackaged Securities, Series 2002, 7.125% 988,650
43,800 JPMorgan Chase Trust, Series 2002-6, Class A, 7.125% (SATURNS) 1,109,454
18,800 KeyCorp, Series B, 8.250% (CORTS) 504,780
5,900 KeyCorp, Series 2001-7, 7.750% (CORTS) 155,760
142,200 National Commerce Capital Trust II, 7.700% 3,789,630
1,000 Regions Finance Trust I, 8.000% 26,700
34,300 SunTrust Capital Trust IV, 7.125% 883,568
36,500 SunTrust Capital Trust V, 7.050% 938,050
32,700 U.S. Bancorp Capital Trust III, 7.750% 846,603
152,900 U.S. Bancorp Capital Trust IV, 7.350% 3,921,885
36,200 U.S. Bancorp Capital Trust V, 7.250% 918,032
21,500 Valley National Bank Capital Trust I, 7.750% 566,310
2,000 Washington Mutual Capital Trust I, Series 2001-22, Class A-1, 7.650% (CORTS) 52,200
1,300 Wells Fargo Capital Trust IV, 7.000% 33,722
37,600 Wells Fargo Capital Trust V, 7.000% 970,832
14,700 Wells Fargo Capital Trust VI, 6.950% 375,732
538,329 Wells Fargo Capital Trust VII, 5.850% 13,059,862
50,000 Zions Capital Trust B, 8.000% 1,362,500
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BANKING - FOREIGN - 2.1%
97,900 ABN AMRO Capital Funding Trust I, 7.500% 2,471,975
95,600 ABN AMRO Capital Funding Trust II, 7.125% 2,415,812
63,400 Banco Totta & Acores Finance, Series A, 8.875% 1,752,059
186,114 Banesto Holdings, Series A-144A, 10.500% 5,583,420
8,600 BBVA Preferred Capital Ltd., Series B, 7.750% 224,030
11,000 BCH Capital Ltd., Series B, 9.430% 305,800
BSCH Finance Ltd.:
56,725 Series F, 8.125% 1,477,119
173,760 Series G, 8.125% 4,519,498
5,500 Series H, 7.790% 138,050
19,900 Series J, 7.350% 499,689
73,450 Series Q, 8.625% 1,965,522
42,500 Espirito Santo Overseas, 8.500% 1,119,450
3,100 Espirito Santo Overseas, Series A, 8.500% 79,360
21,600 NAB Exchangeable Preferred Trust, 8.000% 546,480
32,900 National Westminster Bank plc, Series A, 7.875% 830,725
250,000 Royal Bank of Scotland Group plc, 5.750% 5,747,500
9,900 Westpac Capital Trust I, 8.000% 256,608
7
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS July 31, 2003
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BROKERAGE - 4.7%
5,900 Bear Stearns Capital Trust II, Series Y, 7.500% $ 149,270
10,100 Bear Stearns Capital Trust III, 7.800% 266,842
32,900 Goldman Sachs Group Inc., 6.000% (PPLUS) 798,154
16,000 Goldman Sachs Group Inc., Series 2003-06, 6.000% (SATURNS) 393,600
526,388 Lehman Brothers Holdings Capital Trust, III, Series K, 6.375% 13,149,172
100,000 Merrill Lynch Capital Trust, 7.000% 2,548,000
23,900 Merrill Lynch Capital Trust II, 8.000% 655,338
27,600 Merrill Lynch Preferred Capital Trust, 7.750% 754,308
113,600 Merrill Lynch Preferred Capital Trust IV, 7.120% 2,925,200
225,000 Merrill Lynch Preferred Capital Trust V, 7.280% 5,838,750
66,100 Morgan Stanley Capital Trust II, 7.250% 1,690,177
508,239 Morgan Stanley Capital Trust III, 6.250% 12,390,867
1,016,200 Morgan Stanley Capital Trust IV, 6.250% 24,673,336
20,400 Morgan Stanley Trust I, 7.050% (PPLUS) 531,624
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER - 0.0%
8,000 IBM Inc., 7.125% (CORTS) 210,000
2,600 IBM Inc., Series 2001-1, 7.125% (SATURNS) 67,756
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - FOREIGN - 0.1%
15,300 EnCana Corporation, 9.500% 409,275
14,700 Talisman Energy Inc., 9.000% 375,585
24,200 Talisman Energy Inc., 8.900% 622,908
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 0.1%
37,600 Viacom Inc., 7.250% 981,360
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 4.4%
53,700 AT&T Capital Corporation, 8.250% 1,359,684
125,900 AT&T Capital Corporation, 8.125% 3,177,716
6,800 CIT Group Incorporated, 7.750% (CORTS) 182,308
1,200,200 Countrywide Capital Trust IV, 6.750% 29,284,880
93,600 Countrywide Trust I, 8.050% (PPLUS) 2,500,992
13,500 General Electric Capital Corporation, 5.875% 335,475
33,100 General Electric Capital Corporation, 6.625% 835,775
5,600 General Electric Capital Corporation, 6.100% 141,120
137,600 General Motors Acceptance Corporation, 7.350% 3,386,336
4,800 Household Capital Trust V, Series X, 10.000% 132,720
14,000 Household Capital Trust VI, 8.300% 371,000
39,200 Household Capital Trust VII, 7.500% 1,028,216
773,900 Household Finance Corporation, 6.875% 19,347,500
1,300 Philadelphia Authority for Industrial Development, Pennsylvania, Pension, 6.550% 32,955
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 2.6%
5,800 CSFB, Series 2002-10, 7.000% (SATURNS) 145,986
88,500 ING Capital Funding Trust, 7.700% 2,263,830
505,118 ING Group NV, 7.200% 13,062,351
654,975 ING Group NV, 7.050% 16,701,863
206,600 Swedish Export Credit, 7.375% 5,233,178
8
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
FOOD - FOREIGN - 0.2%
126,300 Grand Metropolitan Delaware LP, 9.420% $ 3,393,681
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.2%
17,100 AGL Capital Trust II, 8.000% 453,150
39,100 Dominion CNG Capital Trust I, 7.800% 1,032,240
35,500 MCN Financing Trust II, 8.625% 913,770
2,000 SJG Capital Trust, 8.350% 51,000
------------------------------------------------------------------------------------------------------------------------------------
GAS - FOREIGN - 0.0%
1,000 TransCanada Pipelines Ltd., 8.250% 25,450
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.0%
3,700 Sherwin Williams Company, Series III, 7.250% (CORTS) 95,090
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - FINANCIAL - 0.8%
137,357 AMBAC Financial Group Inc., 5.950% 3,336,402
256,942 AMBAC Financial Group Inc., 5.875% 6,217,996
7,200 Financial Security Assurance Holdings, 6.875% 187,128
13,000 Financial Security Assurance Holdings, 6.250% 319,020
3,400 Financial Security Assurance Holdings, 6.950% 85,340
1,300 MBIA Inc., 8.000% 35,542
54,300 WR Berkley, 8.125% (CBTCS) 556,575
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 2.9%
272,300 Aetna Incorporated, 8.500% 7,327,593
1,216,000 Delphi Financial Group Inc., 8.000% 30,886,400
6,000 Great-West L&A Capital Trust I, Series A, 7.250% 152,700
21,600 Lincoln National Capital Trust V, Series E, 7.650% 563,976
66,300 PLC Capital Trust III, 7.500% 1,737,723
12,900 PLC Capital Trust IV, 7.250% 340,560
12,800 Torchmark Capital Trust I, 7.750% 338,304
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTILINE - 0.9%
108,360 AIG Capital Securities, Series 2002-11, 6.000% (SATURNS) 2,630,981
400 Hartford Capital Trust I, Series A, 7.700% 10,140
187,300 Hartford Capital Trust III, Series C, 7.450% 4,766,785
78,000 Hartford Life Capital Trust I, Series A, 7.200% 1,958,580
13,600 Hartford Life Capital Trust II, Series B, 7.625% 352,376
13,200 SAFECO Capital Trust I, 8.750% (CORTS) 378,576
4,300 SAFECO Capital Trust I, Series 2001-4, 8.750% (CORTS) 113,993
24,500 SAFECO Capital Trust III, 8.072% (CORTS) 624,750
1,700 SAFECO Capital Trust IV, 8.375% (CORTS) 45,305
38,600 SAFECO Corporation, Series 2001-7, 8.250% 1,033,708
35,100 SAFECO Corporation, Series 2002-5, 8.250% (SATURNS) 951,210
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - P&C - 0.2%
91,000 Everest RE Capital Trust, 7.850% 2,411,500
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - P&C - FOREIGN - 4.8%
135,000 Ace Ltd., Series C, 7.800% 3,388,500
224,560 Converium Finance, 8.250% 5,885,718
9
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS July 31, 2003
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - P&C - FOREIGN (continued)
72,000 PartnerRe Limited, 7.900% $ 1,929,600
1,550,312 PartnerRe Limited, Series C, 6.750% 38,602,769
RenaissanceRe Holdings Ltd.:
88,800 Series A, 8.100% 2,371,848
325,310 Series B, 7.300% 8,428,782
XL Capital Ltd.:
64,000 Series A, 8.000% 1,702,400
192,600 Series B, 7.625% 5,026,860
------------------------------------------------------------------------------------------------------------------------------------
PAPER - 0.2%
110,800 International Paper Capital Trust III, 7.875% 2,810,996
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - FOREIGN - 0.0%
6,800 Rhone-Poulenc Overseas, Series A, 8.125% 172,992
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 14.2%
60,000 AMB Property Corporation, Series L, 6.500% 1,476,000
2,500 AvalonBay Communities Inc., Series H, 8.700% 71,250
2,100 BRE Properties, Series B, 8.080% 56,910
Developers Diversified Realty Corporation:
14,400 Series F, 8.600% 382,896
656,785 Series G, 8.000% 16,649,500
55,000 Series H, 7.375% 1,347,500
Equity Office Properties Trust:
1,900 Series C, 8.625% 48,735
109,081 Series G, 7.750% 2,889,556
6,100 Equity Residential Properties Trust, 9.125% 165,615
Equity Residential Properties Trust:
18,700 Series C, 9.125% 523,413
5,000 Series D, 8.600% 140,000
611,200 Series N, 6.480% 14,821,600
First Industrial Realty Trust Inc.:
72,900 Series D, 7.950% 1,823,229
198,900 Series E, 7.900% 4,962,555
708,834 Gables Residential Trust, Series D, 7.500% 17,862,617
HRPT Properties Trust:
30,000 Series A, 9.875% 813,000
292,600 Series B, 8.750% 7,783,160
953,983 Kimco Realty Corporation, Series F, 6.650% 23,944,973
New Plan Excel Realty Trust:
13,393 Series D, 7.800% 647,469
972,775 Series E, 7.625% 25,292,150
32,982 Prologis Trust, Series C, 8.540% 1,846,992
Public Storage Inc.:
14,800 Series L, 8.250% 379,028
159,400 Series R, 8.000% 4,236,852
28,900 Series S, 7.875% 765,850
26,500 Series T, 7.625% 697,745
20,500 Series U, 7.625% 540,790
32,000 Series V, 7.500% 848,000
281,000 Regency Centers Corporation, 7.450% 7,320,050
7,000 Simon Property Group Inc., Series G, 7.890% 372,050
1,609,945 Wachovia Preferred Funding Corporation, 7.250% 43,500,714
710,000 Weingarten Realty Trust, Preferred Securities, 6.750% 18,176,000
10
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TELECOM - 0.9%
5,500 AT&T Wireless, Series 2002-7, 8.000% (CBTCS) $ 146,493
15,000 AT&T Wireless Services, Series 2002-B, 9.250% (SATURNS) 420,900
21,900 BellSouth Corporation, Series 2001-3, 7.125% (SATURNS) 563,706
6,500 BellSouth Inc., Series BLS, 7.000% (CORTS) 171,275
30,500 Citizens Communications, Series 2001-2, 8.625% (SATURNS) 817,400
128,500 Citizens Communications Trust I, 8.375% (PPLUS) 3,321,725
21,950 Deutsche Telekom International Finance, B.V., Series 2001-24, Class A-1, 7.875% (CBTCS) 573,334
15,900 SBC Communications Inc., 7.000% 414,195
34,400 TDS Capital Trust I, 8.500% 870,320
85,700 TDS Capital Trust II, 8.040% 2,159,640
68,100 Telephone and Data Systems Inc., 7.600% 1,788,306
33,800 U.S. Cellular Corporation, 8.750% 901,108
14,800 Verizon Communications, 7.625% (CORTS) 392,348
19,500 Verizon Communications, 7.375% (CORTS) 512,850
11,500 Verizon New England Inc., Series B, 7.000% 296,700
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 0.9%
6,400 Atlantic Capital Trust II, Series C, 7.375% 162,240
4,100 Consolidated Edison Company of New York, Inc., 7.500% 107,707
16,300 Consolidated Edison Inc., 7.250% 424,778
3,000 Detroit Edison Company, 7.375% 76,530
22,200 DTE Energy Trust I, 7.800% 577,200
26,000 Energy East Capital Trust I, 8.250% 690,820
30,970 Entergy Louisiana Inc., 7.600% 817,918
3,000 Georgia Power Capital Trust IV, 6.850% 75,510
43,570 Georgia Power Capital Trust V, 7.125% 1,133,256
249,000 Georgia Power Company, 5.900% 6,225,000
65,000 Mississippi Power Company, 5.625% 1,579,500
8,200 Savannah Electric Capital Trust I, 6.850% 205,656
6,000 Virginia Electric and Power Company, Series A, 7.150% 151,560
44,000 Virginia Power Capital Trust, 7.375% 1,152,800
------------------------------------------------------------------------------------------------------------------------------------
Total Exchange-Listed Preferred Securities (cost $775,370,159) 764,504,291
-------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 18.6% (12.5% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.6%
76,000 Northrop Grumman Corporation, 7.250% 7,885,000
------------------------------------------------------------------------------------------------------------------------------------
AUTO - 0.7%
224,450 Ford Motor Company Capital Trust II, 6.500% 9,797,243
------------------------------------------------------------------------------------------------------------------------------------
BANKING - 1.9%
217,900 Citigroup Global Markets Holdings, 2.000% 7,683,808
56,200 State Street Corporation, 6.750% 13,010,300
144,000 Washington Mutual Inc. Unit 1 Trust, 5.375% 7,812,000
11
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS July 31, 2003
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BROADCAST CABLE - 1.4%
508,250 Cablevision Systems Corp., Trust I, 6.500% $ 11,918,463
185,000 Emmis Communications Corporation, Series A, 6.250% 8,097,450
10,000 Sinclair Broadcast Group Inc., Series D, 6.000% 425,600
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES - 1.1%
330,000 Cendant Corporation, 7.750% 14,836,800
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.8%
175,000 Pioneer-Standard Financial Trust, 6.750% 8,203,125
200,000 Solectron Corp., 7.250% 3,022,000
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.7%
200,000 Unocal Capital Trust, 6.250% 10,500,000
------------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES - 0.5%
97,375 Allied Waste Industries Inc., 6.250% 6,699,400
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.9%
200,000 Affiliated Managers Group Inc., 6.000% 4,522,000
118,000 Capital One Financial Corp., 6.250% 4,724,720
154,000 Gabelli Asset Management Inc., 6.950% 3,696,000
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.4%
185,000 Sempra Energy, 8.500% 4,884,000
4,000 Southern Union Company, Series B, 5.750% 192,075
------------------------------------------------------------------------------------------------------------------------------------
HEALTH DISTRIBUTORS SERVICES - 0.3%
41,000 Anthem Inc., 6.000% 3,742,480
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.3%
106,675 Newell Financial Trust I, 5.250% 4,747,038
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 0.8%
206,000 Reinsurance Group of America Inc., 5.750% 11,366,050
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTILINE - 1.1%
86,200 Hartford Financial Services Group Inc., 7.000% 4,741,000
140,000 Phoenix Companies Inc., 7.000% 4,926,250
98,000 Prudential Financial Capital Trust I, 6.750% 5,713,400
------------------------------------------------------------------------------------------------------------------------------------
IT CONSULTING & SERVICES - 0.4%
239,000 Electronic Data Systems Corporation, 7.625% 5,344,040
------------------------------------------------------------------------------------------------------------------------------------
OIL SERVICES - 0.1%
25,000 Hanover Compressor Capital Trust, 7.250% 1,025,000
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 1.5%
165,000 Equity Office Properties Trust, Convertible Preferred Shares, Series B, 5.250% 8,118,000
55,400 Equity Residential Properties Trust, Series G, 7.250% 1,432,644
250,000 Host Marriott Financial Trust, 6.750% 10,812,500
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.7%
225,000 Toys R Us Inc., Convertible Equity Units, 6.250% 8,415,000
53,000 United Rentals Trust I, 6.500% 1,934,500
12
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
STEEL - 0.6%
85,800 TXI Capital Trust I, 6.500% $ 3,033,030
84,700 United States Steel Corporation, Series B, 7.000% 5,017,628
------------------------------------------------------------------------------------------------------------------------------------
TELECOM - 1.2%
131,000 Alltel Corporation, 7.750% 6,288,000
8,310 Lucent Technologies Capital Trust I, 7.750% 5,974,890
633,900 Sprint Corporation, 7.125% 5,007,810
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 2.6%
157,000 Cinergy Corporation, 9.500% 9,255,150
144,800 Dominion Resources Inc., 8.750% 7,544,080
344,500 DTE Energy Company, 8.750% 9,005,230
217,900 FPL Group Inc., 8.000% 11,821,075
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $249,999,376) 263,174,779
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - HYBRID SECURITIES - 4.0% (2.7% OF TOTAL INVESTMENTS)
BANKING - FOREIGN - 1.1%
15 BBVA Privanza International Gibraltar, Series 144A, 7.764% 15,000,000
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 2.0%
300 Union Planters Preferred Fund, Series 144A, 7.750% 28,693,800
------------------------------------------------------------------------------------------------------------------------------------
TELECOM - 0.9%
10,857 Centaur Funding Corporation, Series B - 144A, 9.080% 12,200,554
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Hybrid Securities (cost $56,224,872) 55,894,354
--------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 28.6% (19.2% OF TOTAL INVESTMENTS)
AIRLINES - 0.6%
6,110 Delta Air Lines, Convertible Notes, Series 144A, 8.000%, 6/03/23 5,659,388
3,200 Northwest Airlines Corporation, Convertible Notes, Series 144A, 6.625%, 5/15/23 2,988,000
------------------------------------------------------------------------------------------------------------------------------------
AUTO - 1.0%
General Motors Corporation, Convertible Notes, Senior Debentures:
185,100 Series A, 4.500%, 3/06/32 4,518,248
185,250 Series B, 5.250%, 3/06/32 4,007,415
6,000 Sonic Automotive Inc., Convertible Senior Subordinated Notes, 5.250%, 5/07/09 6,052,500
------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 1.1%
3,000 Cephalon Inc., Convertible Subordinated Notes, 2.500%, 12/15/06 2,838,750
1,765 Corixa Corporation, Subordinate Notes, Series 144A, 4.250%, 7/01/08 1,859,869
6,650 Fisher Scientific International Inc., Convertible Senior Notes, 2.500%, 10/01/23 6,949,250
4,500 Ivax Corporation, Convertible Senior Subordinated Notes, 4.500%, 5/15/08 4,471,875
------------------------------------------------------------------------------------------------------------------------------------
BROADCAST CABLE - 1.9%
325,000 Comcast Corporation, Exchangeable Subordinated Debentures, 2.000%, 10/15/29 9,425,000
4,000 Echostar Communications Corporation, Convertible Subordinated Notes, 5.750%, 5/15/08 4,315,000
4,000 Liberty Media Corporation, Senior Debentures Exchangeable for Class B, 3.250%, 3/15/31 4,055,000
6,500 Mediacom Communications Corporation, Convertible Senior Notes, 5.250%, 7/01/06 5,939,375
3,425 Sinclair Broadcast Group, Convertible Step Coupon, Senior Series 144A, 4.875%, 7/15/18 3,172,406
13
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER - 4.2%
2,500 Computer Associates International Inc., Convertible Senior Notes, 5.000%, 3/15/07 $ 3,203,125
6,435 Electronic Data Systems, Convertible Senior Notes, Series 144A, 3.875%, 7/15/23 6,628,050
4,000 FEI Company, Convertible Notes, 5.500%, 8/15/08 4,060,000
4,000 General Semiconductor Inc., Convertible Subordinated Notes, 5.750%, 12/15/06 3,985,000
18,740 Hewlett Packard Company, 0.000%, 10/14/17 (LYONS) 9,955,625
8,000 International Rectifier Corporation, Convertible Subordinated Notes, 4.250%, 7/15/07 7,820,000
4,250 Lam Research Corporation, Convertible Subordinated Notes, 4.000%, 6/01/06 4,191,563
2,625 Maxtor Corporation, Convertible Senior Notes, Series 144A, 6.800%, 4/30/10 3,323,906
6,600 Mentor Graphics Corporation, Convertible Subordinate Notes, 6.875%, 6/15/07 7,416,750
4,970 Mercury Interactive Corporation, Convertible Subordinated Notes, 4.750%, 7/01/07 4,945,150
2,475 Photronics Inc., Convertible Subordinated Notes, 4.750%, 12/15/06 2,397,656
825 Photronics Inc., Convertible Subordinate Notes, Series 144A, 2.250%, 4/15/08 1,117,875
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.6%
21,500 Arrow Electronics Inc., Convertible Senior Debentures, 0.000%, 2/21/21 10,508,125
7,700 Celestica Inc., Convertible, 0.000%, 8/01/20 (LYONS) 4,004,000
4,000 Sanmina Corporation, Convertible Subordinated Notes, 4.250%, 5/01/04 4,025,000
4,100 Teradyne Inc., Convertible Senior Notes, 3.750%, 10/15/06 4,053,875
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.9%
4,750 Hanover Compressor Co., Convertible Senior Notes, 4.750%, 3/15/08 4,215,625
8,275 McMoran Exploration Corporation, Notes, Series 144A, 6.000%, 7/02/08 8,440,500
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.5%
6,900 Providian Financial Corporation, Convertible Senior Notes, 3.250%, 8/15/05 6,373,875
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT - 0.5%
7,050 Alza Corporation, Convertible Subordinated Debentures, 0.000%, 7/28/20 5,040,750
3,300 Inhale Therapeutics, Convertible Subordinated Notes, 3.500%, 10/17/07 2,561,625
------------------------------------------------------------------------------------------------------------------------------------
HEALTH DISTRIBUTORS & SERVICES - 0.3%
4,200 Province Healthcare Inc., Convertible Subordinated Notes, 4.500%, 11/20/05 4,116,000
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.9%
2,500 EDO Corporation, Convertible Subordinate Notes, 5.250%, 4/15/07 2,531,250
7,150 GenCorp Inc., Convertible Notes, 5.750%, 4/15/07 6,747,813
3,387 INCO Limited, Convertible Notes, 7.750%, 3/15/16 3,420,870
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.3%
3,350 Tyco International Group Limited, Convertible Notes, Series 144A, 3.125%, 1/15/23 3,538,438
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - P&C - 0.6%
383,300 Travelers Property and Casualty Company, 4.500%, 4/15/32 9,157,037
------------------------------------------------------------------------------------------------------------------------------------
IT CONSULTING & SERVICES - 0.4%
2,090 Acxiom Corporation, Convertible Subordinate Notes, 3.750%, 2/15/09 2,314,675
3,760 First Data Corporation, Senior Convertible Contingent Debt Securities, 2.000%, 3/01/08 4,009,100
------------------------------------------------------------------------------------------------------------------------------------
LEISURE FACILITIES - 1.0%
10,500 Carnival Corporation, Senior Notes, 0.000%, 10/24/21 (LYONS) 6,811,875
15,500 Royal Caribbean Cruises Limited, Senior Notes, 0.000%, 2/02/21 (LYONS) 6,975,000
14
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
METALS DIVERSIFICATION - 0.5%
5,750 Freeport-McMoran Inc., 7.000%, 2/11/11 $ 7,007,813
------------------------------------------------------------------------------------------------------------------------------------
NETWORK EQUIPMENT - 0.6%
9,800 Brocade Communication Systems Inc., Convertible Notes, 2.000%, 1/01/07 7,987,000
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.9%
3,950 Connectics Inc., Senior Notes, Series 144A, 2.250%, 5/30/08 4,103,063
4,470 Indevus Pharmaceuticals Inc., Convertible Senior Debentures, Series 144A, 6.250%, 7/15/08 4,928,175
2,975 KV Pharmaceutical Company, Convertible Subordinate Notes, Series 144A, 2.500%, 5/16/33 3,108,875
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - FOREIGN - 0.7%
12,290 Roche Holdings Inc., 0.000%, 1/19/15 (LYONS) 9,739,825
------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING & PRINTING - 0.5%
96,000 Tribune Company, Exchangeable Subordinated Debentures, 2.000%, 5/15/29 7,364,160
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 0.9%
11,850 EOP Operating LP, Convertible Notes, 7.250%, 11/15/08 12,649,875
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 1.4%
5,000 Barnes & Noble Inc., Convertible Notes, 5.250%, 3/15/09 5,050,000
4,750 Best Buy Inc., Convertible Subordinate Debentures, 2.250%, 1/15/22 4,797,500
9,500 Brinker International Inc., Convertible Senior Debentures, 0.000%, 10/10/21 6,614,375
3,700 JC Penney Corporation Inc., Convertible Subordinated Notes, 5.000%, 10/15/08 3,704,625
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIAL - 1.4%
1,475 Guitar Center Inc., Convertible Senior Notes, 4.000%, 7/15/13 1,742,344
9,525 K2 Inc., Convertible Notes, Series 144A, 5.000%, 6/15/10 13,227,844
4,665 Venator Group Inc., Convertible Notes, 5.500%, 6/01/08 5,154,825
------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR - 2.0%
4,890 ASM Lithography, Convertible Notes, 5.750%, 10/15/06 5,452,350
3,225 Brooks Automation Inc., Convertible Subordinated Notes, 4.750%, 6/01/08 2,991,188
2,545 Cypress Semiconductor Corporation, Convertible Notes, Series 144A, 1.250%, 6/15/08 2,914,025
4,000 LSI Logic Corporation, Convertible Subordinated Notes, 4.250%, 3/15/04 4,000,000
5,800 PMC-Sierra Inc., Convertible Subordinate Notes, 3.750%, 8/15/06 5,618,750
7,750 RF Micro Devices Inc., Convertible Subordinated Notes, 3.750%, 8/15/05 7,633,750
------------------------------------------------------------------------------------------------------------------------------------
STEEL - 0.2%
3,500 Shaw Group Inc., Senior Notes, 0.000%, 5/01/21 (LYONS) 2,205,000
------------------------------------------------------------------------------------------------------------------------------------
TELECOM - 1.5%
5,565 Comverse Technology Inc., Series 144A, 0.000%, 5/15/23 5,787,600
4,800 Nextel Communications Inc., Convertible Senior Notes, 6.000%, 6/01/11 5,142,000
19,780 U.S. Cellular Corporation, 0.000%, 6/15/15 (LYONS) 9,741,650
------------------------------------------------------------------------------------------------------------------------------------
TELECOM EQUIPMENT - 1.7%
7,757 Ciena Corporation, Convertible Notes, 3.750%, 2/01/08 6,525,576
11,500 Liberty Media Corporation, Senior Debentures Exchangeable for Motorola, 3.500%, 1/15/31 7,820,000
10,725 Nortel Networks Corporation, Convertible Senior Notes, 4.250%, 9/01/08 9,022,406
15
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 0.5%
$ 8,125 Calpine Corporation, Convertible Senior Notes, 4.000%, 12/26/06 $ 7,302,344
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (cost $387,128,305) 403,479,147
--------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 17.2% (11.5% OF TOTAL INVESTMENTS)
AUTO - 2.0%
4,100 Asbury Automotive Group Inc., Senior Subordinated Notes, 9.000%, 6/15/12 4,038,500
3,500 Ford Motor Company 8.900%, 1/15/32 3,362,139
Ford Motor Company, Debentures:
5,590 9.980%, 2/15/47 5,786,483
10,000 7.700%, 5/15/97 8,291,130
2,000 R.J. Tower Corporation, Series 144A, Senior Notes, 12.000%, 6/01/13 1,990,000
5,500 Tenneco Authomotive Inc., Senior Notes, Series 144A, 10.250%, 7/15/13 5,555,000
------------------------------------------------------------------------------------------------------------------------------------
BROADCAST CABLE - 1.0%
4,000 Allbritton Communications Company, Senior Subordinated Notes, Series B, 7.750%, 12/15/12 3,960,000
1,000 Cablevision Systems Corporation, Senior Debentures, Series B, 8.125%, 8/15/09 995,000
5,000 CSC Holdings Inc., Senior Notes, 7.250%, 7/15/08 4,912,500
4,000 Young Broadcasting Inc., Senior Subordinate Notes, 10.000%, 3/01/11 4,350,000
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER - 0.3%
4,050 Juniper Networks, Convertible Subordinated Notes, 4.750%, 3/15/07 3,867,750
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.3%
Tesoro Petroleum Corporation, Senior Subordinated Notes, Series B:
2,000 9.000%, 7/01/08 1,830,000
2,000 9.625%, 11/01/08 1,890,000
250 Tesoro Petroleum Corporation, Senior Secondary Notes, Series 144A, 8.000%, 4/15/08 247,600
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 1.8%
Boyd Gaming Corporation, Senior Subordinated Notes:
2,000 8.750%, 4/15/12 2,155,000
2,000 7.750%, 12/15/12 2,060,000
3,000 Las Vegas Sands Inc., Venetian Casino Resorts, LLC Mortgage Notes, 11.000%, 6/15/10 3,330,000
2,500 Park Place Entertainment, 7.000%, 4/15/13 2,568,750
1,600 Park Place Entertainment, Senior Subordinate Notes, 8.125%, 5/15/11 1,744,000
4,040 Park Place Entertainment, Unsecured Senior Subordinate Notes, 7.875%, 12/15/05 4,282,400
4,000 Penn National Gaming Inc., Senior Subordinated Notes, 8.875%, 3/15/10 4,270,000
Pinnacle Entertainment Inc., Senior Subordinate Notes, Series B:
2,000 9.250%, 2/15/07 1,990,000
2,349 9.500%, 8/01/07 2,337,255
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 1.9%
2,500 CBRE Escrow Inc., Senior Notes, Series 144A, 9.750%, 5/15/10 2,687,500
500 Forest City Enterprises, Senior Notes, 7.625%, 6/01/15 522,500
19,000 General Motors Acceptance Corporation, Notes, 8.000%, 11/01/31 17,577,299
2,000 MDP Acquisitions plc, Senior Notes, 9.625%, 10/01/12 2,120,000
4,000 Universal City Development Partners, Senior Notes, Series 144A, 11.750%, 4/01/10 4,450,000
16
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
FOOD - 0.9%
$ 5,943 Dole Foods Company, Debentures, 7.875%, 7/15/13 $ 6,269,865
2,000 Ingles Markets Inc., Senior Subordinate Notes, 8.875%, 12/01/11 1,970,000
4,000 Ingles Markets Inc., Senior Subordinated Notes, Series 144A, 8.875%, 12/01/11 3,940,000
------------------------------------------------------------------------------------------------------------------------------------
HOMEBUILDING - 0.5%
1,000 Technical Olympic USA Inc., Notes, Series 144A, 10.375%, 7/01/12 1,075,000
3,500 Technical Olympic USA Inc., Senior Subordinate Notes, 10.375%, 7/01/12 3,762,500
2,500 Willima Lyon Homes Inc., Unsecured Senior Notes, 10.750%, 4/01/13 2,700,000
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 1.8%
1,000 Allied Waste North America Inc., Senior Notes, 7.875%, 4/15/13 1,025,000
6,250 Allied Waste North America Inc., Senior Subordinated Notes, Series B, 10.000%, 8/01/09 6,617,188
1,520 Berry Plastics Corporation, Senior Subordinated Notes, 10.750%, 7/15/12 1,672,000
2,000 Hovnanian K. Enterprises Inc., Senior Subordinate Notes, 8.875%, 4/01/12 2,150,000
3,000 Laidlaw International Inc., Senior Notes, Series 144A, 10.750%, 6/15/11 3,210,000
2,000 Owens-Brockway Glass Containers, Guaranteed Senior Notes, Series 144A, 8.250%, 5/15/13 2,030,000
2,000 Owens-Illinois Inc., 7.800%, 5/15/18 1,810,000
Terex Corporation, Senior Subordinated Notes:
1,000 8.875%, 4/01/08 1,025,000
1,000 10.375%, 4/01/11 1,085,000
1,000 9.250%, 7/15/11 1,060,000
1,000 Terex Corporation, Senior Subordinated Notes, Series D, 8.875%, 4/01/08 1,025,000
2,000 Texas Industries Inc., Senior Notes, Series 144A, 10.250%, 6/15/11 2,100,000
------------------------------------------------------------------------------------------------------------------------------------
LEISURE FACILITIES - 0.6%
Intrawest Corporation, Senior Notes:
1,280 9.750%, 8/15/08 1,344,000
4,000 10.500%, 2/01/10 4,350,000
2,000 Town Sports International Inc., 9.625%, 4/15/11 2,125,000
------------------------------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS - 0.3%
3,000 Iasis Healthcare Corporation, 13.000%, 10/15/09 3,345,000
1,000 Iasis Healthcare Corporation, Series 144A, 8.500%, 10/15/09 1,000,000
------------------------------------------------------------------------------------------------------------------------------------
NETWORK EQUIPMENT - 0.3%
3,500 Avaya Inc., Senior Secured Notes, 11.125%, 4/01/09 3,937,500
------------------------------------------------------------------------------------------------------------------------------------
OFFICE ELECTRONICS - 0.6%
4,000 IOS Capital LLC, Senior Notes, 7.250%, 6/30/08 3,700,000
2,000 Xerox Corporation, Notes, 5.500%, 11/15/03 2,015,000
3,000 Xerox Corporation, Unsecured Notes, 5.250%, 12/15/03 3,022,500
------------------------------------------------------------------------------------------------------------------------------------
OIL SERVICES - 0.2%
2,400 Baytex Energy Limited, Senior Subordinate Notes, Series 144A, 9.625%, 7/15/10 2,508,000
17
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
PAPER - 0.5%
$ 2,000 Georgia Pacific Corporation, Debentures, 7.700%, 6/15/15 $ 1,850,000
5,000 Georgia Pacific Corporation, Notes, 8.125%, 5/15/11 4,950,000
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - FOREIGN - 0.1%
2,000 Alpharma Inc., Senior Notes, Series 144A, 8.625%, 5/01/11 2,110,000
------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING & PRINTING - 1.5%
500 CBD Media/CBD Finance, Senior Subordinate Notes, Series 144A, 8.625%, 6/01/11 517,500
5,800 Mail-Well I Corporation, Senior Unsecured Notes, Series 144A, 9.625%, 3/15/12 6,191,500
Primedia Inc., Senior Notes:
4,000 7.625%, 4/01/08 3,940,000
3,000 8.875%, 5/15/11 3,082,500
6,750 Vertis Inc., Senior Notes, Series 144A, 9.750%, 4/01/09 7,003,125
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.6%
4,425 LNR Property Corporation, Senior Subordinate Notes, Series 144A, 7.625%, 7/15/13 4,425,000
4,000 Mangrove Bay, Series 144A, Class 3, 6.102%, 7/15/33 3,880,000
------------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS - 0.0%
500 Dominos Inc., Senior Subordinated Notes, Series 144A, 8.250%, 7/01/11 525,000
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 1.1%
1,650 Central Garden & Pet Company, Senior Subordinated Notes, 9.125%, 2/01/13 1,773,750
1,000 Phillips-Van Heusen Corporation, Senior Notes, Series 144A, 8.125%, 5/01/13 1,020,000
Saks Inc., Notes:
1,500 8.250%, 11/15/08 1,560,000
2,000 9.875%, 10/01/11 2,240,000
5,000 Toys R Us Inc., Notes, 7.875%, 4/15/13 5,005,680
4,500 Williams Scotsman Inc., Senior Notes, 9.875%, 6/01/07 4,376,250
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIAL - 0.4%
5,000 Warnaco Inc., Senior Notes, Series 144A, 8.875%, 6/15/13 5,225,000
------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY CHEMICALS - 0.1%
1,700 United Industries Corporation, Senior Subordinate Notes, Series D, 9.875%, 4/01/09 1,793,500
------------------------------------------------------------------------------------------------------------------------------------
TELECOM - 0.2%
3,000 Triton PCS Inc., Senior Notes, Series 144A, 8.500%, 6/01/13 3,135,000
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - FOREIGN - 0.2%
2,750 CanWest Media Inc., Senior Notes, 7.625%, 4/15/13 2,846,250
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $243,065,107) 242,494,414
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 17.6% (11.9% OF TOTAL INVESTMENTS)
BANKING - 8.1%
3,500 Ahmanson Capital Trust I, 8.360%, 12/01/26 3,696,763
1,000 BankAmerica Capital II, Series 2, 8.000%, 12/15/26 1,074,260
6,000 BankBoston Capital Trust I, Series B, 8.250%, 12/15/26 6,449,958
3,000 Bank One Capital III, 8.750%, 9/01/30 3,750,120
1,500 BanPonce Trust I, Series A, 8.327%, 2/01/27 1,571,213
4,850 BT Institutional Capital Trust A, Series 144A, 8.090%, 12/01/26 5,090,565
3,000 Centura Capital Trust I, Series 144A, 8.845%, 6/01/27 3,325,890
18
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BANKING (continued)
$ 18,125 Chase Capital Trust I, Series A, 7.670%, 12/01/26 $ 18,560,127
13,500 Corestates Capital Trust I, Series 144A, 8.000%, 12/15/26 14,630,085
6,200 First Empire Capital Trust I, 8.234%, 2/01/27 6,677,400
6,300 KeyCorp Institutional Capital Trust, Series A, 7.826%, 12/01/26 6,488,364
20,000 M&I Capital Trust A, 7.650%, 12/01/26 21,170,800
5,000 NB Capital Trust IV, 8.250%, 4/15/27 5,382,600
1,000 North Fork Capital Trust I, 8.700%, 12/15/26 1,121,610
11,000 North Fork Capital Trust II, 8.000%, 12/15/27 11,635,250
100 Reliance Capital Trust I, Series B, 8.170%, 5/01/28 105,372
100 Wachovia Capital Trust I, Series 144A, 7.640%, 1/15/27 105,762
5,000 Zions Institutional Capital Trust, Series A, 8.536%, 12/15/26 5,210,035
------------------------------------------------------------------------------------------------------------------------------------
BANKING - FOREIGN - 3.1%
5,000 Abbey National Capital Trust I, 8.963%, 6/30/20 6,492,950
12,308 Barclays Bank plc, Series 144A, 6.860%, 6/15/32 12,914,046
10,000 HSBC Capital Funding LP, 10.176%, 6/30/30 14,174,400
10,000 Sparebanken Rogaland, Notes, Series 144A, 6.443%, 5/01/13 9,950,000
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 1.3%
18,000 St. George Funding Company LLC, 8.485%, 6/30/17 18,781,272
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.2%
1,000 KN Capital Trust I, 8.560%, 4/15/27 1,130,990
1,145 KN Capital Trust III, 7.630%, 4/15/28 1,190,445
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - FINANCIAL - 1.4%
20,596 Berkeley Capital Trust, 8.197%, 12/20/45 20,040,485
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 0.4%
4,270 American General Institutional Capital, 8.125%, 3/15/46 5,137,024
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - FOREIGN - 0.4%
5,000 Sun Life Canada Capital Trust, 8.526%, 5/06/07 5,315,650
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTILINE - 0.8%
4,780 SAFECO Capital Trust I, 8.072%, 7/15/37 5,095,717
6,250 Zurich Capital Trust I, 8.376%, 6/01/37 6,330,880
------------------------------------------------------------------------------------------------------------------------------------
SAVINGS & LOAN - 0.3%
3,500 Washington Mutual Capital Trust I, 8.375%, 6/01/27 3,824,620
------------------------------------------------------------------------------------------------------------------------------------
SAVINGS & LOAN - THRIFT - 1.0%
12,250 Dime Capital Trust I, Series A, 9.330%, 5/06/27 13,782,900
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 0.6%
3,000 PECO Energy Capital Trust IV, 5.750%, 6/15/33 2,562,327
6,160 Southern Company Capital Trust I, 8.190%, 2/01/37 6,536,190
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $268,132,708) 249,306,070
--------------------------------------------------------------------------------------------------------------------
19
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 8.1% (5.5% OF TOTAL INVESTMENTS)
BANKING - FOREIGN - 8.0%
$ 6,000 BNP Paribas Capital Trust Capital Trust, 7.200%, 6/30/07 $ 5,972,850
28,750 C.A. Preferred Funding Trust, 7.000%, 1/30/09 28,036,914
38,500 HBOS Capital Funding LP, Notes, 6.850%, 3/23/09 37,537,500
18,600 Lloyds TSB Bank plc, Subordinate Notes, 6.900%, 11/22/07 18,401,240
23,850 RBSCapital Trust B, 6.800%, 3/31/08 23,405,555
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 0.1%
1,500 Old Mutual Capital Funding, Notes, 8.000%, 12/22/08 1,496,250
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Euro-Market Listed Securities (cost $122,454,537) 114,850,309
--------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.6% (0.4% OF TOTAL INVESTMENTS)
8,530 State Street Repurchase Agreement, 0.980%, date 7/31/03, due 8/01/03, 8,530,000
------------- repurchase price $8,530,232, collateralized by U.S. Treasury Bonds
--------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $8,530,000) 8,530,000
--------------------------------------------------------------------------------------------------------------------
Total Investments - 148.7% (cost $2,110,905,064) 2,102,233,364
--------------------------------------------------------------------------------------------------------------------
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS SOLD SHORT - (1.5)%
BROADCAST CABLE - (0.2)%
(147,000) Cablevision Systems Corp. - Class A (3,131,100)
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - (0.1)%
(291,900) Solectron Corp. (1,491,609)
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - (0.4)%
(51,000) Affiliated Managers Group Inc. (3,336,420)
(50,000) Capital One Financial Corp. (2,395,500)
------------------------------------------------------------------------------------------------------------------------------------
GAS - (0.2)%
(90,000) Sempra Energy (2,504,700)
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - FINANCIAL - (0.2)%
(68,700) Hilb, Rogal, & Hamilton Companies (2,313,129)
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTILINE - (0.2)%
(60,000) Hartford Financial Services Group Inc. (3,131,400)
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIAL - (0.0)%
(25,000) K2 Inc. (412,500)
------------------------------------------------------------------------------------------------------------------------------------
STEEL - (0.0)%
(30,200) United States Steel Corporation (475,952)
20
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TELECOM - (0.2)%
(400,000) Sprint Corp. (PCS Group) $ (2,460,000)
------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks Sold Short (proceeds $21,553,296) (21,652,310)
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Other Liabilities - 2.9% 40,401,802
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (50.1)% (708,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $1,412,982,856
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(a) Security is eligible for the Dividends Received
Deduction.
(CBTCS) Corporate Backed Trust Certificates.
(CORTS) Corporate Backed Trust Securities.
(LYONS) Liquid Yield Option Notes.
(PPLUS) PreferredPlus Trust.
(SATURNS) Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
21
Nuveen Preferred and Convertible Income Fund 2 (JQC)
Portfolio of
INVESTMENTS July 31, 2003
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
EXCHANGE-LISTED PREFERRED SECURITIES - 25.0% (24.5% OF TOTAL INVESTMENTS)
AUTO - FOREIGN - 0.0%
2,400 Magna International Inc., Series B, 8.875% $ 63,600
------------------------------------------------------------------------------------------------------------------------------------
BANKING - 7.7%
57,000 ASBC Capital I, 7.625% 1,513,920
97,310 BAC Capital Trust I, 7.000% 2,496,002
345,200 BAC Capital Trust II, 7.000% 8,768,080
108,000 BAC Capital Trust III, 7.000% 2,818,800
60,000 BAC Capital Trust IV, 5.875% 1,458,000
7,700 BankNorth Capital Trust II, 8.000% 202,510
73,800 Bank One Capital Trust VI, 7.200% 1,900,350
306,984 BNY Capital Trust V, Series F, 5.950% 7,508,829
1,300 Chase Capital Trust IV, 7.340% 32,721
8,000 Chittenden Capital Trust I, 8.000% 208,000
13,900 Citigroup Capital Trust VI, 6.875% 354,172
135,900 Citigroup Capital Trust VII, 7.100% 3,542,913
189,400 Citigroup Capital Trust VIII, 6.950% 4,865,686
678,600 Citigroup Capital Trust IX, 6.000% 16,842,852
33,100 Comerica Capital Trust I, 7.600% 879,798
77,000 Compass Capital Trust III, 7.350% 2,002,000
7,000 First Union Capital II, Series II, 7.500% (CORTS) 186,970
6,900 First Union Institutional Capital I, 8.200% (CORTS) 193,338
3,500 Fleet Capital Trust VI, 8.800% 94,430
340,400 Fleet Capital Trust VII, 7.200% 8,727,856
372,600 Fleet Capital Trust VIII, 7.200% 9,564,642
18,900 JPMorgan Chase Capital Trust, 7.200% (CORTS) 482,139
483,700 JPMorgan Chase Capital Trust X, 7.000% 12,406,905
352,100 JPMorgan Chase Capital Trust XI, 5.875% 8,193,367
9,500 JPMorgan Chase Public Credit and Repackaged Securities, Series 2002, 7.125% 240,825
21,500 JPMorgan Chase Trust, Series 2002-6, Class A, 7.125% (SATURNS) 544,595
144,600 KeyCorp Capital Trust V, 5.875% 3,181,200
4,000 KeyCorp Securities Trust, 7.500% (CORTS) 106,400
7,400 KeyCorp, Series B, 8.250% (CORTS) 198,690
3,900 KeyCorp, Series 2001-7, 7.750% (CORTS) 102,960
13,700 National Commerce Capital Trust II, 7.700% 365,105
11,000 ONB Capital Trust II, 8.000% 291,500
6,000 SunTrust Capital Trust IV, 7.125% 154,560
22
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BANKING (continued)
33,200 SunTrust Capital Trust V, 7.050% $ 853,240
586,500 U.S. Bancorp Capital Trust III, 7.750% 15,184,485
258,300 U.S. Bancorp Capital Trust IV, 7.350% 6,625,395
206,900 U.S. Bancorp Capital Trust V, 7.250% 5,246,984
27,400 Valley National Bank Capital Trust I, 7.750% 721,716
9,700 Washington Mutual Capital Trust I, Series 2001-22, Class A-1, 7.650% (CORTS) 253,170
319,900 Wells Fargo Capital Trust IV, 7.000% 8,259,818
2,100 Wells Fargo Capital Trust V, 7.000% 54,474
66,200 Wells Fargo Capital Trust VI, 6.950% 1,692,072
311,550 Wells Fargo Capital Trust VII, 5.850% 7,558,203
18,600 Zions Capital Trust B, 8.000% 506,850
------------------------------------------------------------------------------------------------------------------------------------
BANKING - FOREIGN - 2.8%
5,000 ABN AMRO Capital Funding Trust I, 7.500% 126,250
77,300 ABN AMRO Capital Funding Trust II, 7.125% 1,953,371
1,615,270 ABN AMRO Capital Funding Trust V, 5.900% 37,538,875
14,600 ANZ Exchangeable Preferred Trust II, 8.080% 370,402
22,000 Banco Totta & Acores Finance, Series A, 8.875% 607,970
4,400 BBVA Preferred Capital Ltd., Series B, 7.750% 114,620
1,000 BCH Capital Ltd., Series B, 9.430% 27,800
BSCH Finance Ltd.:
13,900 Series F, 8.125% 361,956
8,800 Series G, 8.125% 228,888
100 Series H, 7.790% 2,510
12,500 Series J, 7.350% 313,875
27,700 Series Q, 8.625% 741,252
7,200 Espirito Santo Overseas, 8.500% 189,648
8,000 NAB Exchangeable Preferred Trust, 8.000% 202,400
7,500 National Westminster Bank plc, Series A, 7.875% 189,375
488,700 Royal Bank of Scotland Group plc, 5.750% 11,235,213
------------------------------------------------------------------------------------------------------------------------------------
BROKERAGE - 2.7%
10,300 Bear Stearns Capital Trust III, 7.800% 272,126
270,600 Bear Stearns Companies, Series G, 5.490% (a) 12,839,970
14,000 Goldman Sachs Group Inc., 6.000% (PPLUS) 339,640
13,000 Goldman Sachs Group Inc., Series 2003-06, 6.000% (SATURNS) 319,800
Lehman Brothers Holdings Inc.:
198,550 Series C, 5.940% (a) 10,135,978
122,500 Series D, 5.670% (a) 6,125,000
48,100 Merrill Lynch Capital Trust II, 8.000% 1,318,902
7,400 Merrill Lynch Preferred Capital Trust I, 7.750% 202,242
140,300 Merrill Lynch Preferred Capital Trust III, 7.000% 3,574,844
98,200 Merrill Lynch Preferred Capital Trust IV, 7.120% 2,528,650
109,500 Merrill Lynch Preferred Capital Trust V, 7.280% 2,841,525
24,400 Morgan Stanley Capital Trust II, 7.250% 623,908
23
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS July 31, 2003
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BROKERAGE (continued)
235,700 Morgan Stanley Capital Trust III, 6.250% $ 5,746,366
132,400 Morgan Stanley Capital Trust IV, 6.250% 3,214,672
91,500 Morgan Stanley Capital Trust V, 5.750% 2,173,125
16,400 Morgan Stanley Trust I, 7.050% (PPLUS) 427,384
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER - 0.0%
8,900 IBM Inc., Series 2001-1, 7.125% (SATURNS) 231,934
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.0%
2,100 Northern States Power Company, 8.000% 56,973
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - FOREIGN - 0.0%
600 Talisman Energy Inc., 9.000% 15,330
2,300 Talisman Energy Inc., 8.900% 59,202
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 0.0%
5,200 Viacom Inc., 7.250% 135,720
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.9%
8,900 CIT Group Incorporated, 7.750% (CORTS) 238,609
26,500 Countrywide Capital Trust II, Series II, 8.000% (CORTS) 694,300
511,400 Countrywide Capital Trust IV, 6.750% 12,478,160
14,600 Countrywide Trust I, 8.050% (PPLUS) 390,112
15,100 General Electric Capital Corporation, 6.625% 381,275
5,000 Household Capital Trust V, Series X, 10.000% 138,250
5,600 Household Capital Trust VI, 8.300% 148,400
79,700 Household Capital Trust VII, 7.500% 2,090,531
20,000 Household Finance Corporation, 6.875% 500,000
38,000 Philadelphia Authority for Industrial Development, Pennsylvania, Pension, 6.550% 963,300
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 1.1%
4,600 CSFB USA, Series 2002-10, 7.000% (SATURNS) 115,782
105,000 ING Capital Funding Trust, 7.700% 2,685,900
243,920 ING Group NV, 7.200% 6,307,771
509,975 ING Group NV, 7.050% 13,004,363
2,000 Swedish Export Credit Corp., 7.375% 50,660
------------------------------------------------------------------------------------------------------------------------------------
FOOD - FOREIGN - 0.0%
3,100 Grand Metropolitan Delaware LP, 9.420% 83,297
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.0%
400 AGL Capital Trust II, 8.000% 10,600
5,800 Dominion CNG Capital Trust I, 7.800% 153,120
31,400 MCN Financing Trust II, 8.625% 808,236
24
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.0%
7,900 Sherwin Williams Company, Series III, 7.250% (CORTS) $ 203,030
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - FINANCIAL - 0.3%
157,100 AMBAC Financial Group Inc., 5.950% 3,815,959
5,000 AMBAC Financial Group Inc., 5.875% 121,000
3,000 Financial Security Assurance Holdings, 6.875% 77,970
34,000 Nationwide Financial Services Capital, Trust II, 7.100% 853,400
69,300 WR Berkley, 8.125% (CBTCS) 710,325
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 0.8%
167,000 Aetna Incorporated, 8.500% 4,493,970
426,867 Delphi Financial Group Inc., 8.000% 10,842,422
2,000 Lincoln National Capital Trust V, Series E, 7.650% 52,220
10,200 PLC Capital Trust III, 7.500% 267,342
10,100 PLC Capital Trust IV, 7.250% 266,640
8,300 Torchmark Capital Trust I, 7.750% 219,369
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTILINE - 0.2%
2,800 AIG Capital Securities, Series 2002-11, 6.000% (SATURNS) 67,984
133,800 Hartford Capital Trust III, Series C, 7.450% 3,405,210
1,100 Hartford Life Capital Trust I, Series A, 7.200% 27,621
4,900 Hartford Life Capital Trust II, Series B, 7.625% 126,959
3,700 SAFECO Capital Trust I, 8.700% (CORTS) 98,642
10,600 SAFECO Capital Trust III, 8.072% (CORTS) 270,300
1,200 SAFECO Capital Trust I, 8.750% (CORTS) 34,416
1,500 SAFECO Corporation, Series 2001-7, 8.250 40,170
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - P&C - 0.0%
22,100 Everest RE Capital Trust, 7.850%, 585,650
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - P&C - FOREIGN - 2.1%
120,200 Ace Capital Trust I, Series 1999, 8.875% 3,162,462
291,500 Ace Ltd., Series C, 7.800% 7,316,650
240,500 Converium Finance, 8.250% 6,303,505
4,400 PartnerRe Limited, 7.900% 117,920
155,000 PartnerRe Limited, 8.000% 7,912,750
472,502 PartnerRe Limited, Series C, 6.750% 11,765,300
RenaissanceRe Holdings Ltd.:
31,500 Series A, 8.100% 841,365
93,800 Series B, 7.300% 2,430,358
XL Capital Ltd.:
18,800 Series A, 8.000% 500,080
57,800 Series B, 7.625% 1,508,580
25
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS July 31, 2003
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
PAPER - 0.0%
20,400 International Paper Capital Trust III, 7.875% $ 517,548
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - FOREIGN - 0.0%
2,400 Rhone-Poulenc Overseas, Series A, 8.125% 61,056
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 6.0%
318,355 AMB Property Corporation, Series L, 6.500% 7,831,533
20,200 AvalonBay Communities Inc., Series H, 8.700%, 575,700
3,200 BRE Properties, Series B, 8.080% 86,720
Developers Diversified Realty Corporation:
13,500 Series G, 8.000% 342,225
1,120,000 Series H, 7.375% 27,440,000
23,000 Equity Office Properties Trust, Series G, 7.750% 609,270
Equity Residential Properties Trust:
800 Series C, 9.125% 22,392
464,789 Series N, 6.480% 11,271,133
73,200 Gables Residential Trust, Series D, 7.500% 1,844,640
HRPT Properties Trust:
366,785 Series A, 9.875% 9,939,874
119,900 Series B, 8.750% 3,189,340
41,300 New Plan Excel Realty Trust, Series E, 7.625% 1,073,800
Public Storage Inc.:
1,200 Series Q, 8.600% 32,220
55,500 Series R, 8.000% 1,475,190
36,960 Series S, 7.875% 979,440
25,600 Series T, 7.625% 674,048
29,900 Series U, 7.625% 788,762
151,100 Regency Centers Corporation, 7.450% 3,936,155
4,300 Simon Property Group Inc., Series F, 8.750% 117,390
1,643,634 Wachovia Bank Preferred Funding Corporation, 7.250% 44,410,991
------------------------------------------------------------------------------------------------------------------------------------
TELECOM - 0.3%
31,000 AT&T Wireless, Series 2002-7, 8.000% (CBTCS) 825,685
14,000 AT&T Wireless Services, Series 2002-B, 9.250% (SATURNS) 392,840
4,600 Bell South Capital Funding, 7.100% (CORTS) 120,290
9,500 Bell South Corporation, Series 2001-3, 7.125% (SATURNS) 244,530
9,600 Bell South Inc., Series BLS, 7.000% (CORTS) 252,960
6,000 Citizens Communications, Series 2001-2, 8.625% (SATURNS) 160,800
6,800 Citizens Communications Trust I, 8.375% (PPLUS) 175,780
11,900 Deutsche Telekom International Finance, B.V., Series 2001-24, Class A-1, 7.875% (CBTCS) 310,828
5,000 SBC Communications Inc., 7.000% 130,250
5,000 TDS Capital Trust I, 8.500% 126,500
17,700 TDS Capital Trust II, 8.040% 446,040
32,600 Telephone and Data Systems Inc., 7.600% 856,076
9,000 U.S. Cellular Corporation, 8.750% 239,940
2,700 Verizon Communications, 7.625% (CORTS) 71,577
5,100 Verizon Global Funding Corp., 7.375% (CORTS) 134,130
30,700 Verizon New England Inc., Series B, 7.000% 792,060
26
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
UTILITY - 0.1%
1,000 Consolidated Edison Inc., 7.250% $ 26,060
21,000 Energy East Capital Trust I, 8.250% 557,970
1,600 Southern Co. Capital Trust V, 6.875% 40,320
1,600 Southern Co. Capital Trust VI, 7.125% 41,984
31,000 Virginia Power Capital Trust, 7.375% 812,200
------------------------------------------------------------------------------------------------------------------------------------
Total Exchange-Listed Preferred Securities (cost $510,588,651) 488,498,300
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 9.0% (8.8% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.3%
52,800 Northrop Grumman Corporation, 7.250% 5,478,000
------------------------------------------------------------------------------------------------------------------------------------
AUTO - 0.2%
103,400 Ford Motor Company Capital Trust II, 6.500% 4,513,410
------------------------------------------------------------------------------------------------------------------------------------
BANKING - 0.6%
96,250 Citigroup Global Markets Holdings, 2.000% 3,394,064
4,725 State Street Corporation, 6.750% 1,093,838
138,200 Washington Mutual Inc. Unit 1 Trust, 5.375% 7,497,350
------------------------------------------------------------------------------------------------------------------------------------
BROADCAST CABLE - 0.6%
204,000 Cablevision Systems Corp., Trust I, 6.500% 4,783,800
112,000 Emmis Communications Corporation, Series A, 6.250% 4,902,240
60,000 Sinclair Broadcast Group Inc., Series D, 6.000% 2,553,600
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES - 0.4%
180,000 Cendant Corporation, 7.750% 8,092,800
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.2%
82,462 Pioneer-Standard Financial Trust, 6.750% 3,865,406
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.2%
70,000 Chesapeake Energy Corporation, Series 144A, 6.000% 4,138,750
------------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES - 0.1%
18,400 Allied Waste Industries Inc., 6.250% 1,265,920
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.4%
330,000 Gabelli Asset Management Inc., 6.950% 7,920,000
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.4%
265,000 Sempra Energy, 8.500% 6,996,000
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.3%
113,325 Newell Financial Trust I, 5.250% 5,042,963
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.2%
166,700 Teekay Shipping Corporation, 7.250% 4,854,304
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 0.8%
86,500 Anthem Inc., 6.000% 7,895,720
146,500 Reinsurance Group of America Inc., 5.750% 8,083,138
27
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS July 31, 2003
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTILINE - 0.4%
143,225 Prudential Financial Capital Trust I, 6.750% $ 8,350,018
------------------------------------------------------------------------------------------------------------------------------------
IT CONSULTING & SERVICES - 0.1%
91,000 Electronic Data Systems Corporation, 7.625% 2,034,760
------------------------------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS - 0.4%
166,000 Baxter International Inc., 7.000% 8,447,740
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 0.7%
49,800 Equity Office Properties Trust, Convertible Preferred Shares, Series B, 5.250% 2,450,160
232,600 Equity Residential Properties Trust, Series G, 7.250% 6,015,036
119,000 Host Marriott Financial Trust, 6.750% 5,146,750
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.3%
151,000 Toys R Us Inc., Convertible Equity Units, 6.250% 5,647,400
------------------------------------------------------------------------------------------------------------------------------------
STEEL - 0.1%
40,800 TXI Capital Trust I, 6.500% 1,442,280
------------------------------------------------------------------------------------------------------------------------------------
TELECOM - 0.9%
162,000 Alltel Corporation, 7.750% 7,776,000
6,200 Lucent Technologies Capital Trust I, 7.750% 4,457,800
184,100 Motorola Inc., 7.000% 6,102,915
------------------------------------------------------------------------------------------------------------------------------------
UTILITY - 1.4%
121,000 Cinergy Corporation, 9.500% 7,132,950
107,500 Dominion Resources Inc., 8.750% 5,600,750
98,500 FPL Group Inc., 8.000% 5,343,625
66,300 PPL Capital Funding Trust I, 7.750% 1,379,040
100,000 Public Service Enterprise Group, 10.250% 5,840,000
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $177,965,280) 175,538,527
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - HYBRID SECURITIES - 1.1% (1.1% OF TOTAL INVESTMENTS)
TELECOM - 1.1%
19,545 Centaur Funding Corporation, Series B-144A, 9.080% 21,963,694
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Hybrid Securities (cost $23,604,173) 21,963,694
--------------------------------------------------------------------------------------------------------------------
28
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 14.7% (14.3% OF TOTAL INVESTMENTS)
ADVERTISING - 0.3%
$ 5,650 Interpublic Group Companies, Convertible Subordinated Notes, 1.870%, 6/01/06 $ 5,021,438
------------------------------------------------------------------------------------------------------------------------------------
AIRLINES - 0.4%
3,750 Continental Airlines, Convertible Notes, 4.500%, 2/01/07 2,896,875
3,000 Delta Air Lines, Convertible Notes, Series 144A, 8.000%, 6/03/23 2,778,750
3,100 Northwest Airlines Corporation, Convertible Notes, Series 144A, 6.625%, 5/15/23 2,894,625
------------------------------------------------------------------------------------------------------------------------------------
AUTO - 1.2%
696,000 General Motors Corporation, 6.250% 17,191,200
1,250 Sonic Automotive Inc., Convertible Senior Subordinated Notes, 5.250%, 5/07/09 1,260,938
5,000 Tower Automotive Inc., 5.000%, 8/01/04 4,950,000
------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 0.6%
6,165 Fisher Scientific International Inc., Convertible Senior Notes, 2.500%, 10/01/23 6,442,425
3,500 Ivax Corporation, Convertible Senior Subordinated Notes, 4.500%, 5/15/08 3,478,125
1,000 Sepracor Inc., Convertible Subordinated Debentures, 5.000%, 2/15/07 921,250
------------------------------------------------------------------------------------------------------------------------------------
BROADCAST CABLE - 1.0%
7,000 Liberty Media Corporation, Senior Debentures Exchangeable for Class B, 3.250%, 3/15/31 7,096,250
12,400 Liberty Media Corporation, Senior Debentures Exchangeable for PCS Common, 4.000%, 11/15/29 7,564,000
4,375 Mediacom Communications Corporation, Convertible Senior Notes, 5.250%, 7/01/06 3,997,656
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER - 2.4%
4,200 Computer Associates International Inc., Convertible Senior Notes, 5.000%, 3/15/07 5,381,250
6,000 Electronic Data Systems, Convertible Senior Notes, Series 144A, 3.875%, 7/15/23 6,180,000
4,850 General Semiconductor Inc., Convertible Subordinated Notes, 5.750%, 12/15/06 4,831,813
15,500 Hewlett Packard Company, 0.000%, 10/14/17 (LYONS) 8,234,375
6,000 International Rectifier Corporation, Convertible Subordinated Notes, 4.250%, 7/15/07 5,865,000
3,815 Maxtor Corporation, Convertible Senior Notes, Series 144A, 6.800%, 4/30/10 4,830,744
2,000 Mentor Graphics Corporation, Convertible Subordinate Notes, 6.875%, 6/15/07 2,247,500
4,713 Mercury Interactive Corporation, Convertible Subordinated Notes, 4.750%, 7/01/07 4,689,435
5,000 Quantum Corporation, 7.000%, 8/01/04 5,050,000
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.4%
8,000 Anixter International Inc., 0.000%, 6/28/20 (LYONS) 2,650,000
12,000 Arrow Electronics Inc., Convertible Senior Debentures, 0.000%, 2/21/21 5,865,000
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.3%
6,000 McMoran Exploration Corporation, Notes, Series 144A, 6.000%, 7/02/08 6,120,000
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.4%
8,000 Providian Financial Corporation, Convertible Senior Notes, 3.250%, 8/15/05 7,390,000
29
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
HEALTH DISTRIBUTORS & SERVICES - 0.5%
$ 5,000 Lifepoint Hospitals Inc., Convertible Subordinate Notes, 4.500%, 6/01/09 $ 5,125,000
5,400 Province Healthcare Inc., Convertible Subordinated Notes, 4.250%, 10/10/08 4,934,250
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.4%
7,000 Tyco International Group Limited, Convertible Notes, Series 144A, 3.125%, 1/15/23 7,393,750
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.5%
4,900 EDO Corporation, Convertible Subordinate Notes, 5.250%, 4/15/07 4,961,250
5,300 GenCorp Inc., Convertible Notes, 5.750%, 4/15/07 5,001,875
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - P&C - 0.4%
333,000 Travelers Property and Casualty Company, 4.500%, 4/15/32 7,955,370
------------------------------------------------------------------------------------------------------------------------------------
LEISURE FACILITIES - 0.7%
7,175 Carnival Corporation, Convertible Senior Debentures, 2.000%, 4/15/21 8,044,969
12,000 Royal Caribbean Cruises Limited, Senior Notes, 0.000%, 2/02/21 (LYONS) 5,400,000
------------------------------------------------------------------------------------------------------------------------------------
METALS DIVERSIFICATION - 0.2%
3,950 Freeport-McMoran Inc., 7.000%, 2/11/11 4,814,063
------------------------------------------------------------------------------------------------------------------------------------
NETWORK EQUIPMENT - 0.7%
3,700 Agere Systems Inc., 6.500%, 12/15/09 4,620,375
10,500 Brocade Communication Systems Inc., Convertible Notes, 2.000%, 1/01/07 8,557,500
------------------------------------------------------------------------------------------------------------------------------------
OFFICE ELECTRONICS - 0.3%
5,500 IOS Capital LLC, Convertible Subordinate Debentures, Series 144A, 5.000%, 5/01/07 5,011,875
------------------------------------------------------------------------------------------------------------------------------------
OIL SERVICES - 0.1%
2,500 Maverick Tube Corporation, Convertible Notes, Series 144A, 4.000%, 6/15/33 2,362,500
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.6%
4,125 Indevus Pharmaceuticals Inc., Convertible Senior Debentures, Series 144A, 6.250%, 7/15/08 4,547,813
1,500 Ivax Corporation, Convertible Bonds, 5.500%, 5/15/07 1,511,250
6,000 Medarex Inc., Convertible Subordinated Notes, 4.500%, 7/01/06 5,070,000
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.4%
3,630 Barnes & Noble Inc., Convertible Notes, 5.250%, 3/15/09 3,666,300
4,625 Best Buy Inc., Convertible Subordinate Debentures, 2.250%, 1/15/22 4,671,250
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIAL - 0.5%
3,000 Charming Shoppes Inc., Senior Convertible Notes, 4.750%, 6/01/12 2,752,500
8,000 Lowes Companies Inc., Senior Notes, 0.000%, 2/16/21 (LYONS) 6,450,000
------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR - 0.6%
5,500 ASM Lithography, Convertible Notes, 5.750%, 10/15/06 6,132,500
6,974 Brooks Automation Inc., Convertible Subordinated Notes, 4.750%, 6/01/08 6,468,385
------------------------------------------------------------------------------------------------------------------------------------
STEEL - 0.2%
5,045 Shaw Group Inc., Senior Notes, 0.000%, 5/01/21 (LYONS) 3,178,350
30
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TELECOM - 0.1%
$ 1,500 Nextel Communications Inc., Convertible Senior Notes, 6.000%, 6/01/11 $ 1,606,875
------------------------------------------------------------------------------------------------------------------------------------
TELECOM EQUIPMENT - 0.9%
8,000 Ciena Corporation, Convertible Notes, 3.750%, 2/01/08 6,730,000
9,500 Liberty Media Corporation, Senior Debentures Exchangeable for Motorola, 3.500%, 1/15/31 6,460,000
6,000 Nortel Networks Corporation, Convertible Senior Notes, 4.250%, 9/01/08 5,047,500
------------------------------------------------------------------------------------------------------------------------------------
UTILITY - 0.6%
5,000 Calpine Corporation, Convertible Senior Notes, 4.000%, 12/26/06 4,493,750
260,000 Centerpoint Energy Inc., Zero Premium Exchangeable Subordinated Notes, 2.000%, 9/15/29 7,280,000
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (cost $287,923,020) 286,077,899
--------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 10.7% (10.5% OF TOTAL INVESTMENTS)
AUTO - 1.7%
2,000 Ford Motor Company, 8.900%, 1/15/32 1,921,222
Ford Motor Company, Debentures:
9,095 9.980%, 2/15/47 9,414,680
7,570 7.700%, 5/15/97 6,276,385
15,000 General Motors Corporation, Senior Debentures, 8.375%, 7/15/33 14,051,940
2,000 Tenneco Authomotive Inc., Senior Notes, Series 144A, 10.250%, 7/15/13 2,020,000
------------------------------------------------------------------------------------------------------------------------------------
BROADCAST CABLE - 0.5%
4,900 Allbritton Communications Company, Senior Subordinated Notes, Series B, 7.750%, 12/15/12 4,851,000
2,000 Cablevision Systems Corporation, Senior Debentures, Series B, 8.125%, 8/15/09 1,990,000
2,000 CSC Holdings Inc., 8.125%, 7/15/09 1,990,000
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.3%
2,000 Chesapeake Energy Corporation, Senior Notes, 9.000%, 8/15/12 2,180,000
1,000 Energy Partners Limited, Series 144A, 8.750%, 8/01/10 (DD, settling 8/05/03) 1,002,500
Tesoro Petroleum Corporation, Senior Subordinated Notes, Series B:
2,000 9.000%, 7/01/08 1,830,000
1,000 9.625%, 11/01/08 945,000
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 0.6%
3,400 Aztar Corporation, 9.000%, 8/15/11 3,621,000
2,345 Boyd Gaming Corporation, Senior Subordinated Notes, 8.750%, 4/15/12 2,526,738
1,000 Park Place Entertainment, Senior Subordinate Notes, 7.875%, 3/15/10 1,065,000
2,000 Penn National Gaming Inc., Senior Subordinated Notes, 8.875%, 3/15/10 2,135,000
2,000 Pinnacle Entertainment Inc., Senior Subordinate Notes, Series B, 9.250%, 2/15/07 1,990,000
1,000 Venetian Casino Resort, LLC, 11.000%, 6/15/10 1,110,000
31
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.4%
$ 2,500 MDP Acquisitions plc, Senior Notes, 9.625%, 10/01/12 $ 2,650,000
4,000 Universal City Development Partners, Senior Notes, Series 144A, 11.750%, 4/01/10 4,450,000
------------------------------------------------------------------------------------------------------------------------------------
FOOD - 0.7%
4,500 Del Monte Corporation, Senior Subordinate Notes, Series 144A, 8.625%, 12/15/12 4,702,500
5,000 Dole Foods Company, Debentures, 7.875%, 7/15/13 5,275,000
1,400 Dole Foods Company, Senior Notes, 8.625%, 5/01/09 1,449,000
957 Ingles Markets Inc., Senior Subordinate Notes, 8.875%, 12/01/11 942,645
2,000 Ingles Markets Inc., Senior Subordinated Notes, Series 144A, 8.875%, 12/01/11 1,970,000
------------------------------------------------------------------------------------------------------------------------------------
HEALTH DISTRIBUTORS AND SERVICES - 0.1%
1,000 Select Medical Corporation, Series 144A, 7.500%, 8/01/13 (DD, settling 8/12/03) 995,000
------------------------------------------------------------------------------------------------------------------------------------
HOMEBUILDING - 0.2%
3,000 Willima Lyon Homes Inc., Unsecured Senior Notes, 10.750%, 4/01/13 3,240,000
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.2%
4,000 Jacuzzi Brands Inc., Senior Secured Notes, Series 144A, 9.625%, 7/01/10 4,140,000
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 1.4%
6,235 Allied Waste North America Inc., Senior Subordinated Notes, Series B, 10.000%, 8/01/09 6,601,306
2,000 Berry Plastics Corporation, Senior Subordinated Notes, 10.750%, 7/15/12 2,200,000
3,000 Hovnanian K. Enterprises Inc., Senior Subordinate Notes, 8.875%, 4/01/12 3,225,000
3,000 Laidlaw International Inc., Senior Notes, Series 144A, 10.750%, 6/15/11 3,210,000
2,000 Owens-Brockway Glass Containers, Guaranteed Senior Notes, Series 144A, 8.250%, 5/15/13 2,030,000
3,000 Owens-Illinois Inc., 7.500%, 5/15/10 2,880,000
Terex Corporation, Senior Subordinated Notes:
3,000 8.875%, 4/01/08 3,075,000
2,000 10.375%, 4/01/11 2,170,000
199 Terex Corporation, Senior Subordinated Notes, Series D, 8.875%, 4/01/08 203,975
2,100 United States Can Corporation, Second Priority Senior Secured Notes, 10.875%, 7/15/10 2,094,750
------------------------------------------------------------------------------------------------------------------------------------
LEISURE FACILITIES - 0.3%
5,000 Intrawest Corporation, Senior Notes, 9.750%, 8/15/08 5,250,000
------------------------------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS - 0.2%
1,480 Iasis Healthcare Corporation, 13.000%, 10/15/09 1,650,200
2,455 Iasis Healthcare Corporation, Series 144A, 8.500%, 10/15/09 2,455,000
------------------------------------------------------------------------------------------------------------------------------------
PAPER - 0.3%
2,000 Georgia Pacific Corporation, Debentures, 7.700%, 6/15/15 1,850,000
5,000 Georgia Pacific Corporation, Notes, 8.125%, 5/15/11 4,950,000
------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING & PRINTING - 0.8%
2,000 American Media Operations Inc., 8.875%, 1/15/11 2,135,000
1,500 Mail-Well I Corporation, Senior Unsecured Notes, Series 144A, 9.625%, 3/15/12 1,601,250
Primedia Inc., Senior Notes:
3,000 7.625%, 4/01/08 2,955,000
4,000 8.875%, 5/15/11 4,110,000
4,000 Vertis Inc., Senior Notes, Series 144A, 9.750%, 4/01/09 4,150,000
32
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 1.6%
$ 1,500 LNR Property Corporation, Senior Subordinated Notes, 10.500%, 1/15/09 $ 1,620,000
30,000 Mangrove Bay, Series 144A, Class 3, 6.102%, 7/15/33 29,100,000
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.6%
Saks Inc., Notes:
2,000 7.500%, 12/01/10 2,030,000
1,000 9.875%, 10/01/11 1,120,000
2,000 7.375%, 2/15/19 1,870,000
4,000 Toys R Us Inc., Notes, 7.875%, 4/15/13 4,004,544
3,500 Williams Scotsman Inc., Senior Notes, 9.875%, 6/01/07 3,403,750
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIAL - 0.2%
4,000 Warnaco Inc., Senior Notes, Series 144A, 8.875%, 6/15/13 4,180,000
------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY CHEMICALS - 0.2%
2,500 OM Group Inc., 9.250%, 12/15/11 2,462,500
1,500 United Industries Corporation, Senior Subordinate Notes, Series D, 9.875%, 4/01/09 1,582,500
------------------------------------------------------------------------------------------------------------------------------------
TELECOM - 0.4%
5,000 Nextel Communications Inc., 7.375%, 8/01/15 4,900,000
3,000 Rural Cellular Corp, Series 144A, 9.875%, 2/01/10 (DD, settling 8/01/03) 2,850,000
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $213,218,633) 208,654,385
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 15.4% (15.0% OF TOTAL INVESTMENTS)
BANKING - 5.8%
2,183 BankAmerica Capital II, Series 2, 8.000%, 12/15/26 2,345,110
5,000 BankAmerica Institutional Trust, 8.070%, 12/31/26 5,317,330
2,600 BankAmerica Institutional Capital Trust, Series B, 7.700%, 12/31/26 2,773,420
2,000 BankBoston Capital Trust I, Series B, 8.250%, 12/15/26 2,149,986
6,075 Bank One Capital III, 8.750%, 9/01/30 7,593,993
4,000 BT Capital Trust B, Capital Securities, Series B, 7.900%, 1/15/27 4,139,064
2,350 FBS Capital Trust I, 8.090%, 11/15/26 2,533,817
3,775 First Chicago NBD Institutional Capital Trust, Series B, 7.750%, 12/01/26 3,928,741
3,750 First Empire Capital Trust I, 8.234%, 2/01/27 4,038,750
10,000 First Empire Capital Trust II, 8.277%, 6/01/27 10,819,800
3,000 JPMorgan Chase Capital Trust II, 7.950%, 2/01/27 3,137,802
15,000 KeyCorp Institutional Capital Trust, Series A, 7.826%, 12/01/26 15,448,485
18,060 Mellon Capital Trust I, Series A, 7.720%, 12/01/26 18,942,737
17,000 North Fork Capital Trust II, 8.000%, 12/15/27 17,981,750
500 PNC Institutional Capital Securities, 7.950%, 12/15/26 525,693
1,002 Republic New York Capital II, 7.530%, 12/04/26 1,018,458
9,000 State Street Institutional Capital Trust, Series 144A, 8.035%, 3/15/27 9,867,960
------------------------------------------------------------------------------------------------------------------------------------
BANKING - FOREIGN - 5.4%
20,000 Abbey National Capital Trust I, 8.963%, 6/30/20 25,971,800
29,075 Barclays Bank plc, Series 144A, 6.860%, 6/15/32 30,506,653
21,000 CBA Capital Trust I, 5.805%, 6/30/15 (DD, settling 8/06/03) 21,000,000
20,000 HSBC Capital Funding LP, 10.176%, 6/30/30 28,348,800
33
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.2%
$ 3,725 St. George Funding Company LLC, 8.485%, 6/30/07 $ 3,887,522
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 0.6%
10,000 ING Capital Funding Trust III, 8.439%, 12/29/49 11,868,390
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.5%
10,000 KN Capital Trust III, 7.630%, 4/15/28 10,396,900
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - FINANCIAL - 0.7%
10,000 American General Capital II, 8.500%, 7/0/30 12,525,500
612 Berkeley Capital Trust, 8.197%, 12/20/45 595,493
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 0.3%
5,000 American General Institutional Capital, Series 144A, 7.570%, 12/01/45 5,687,100
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTILINE - 1.7%
12,353 SAFECO Capital Trust I, 8.072%, 7/15/37 13,168,916
19,513 Zurich Capital Trust I, 8.376%, 6/01/37 19,765,518
------------------------------------------------------------------------------------------------------------------------------------
SAVINGS & LOAN - THRIFT - 0.2%
3,365 Great Western Financial Trust II, Series A, 8.206%, 2/01/27 3,537,261
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $323,982,983) 299,822,749
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - EURO-MARKET LISTED SECURITIES - 5.7% (5.6% OF TOTAL INVESTMENTS)
BANKING - FOREIGN - 4.4%
6,250 BNP Paribas Capital Trust, 7.200%, 6/30/07 6,221,719
28,750 C.A. Preferred Funding Trust, 7.000%, 1/30/09 28,036,914
25,750 HBOS Capital Funding LP, Notes, 6.850%, 3/23/09 25,106,250
7,000 Lloyds TSB Bank plc, Subordinate Notes, 6.900%, 11/22/07 6,925,198
21,250 RBS Capital Trust B, 6.800%, 3/31/08 20,854,006
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 1.3%
24,850 Old Mutual Capital Funding, Notes, 8.000%, 12/22/08 24,787,875
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Euro-Market Listed Securities (cost $118,588,192) 111,931,962
--------------------------------------------------------------------------------------------------------------------
U.S GOVERNMENT AND AGENCY OBLIGATIONS - 8.7% (8.5% OF TOTAL INVESTMENTS)
AGENCY - 1.0%
20,000 Fannie Mae, Benchmark Notes, 4.625%, 5/01/13 18,679,720
------------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES - 7.7%
United States of America Treasury Notes:
35,000 1.125%, 6/30/05 34,595,325
15,000 2.000%, 5/15/06 14,910,945
65,000 2.625%, 5/15/08 63,116,040
40,000 3.625%, 5/15/13 37,331,275
------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations (cost $175,320,015) 168,633,305
--------------------------------------------------------------------------------------------------------------------
34
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 12.0% (11.7% OF TOTAL INVESTMENTS)
$ 133,426 State Street Repurchase Agreement, 0.980%, date 7/31/03, due 8/01/03, $133,426,000
repurchase price $133,429,632, collateralized by U.S. Treasury Bonds
40,000 Citigroup Global Markets, Commercial Paper Notes, 1.030%, 8/06/03 39,994,278
30,000 General Electric Company, Commercial Paper Notes, 1.000%, 8/06/03 29,995,833
30,000 Prudential Funding LLC, Commercial Paper Notes, 0.980%, 8/06/03 29,995,917
------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $233,412,028) 233,412,028
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,064,602,975) - 102.3% 1,994,532,849
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (2.3)% (43,910,361)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100%, $1,950,622,488
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common Shares
unless otherwise noted.
(a) Security is eligible for the Dividends Received
Deduction.
(CBTCS) Corporate Backed Trust Certificates.
(CORTS) Corporate Backed Trust Securities.
(LYONS) Liquid Yield Option Notes.
(PPLUS) PreferredPlus Trust.
(SATURNS) Structured Asset Trust Unit Repackaging.
(DD) Security purchased on a delayed delivery basis.
See accompanying notes to financial statements.
35
Statement of
ASSETS AND LIABILITIES July 31, 2003
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $2,110,905,064 and $2,064,602,975, respectively) $2,102,233,364 $1,994,532,849
Cash 2,728,809 17,433,873
Deposits with brokers for securities sold short 18,574,722 --
Receivables:
Dividends 4,385,519 2,573,143
Interest 12,309,724 11,091,244
Investments sold 14,632,961 44,594,093
Other assets 41,299 --
------------------------------------------------------------------------------------------------------------------------------------
Total assets 2,154,906,398 2,070,225,202
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Common stocks sold short, at value (proceeds $21,553,296 and $0, respectively) 21,652,310 --
Payable for investments purchased 10,563,018 116,571,544
Accrued expenses:
Management fees 993,108 895,745
Organization and offering costs 265,000 1,950,199
Other 377,472 185,226
FundPreferred share dividends payable 72,634 --
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 33,923,542 119,602,714
------------------------------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 708,000,000 --
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $1,412,982,856 $1,950,622,488
====================================================================================================================================
Common shares outstanding 100,043,992 141,007,000
====================================================================================================================================
Net asset value per Common share outstanding (net assets applicable to
Common shares, divided by Common shares outstanding) $ 14.12 $ 13.83
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 1,000,440 $ 1,410,070
Paid-in surplus 1,416,022,270 2,016,576,101
Undistributed (Over-distribution of) net investment income (234,434) 5,445,706
Accumulated net realized gain (loss) from investments 4,965,294 (2,739,263)
Net unrealized appreciation (depreciation) of investments (8,770,714) (70,070,126)
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $1,412,982,856 $1,950,622,488
====================================================================================================================================
Authorized shares:
Common Unlimited Unlimited
FundPreferred shares Unlimited Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
36
Statement of
OPERATIONS
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME (JPC) INCOME 2 (JQC)
--------------- ----------------
FOR THE PERIOD FOR THE PERIOD
3/26/03 6/30/03
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS)
THROUGH 7/31/03 THROUGH 7/31/03
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $17,184,696 $ 2,701,887
Interest 17,582,887 3,826,028
------------------------------------------------------------------------------------------------------------------------------------
Total investment income 34,767,583 6,527,915
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 5,594,681 1,468,751
FundPreferred shares - auction fees 373,397 --
FundPreferred shares - dividend disbursing agent fees 8,057 --
Shareholders' servicing agent fees and expenses 3,564 1,001
Custodian's fees and expenses 160,135 46,957
Trustees' fees and expenses 31,528 5,096
Professional fees 55,486 22,594
Shareholders' reports - printing and mailing expenses 162,280 97,782
Investor relations expense 45,120 12,998
Other expenses 957 --
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 6,435,205 1,655,179
Custodian fee credit (13,395) (67)
Expense reimbursement (2,074,442) (544,193)
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 4,347,368 1,110,919
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 30,420,215 5,416,996
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investments 6,249,317 (2,710,553)
Change in net unrealized appreciation (depreciation) of investments (8,770,714) (70,070,126)
------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (2,521,397) (72,780,679)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (1,781,038) --
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares from operations $26,117,780 $(67,363,683)
====================================================================================================================================
See accompanying notes to financial statements.
37
Statement of
CHANGES IN NET ASSETS
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME (JPC) INCOME 2 (JQC)
--------------- ----------------
FOR THE PERIOD FOR THE PERIOD
3/26/03 6/30/03
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS)
THROUGH 7/31/03 THROUGH 7/31/03
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 30,420,215 $ 5,416,996
Net realized gain (loss) from investments 6,249,317 (2,710,553)
Change in net unrealized appreciation (depreciation) of investments (8,770,714) (70,070,126)
Distributions to FundPreferred shareholders from net investment income (1,781,038) --
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares
from operations 26,117,780 (67,363,683)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (30,157,634) --
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares 1,430,942,591 2,017,885,896
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 549,331 --
FundPreferred shares offering costs (14,569,487) --
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from
capital share transactions 1,416,922,435 2,017,885,896
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares 1,412,882,581 1,950,522,213
Net assets applicable to Common shares at the beginning of period 100,275 100,275
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $1,412,982,856 $1,950,622,488
====================================================================================================================================
Undistributed (Over-distribution of) net investment income at the end of period $ (234,434) $ 5,445,706
====================================================================================================================================
See accompanying notes to financial statements.
38
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
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.
Prior to the commencement of operations of the Funds, each Fund had no
operations other than those related to organizational matters, the initial
capital contribution of $100,275 per Fund by Nuveen Institutional Advisory Corp.
(the "Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc., and the
recording of the organization expenses ($11,500 per Fund) and their
reimbursement by Nuveen Investments, LLC, also a wholly owned subsidiary of
Nuveen Investments, Inc.
Each Fund seeks to provide high current income by investing primarily in a
portfolio of preferred securities, convertible securities, and related
instruments. Each Fund may also invest in other debt instruments and common
stocks acquired upon conversion of a convertible security.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
accounting principles generally accepted in the United States.
Securities Valuation
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. The prices of fixed-income securities are
provided by a 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 establishes fair market value based on prices of
comparable securities. If it is determined that market prices for a security are
unavailable or inappropriate, the Board of Trustees of the Funds, or its
designee, may establish a fair value for the security. 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 such 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 July 31, 2003,
Preferred and Convertible Income 2 (JQC) had outstanding delayed delivery
purchase commitments of $26,000,000.
Investment Income
Dividend income is recorded on the ex-dividend date. Interest income, which
includes the amortization of premiums and accretion of discounts for financial
reporting purposes, is recorded on an accrual basis.
Income Taxes
The Funds intend to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute substantially all
of its net investment income to its shareholders. Therefore, no federal income
tax provision is required.
Dividends and Distributions to Common Shareholders
Dividends from net investment income are declared monthly. Net realized capital
gains from investment transactions, if any, are distributed to shareholders not
less frequently than annually. Furthermore, capital gains are distributed only
to the extent they exceed available capital loss carryforwards.
Distributions to Common shareholders of net investment income and net realized
capital gains, if any, 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 accounting principles generally accepted in
the United States.
39
Notes to
FINANCIAL STATEMENTS (continued)
FundPreferred Shares
Preferred and Convertible Income (JPC) has issued and outstanding $25,000 stated
value FundPreferred shares. The Fund's FundPreferred shares are issued in more
than one Series. The dividend rate on each Series may change every seven days,
as set pursuant to a dutch auction process by the auction agent, and is payable
at or near the end of each rate period. The number of shares outstanding, by
Series and in total, for the Fund is as follows:
PREFERRED
AND
CONVERTIBLE
INCOME
(JPC)
--------------------------------------------------------------------------------
Number of shares:
Series M 4,720
Series T 4,720
Series W 4,720
Series TH 4,720
Series F 4,720
Series F2 4,720
--------------------------------------------------------------------------------
Total 28,320
================================================================================
Effective May 16, 2003, Preferred and Convertible Income (JPC) issued 4,720
Series M, 4,720 Series T, 4,720 Series W, 4,720 Series TH, 4,720 Series F, and
4,720 Series F2, $25,000 stated value FundPreferred shares.
Interest Rate Swap Transactions
The Funds are authorized to enter into hedging transactions, including interest
rate swap transactions. The Funds may use interest rate swaps with the intent to
reduce or eliminate the risk that an increase in short-term interest rates could
have on Common share net earnings as a result of leverage. The Funds did not
enter into any interest rate swap transactions during the fiscal year ended July
31, 2003.
Short Sales
The Funds may make short sales of securities if, at all times when a short
position is open, the Funds own at least an equal amount of such securities or
securities convertible into or exchangeable for, without payment of any further
consideration, securities of the same issuer as, and at least equal in amount
to, the securities sold short.
The Funds will borrow the securities sold short from a broker-dealer through
which the short sale is executed and the broker-dealer will deliver such
securities, on behalf of the Funds, to the purchaser of such securities. Such
broker-dealer will be entitled to retain the proceeds from the short sale until
the Funds deliver to such broker-dealer the securities sold short. In addition,
the Funds will be required to pay the broker-dealer the amount of any dividends
or interest paid on securities sold short. Finally, to secure its obligation to
deliver to such broker-dealer the 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 without the payment of additional consideration.
Short sales may protect the Funds against the risk of losses in the value of
their portfolio securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by a corresponding
gain in the short position. However, any potential gain in such portfolio
securities should be wholly or partially offset by a corresponding loss in the
short position. The extent to which such gains or losses are offset will depend
upon the amount of securities sold short relative to the amount the Funds own,
either directly or indirectly, and, in the case where the Funds own convertible
securities, changes in the conversion premium. The Funds will incur transaction
costs in connection with short sales.
40
Repurchase Agreements
In connection with transactions in repurchase agreements, it is each Fund's
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.
Other Derivative Financial Instruments
The Funds may invest in options and futures contracts, credit derivative
instruments, and currency exchange transactions for the purpose of hedging their
portfolios. Although the Funds are authorized to invest in such financial
instruments, and may do so in the future, they did not make any such investments
during the fiscal year ended July 31, 2003.
Offering Costs
Nuveen Investments, LLC has agreed to pay all Common share offering costs (other
than the sales load) that exceed $.03 per Common share for Preferred and
Convertible Income (JPC), and Preferred and Convertible Income 2 (JQC).
Preferred and Convertible Income's (JPC), and Preferred and Convertible Income
2's (JQC) share of offering costs ($1,557,409, and $1,939,104, respectively)
were recorded as a reduction of the proceeds from the sale of Common shares.
Costs incurred by Preferred and Convertible Income (JPC) in connection with its
offering of FundPreferred shares ($14,569,487) was recorded as a reduction 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.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
2. FUND SHARES
Transactions in Common and FundPreferred shares were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------- ---------------
FOR THE FOR THE
PERIOD 3/26/03 PERIOD 6/30/03
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS)
THROUGH 7/31/03 THROUGH 7/31/03
--------------------------------------------------------------------------------
Common shares:
Shares sold 100,000,000 141,000,000
Shares issued to
shareholders due to
reinvestment of
distributions 36,992 --
--------------------------------------------------------------------------------
100,036,992 141,000,000
================================================================================
FundPreferred shares sold 28,320 --
================================================================================
41
Notes to
FINANCIAL STATEMENTS (continued)
3. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investment securities and U.S.
Government and agency obligations during the fiscal year ended July 31, 2003,
were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC)* (JQC)**
--------------------------------------------------------------------------------
Purchases:
Investment securities $2,289,974,517 $1,664,689,392
U.S. Government and agency obligations 85,606,058 257,928,736
Sales and maturities:
Investment securities 214,586,604 8,609,965
U.S. Government and agency obligations 88,036,199 80,167,684
================================================================================
* For the period March 26, 2003 (commencement of operations) through 7/31/03.
** For the period June 30, 2003 (commencement of operations) through 7/31/03.
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 July 31, 2003, the cost of investments were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Cost of investments $2,091,713,385 $2,066,058,742
================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments
at July 31, 2003, were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
-------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 43,078,395 $ 4,759,934
Depreciation (54,210,726) (76,285,827)
-------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
on investments $(11,132,331) $(71,525,893)
===============================================================================
42
The tax components of undistributed net ordinary income and net realized gains
at July 31, 2003, were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Undistributed net ordinary income * $17,219,532 $5,712,249
Undistributed net long-term capital gains -- --
================================================================================
*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 year ended July 31,
2003, was designated for purposes of the dividends paid deduction as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Distributions from net ordinary income * $21,811,614 $--
Distributions from net long-term capital gains -- --
================================================================================
*Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
The Preferred and Convertible Income 2 (JQC) has elected to defer net realized
losses from investments incurred from November 1, 2002 through July 31, 2003
("post-October losses") in accordance with Federal income tax regulations. The
Fund has $1,550,040 of post-October losses that are treated as having arisen in
the following fiscal year.
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 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.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under each Fund's investment management agreement with the Adviser, each Fund
pays an annual management fee, payable monthly, at the rates set forth below,
which are based upon each Fund's average daily managed assets. "Managed Assets"
means the average daily net assets of each Fund including assets attributable to
FundPreferred shares and the principal amount of borrowings.
AVERAGE DAILY MANAGED ASSETS MANAGEMENT FEE
--------------------------------------------------------------------------------
For the first $500 million .9000%
For the next $500 million .8750
For the next $500 million .8500
For the next $500 million .8250
For Managed Assets over $2 billion .8000
===============================================================================
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with Spectrum Asset Management, Inc. ("Spectrum"),
and Froley, Revy Investment Co., Inc. (Froley, Revy). Spectrum manages the
portion of the Fund's investment portfolio allocated to preferred securities
while Froley, Revy manages the portion of the investment portfolio allocated to
convertible securities. Spectrum and Foley, Revy are compensated for their
services to the Funds from the management fee paid to the Adviser. The Adviser
is responsible for the overall strategy and asset allocation decisions as well
as managing the portion of the investment portfolio allocated to other debt
securities.
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 Advisers.
43
Notes to
FINANCIAL STATEMENTS (continued)
For the first eight years of Preferred and Convertible Income's (JPC)
operations, the Advisers have 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.
For the first eight years of Preferred and Convertible Income 2's (JQC)
operations, the Advisers have 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. SUBSEQUENT EVENTS
FundPreferred Share Issuance
On August 15, 2003, Preferred and Convertible Income 2 (JQC) issued 3,860
$25,000 stated value FundPreferred shares per series for the following series:
M, M2, T, T2, W, W2, TH, TH2, F, and F2. Costs incurred by the Fund in
connection with its offering of FundPreferred shares ($19,700,000) were recorded
as a reduction to paid-in surplus.
Distributions to Common Shareholders
Preferred and Convertible Income (JPC) declared a $.1005 Common share dividend
distribution from its net investment income which was paid on September 2, 2003,
to shareholders of record on August 15, 2003.
Preferred and Convertible Income 2 (JQC) declared a $.0975 Common share dividend
distribution from its net investment income which was paid on September 2, 2003,
to shareholders of record on August 18, 2003.
44
Financial
HIGHLIGHTS
45
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
---------------------------------------------------------------- ------------------------------
Distributions Distributions
from Net from Net
Beginning Net Investment Capital Investment Capital
Common Realized/ Income to Gains to Income to Gains to
Share Net Unrealized FundPreferred FundPreferred Common Common
Net Asset Investment Investment Share- Share- Share- Share-
Value Income Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
PREFERRED AND
CONVERTIBLE INCOME
(JPC)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(a) $14.33 $.30 $(.02) $(.02) $-- $ .26 $(.30) $-- $(.30)
PREFERRED AND
CONVERTIBLE INCOME 2
(JQC)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(b) 14.33 .04 (.53) -- -- (.49) -- -- --
====================================================================================================================================
Total Returns
-----------------
Based
Offering on
Costs and Ending Common
Preferred Common Based Share
Share Share Ending on Net
Underwriting Net Asset Market Market Asset
Discounts Value Value Value** Value**
====================================================================================
PREFERRED AND
CONVERTIBLE INCOME
(JPC)
------------------------------------------------------------------------------------
Year Ended 7/31:
2003(a) $(.17) $14.12 $14.57 (.89)% .58%
PREFERRED AND
CONVERTIBLE INCOME 2
(JQC)
------------------------------------------------------------------------------------
Year Ended 7/31:
2003(b) (.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)
------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(a) $1,412,983 1.29%* 5.67%* .87%* 6.09%* 21%
PREFERRED AND
CONVERTIBLE INCOME 2
(JQC)
------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(b) 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)
-----------------------------------------------------------------
Year Ended 7/31:
2003(a) $708,000 $25,000 $74,893
PREFERRED AND
CONVERTIBLE INCOME 2
(JQC)
-----------------------------------------------------------------
Year Ended 7/31:
2003(b) -- -- --
=================================================================
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and
changes in stock price per share. Total Return on Common Share Net Asset
Value is the combination of reinvested dividend income, reinvested capital
gains distributions, if any, and changes in Common share net asset value
per share. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders; income ratios reflect income earned on assets attributable to
FundPreferred shares.
(a) For the period March 26, 2003 (commencement of operations) through July 31,
2003.
(b) For the period June 30, 2003 (commencement of operations) through July 31,
2003.
See accompanying notes to financial statements.
46-47 SPREAD
Trustees
AND OFFICERS
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board of
Trustees of the Funds. The number of trustees of the Funds is currently set at
eight for Preferred and Convertible Income (JPC) and twelve for Preferred and
Convertible Income 2 (JQC). None of the trustees who are not "interested"
persons of the Funds has ever been a director or employee of, or consultant to,
Nuveen or its affiliates. The names and business addresses of the trustees and
officers of the Funds, their principal occupations and other affiliations during
the past five years, the number of portfolios each oversees and other
directorships they hold are set forth below.
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
YEAR FIRST PRINCIPAL OCCUPATION(S) OVERSEEN
NAME, BIRTHDATE POSITION(S) HELD ELECTED OR INCLUDING OTHER DIRECTORSHIPS BY
AND ADDRESS WITH THE FUNDS APPOINTED(2) DURING PAST 5 YEARS TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
TRUSTEE WHO IS AN INTERESTED PERSON OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger (1) Chairman of the 1994 Chairman and Director (since 1996) of Nuveen 140
3/28/49 Board and Investments, Inc. and Nuveen Investments, LLC;
333 W. Wacker Drive Trustee Director (since 1992) and Chairman (since 1996) of
Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp.; Chairman and Director (since 1997)
of Nuveen Asset Management, Inc.; Director (since 1996)
of Institutional Capital Corporation; Chairman and Director
(since 1999) of Rittenhouse Asset Management, Inc.;
Chairman of Nuveen Investments Advisers Inc. (since 2002).
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
William E. Bennett Trustee 2001 Private Investor; previously, President and Chief 140
10/16/46 Executive Officer, Draper & Kramer, Inc., a private
333 W. Wacker Drive company that handles mortgage banking, real estate
Chicago, IL 60606 development, pension advisory and real estate management
(1995-1998). Prior thereto, Executive Vice President and
Chief Credit Officer of First Chicago Corporation
and its principal subsidiary, The First National
Bank of Chicago.
------------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Trustee(3) 1997 Private Investor and Management Consultant. 134
8/22/40
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Trustee(3) 1993 Retired (since 1989) as Senior Vice President of The 134
7/29/34 Northern Trust Company; Director of the United Way of
333 W. Wacker Drive Highland Park-Highwood (since 2002).
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Trustee 1999 President, The Hall-Perrine Foundation, a private 70
10/22/48 philanthropic corporation (since 1996); Director,
333 W. Wacker Drive Alliant Energy; Director and Vice Chairman, United
Chicago, IL 60606 Fire & Casualty Company; Director, Federal Reserve Bank
of Chicago; formerly, President and Chief Operating
Officer, SCI Financial Group, Inc., a regional financial
services firm.
------------------------------------------------------------------------------------------------------------------------------------
Anne E. Impellizzeri Trustee(3) 1994 Retired, formerly, Executive Director (since 1998) 134
1/26/33 of Manitoga/The Russel Wright Design Center; prior
333 W. Wacker Drive thereto, President and Chief Executive Officer of
Chicago, IL 60606 Blanton-Peale Institute (since 1990); prior thereto,
Vice President, Metropolitan Life Insurance Co.
------------------------------------------------------------------------------------------------------------------------------------
William L. Kissick Trustee 1992 Professor Emeritus, School of Medicine and the Wharton 70
7/29/32 School of Management and former Chairman, Leonard Davis
333 W. Wacker Drive Institute of Health Economics, University of
Chicago, IL 60606 Pennsylvania; Adjunct Professor, Health Policy and
Management, Yale University.
------------------------------------------------------------------------------------------------------------------------------------
Thomas E. Leafstrand Trustee 1992 Retired; previously, Vice President in charge of 70
11/11/31 Municipal Underwriting and Dealer Sales at The
333 W. Wacker Drive Northern Trust Company.
Chicago, IL 60606
48
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
YEAR FIRST PRINCIPAL OCCUPATION(S) OVERSEEN
NAME, BIRTHDATE POSITION(S) HELD ELECTED OR INCLUDING OTHER DIRECTORSHIPS BY
AND ADDRESS WITH THE FUNDS APPOINTED(2) DURING PAST 5 YEARS TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
Peter R. Sawers Trustee(3) 1991 Adjunct Professor of Business and Economics, University 134
4/3/33 of Dubuque, Iowa; formerly (1991-2000) Adjunct Professor,
333 W. Wacker Drive Lake Forest Graduate School of Management, Lake Forest,
Chicago, IL 60606 Illinois; prior thereto, Executive Director, Towers
Perrin Australia, a management consulting firm;
Chartered Financial Analyst; Certified Management
Consultant; Director, Executive Service Corps of
Chicago, a not-for-profit organization.
------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Trustee(3) 1997 Senior Partner and Chief Operating Officer, 134
9/24/44 Miller-Valentine Group, Vice President,
333 W. Wacker Drive Miller-Valentine Realty, a construction company; Chair,
Chicago, IL 60606 MiamiValley Hospital; Chair, Dayton Development
Coalition; formerly, Member, Community Advisory
Board, National City Bank, Dayton, Ohio and
Business Advisory Council, Cleveland Federal
Reserve Bank.
------------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale Trustee(3) 1997 Executive Director, Gaylord and Dorothy Donnelley 134
12/29/47 Foundation (since 1994); prior thereto, Executive
333 W. Wacker Drive Director, Great Lakes Protection Fund (from 1990
Chicago, IL 60606 to 1994).
------------------------------------------------------------------------------------------------------------------------------------
Sheila W. Wellington Trustee 1994 President (since 1993) of Catalyst (a not-for-profit 70
2/24/32 organization focusing on women's leadership development
333 W. Wacker Drive in business and the professions).
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
YEAR FIRST OVERSEEN
NAME, BIRTHDATE POSITION(S) HELD ELECTED OR PRINCIPAL OCCUPATION(S) BY
AND ADDRESS WITH THE FUNDS APPOINTED (4) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary 140
9/9/56 Administrative and Associate General Counsel, formerly, Vice President
333 W. Wacker Drive Officer and Assistant General Counsel of Nuveen Investments, LLC;
Chicago, IL 60606 Managing Director (since 2002), General Counsel and
Assistant Secretary, formerly, Vice President of Nuveen
Advisory Corp. and Nuveen Institutional Advisory Corp.;
Managing Director (since 2002), Assistant Secretary and
Associate General Counsel, formerly, Vice President
(since 2000), of Nuveen Asset Management, Inc.; Assistant
Secretary of Nuveen Investments, Inc. (since 1994);
Assistant Secretary of NWQ Investment Management
Company, LLC (since 2002); Vice President and
Assistant Secretary of Nuveen Investments Advisers Inc.
(since 2002); Managing Director, Associate General
Counsel and Assistant Secretary of Rittenhouse Asset
Management, Inc. (since May 2003); Chartered
Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant 140
2/3/66 and Assistant Vice President (since 2000), previously, Associate of
333 W. Wacker Drive Secretary Nuveen Investments, LLC.
Chicago, IL 60606
49
Trustees
AND OFFICERS (CONTINUED)
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
YEAR FIRST OVERSEEN
NAME, BIRTHDATE POSITION(S) HELD ELECTED OR PRINCIPAL OCCUPATION(S) BY
AND ADDRESS WITH THE FUNDS APPOINTED (4) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999), 140
11/28/67 and Treasurer prior thereto, Assistant Vice President (since 1997);
333 W. Wacker Drive Vice President and Treasurer of Nuveen Investments,
Chicago, IL 60606 Inc. (since 1999); Vice President and Treasurer of
Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp. (since 1999); Vice President and
Treasurer of Nuveen Asset Management, Inc. (since
2002) and of Nuveen Investments Advisers Inc.
(since 2002); Assistant Treasurer of NWQ Investment
Management Company, LLC (since 2002); Chartered
Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Susan M. DeSanto Vice President 2001 Vice President of Nuveen Advisory Corp. (since 2001); 140
9/8/54 previously, Vice President of Van Kampen Investment
333 W. Wacker Drive Advisory Corp. (since 1998); Vice President of Nuveen
Chicago, IL 60606 Institutional Advisory Corp. (since 2002);
prior thereto, Assistant Vice President of
Van Kampen Investment Advisory Corp. (since 1994).
------------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 2000 Vice President (since 2002) and Assistant General 140
9/24/64 and Secretary Counsel (since 1998); formerly, Assistant Vice
333 W. Wacker Drive President (since 1998) of Nuveen Investments, LLC;
Chicago, IL 60606 Vice President (since 2002) and Assistant Secretary
(since 1998), formerly Assistant Vice President of
Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp.
------------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Vice President of Nuveen Investments, LLC; Vice 140
10/24/45 President (since 1998) of Nuveen Advisory Corp. and
333 W. Wacker Drive Nuveen Institutional Advisory Corp.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen Investments, 140
3/2/64 LLC; Managing Director (since 2001), formerly Vice
333 W. Wacker Drive President of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp. (since 1995); Managing
Director of Nuveen Asset Management, Inc. (since 2001);
Vice President of Nuveen Investment Advisers Inc.
(since 2002); Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller (since 140
5/31/54 and Controller 1998) of Nuveen Investments, LLC and Vice President and
333 W. Wacker Drive Funds Controller (since 1998) of Nuveen Investments,
Chicago, IL 60606 Inc.; Certified Public Accountant.
------------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, LLC, 140
3/22/63 previously Assistant Vice President (since 1999); prior
333 W. Wacker Drive thereto, Associate of Nuveen Investments, LLC; Certified
Chicago, IL 60606 Public Accountant.
------------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President (since 1999), previously, Assistant Vice 140
8/27/61 President (since 1993) of Nuveen Investments, LLC.
333 W. Wacker Drive
Chicago, IL 60606
50
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
YEAR FIRST OVERSEEN
NAME, BIRTHDATE POSITION(S) HELD ELECTED OR PRINCIPAL OCCUPATION(S) BY
AND ADDRESS WITH THE FUNDS APPOINTED (4) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and Assistant 140
7/27/51 and Assistant General Counsel of Nuveen Investments, LLC; Vice
333 W. Wacker Drive Secretary President and Assistant Secretary of Nuveen Advisory
Chicago, IL 60606 Corp. and Nuveen Institutional Advisory Corp.; Assistant
Secretary of Nuveen Investments, Inc. and (since
1997) Nuveen Asset Management, Inc.; Vice President
(since 2000), Assistant Secretary and Assistant
General Counsel (since 1998) of Rittenhouse Asset
Management, Inc.; Vice President and Assistant
Secretary of Nuveen Investments Advisers Inc.
(since 2002); Assistant Secretary of NWQ Investment
Management Company, LLC (since 2002).
------------------------------------------------------------------------------------------------------------------------------------
Edward F. Neild, IV Vice President 1996 Managing Director (since 2002) of Nuveen Investments, 140
7/7/65 LLC; Managing Director (since 1997), formerly Vice
333 W. Wacker Drive President (since 1996) of Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp.; Managing Director
of Nuveen Asset Management, Inc. (since 1999).
Chartered Financial Analyst.
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and trustee of the
Adviser.
(2) Trustees serve a one-year term until his/her successor is elected. The year
first elected or appointed represents the year in which the Trustee was
first elected or appointed to any fund in the Nuveen Complex.
(3) Trustees of Preferred and Convertible Income 2 (JQC) only.
(4) Officers serve a one-year term through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
51
Build Your Wealth
AUTOMATICALLY
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 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 95% of
the then-current market price or at net asset value, whichever is higher. 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 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.
FLEXIBILITY
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.
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.
52
Fund
INFORMATION
JPC BOARD OF TRUSTEES
William E. Bennett
Jack B. Evans
William L. Kissick
Thomas E. Leafstrand
Timothy R. Schwertfeger
Sheila W. Wellington
JQC BOARD OF TRUSTEES
William E. Bennett
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
Anne E. Impellizzeri
William L. Kissick
Thomas E. Leafstrand
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Sheila W. Wellington
FUND MANAGER
Nuveen Institutional
Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
SUB-ADVISERS
Spectrum Asset
Management, Inc.
4 High Ridge Park
Stamford, CT 06905
Froley, Revy Investment Co., Inc.
10900 Wilshire Boulevard
Los Angeles, CA 90024
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 AUDITORS
Ernst & Young LLP
Chicago, IL
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 (including change in NAV and reinvested dividends) that
would have been necessary on an annual basis to equal the investment's actual
performance over the time period being considered.
Net Asset Value (NAV): A fund's NAV is calculated by subtracting the liabilities
of 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.
---------
Each 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 fiscal year ended July 31, 2003. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
53
Serving Investors
FOR GENERATIONS
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.
Managing $80 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 tax-free 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.
To learn more about the products and services Nuveen Investments offers and for
a prospectus, where applicable, talk to your financial advisor, or call us at
(800) 257-8787. Please read the information carefully before you invest.
Distributed by
NUVEEN INVESTMENTS, LLC | 333 West Wacker Drive | Chicago, Illinois 60606
| www.nuveen.com
EAN-E-0703D
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted
a code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. The registrant has posted such code of
ethics on its website at www.nuveen.com/etf.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of directors has determined that the registrant has
at least one "audit committee financial expert" (as defined in Item 3 of
Form N-CSR) serving on its audit committee. The registrant's audit committee
financial expert is William E. Bennett, who is "independent" for purposes of
Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
The registrant has adopted the proxy voting policies and procedures of its
Sub-Advisers as described below.
Spectrum Asset Management: Spectrum's policies seek to ensure that proxies are
voted solely in the best economic interests of the registrant and without undue
influence from parties that may have an economic interest in the outcome of a
proxy vote. Spectrum classifies proxy voting into three broad categories:
Routine Administrative Items, Special Interest Issues, and Issues Having the
Potential for Significant Economic Impact. Once it has analyzed and identified
each issue as belonging in a particular category, Spectrum will cast the
client's vote in accordance with the guidelines developed for that particular
category.
On any ocassion when a proxy vote presents a potential conflict of interest,
Spectrum will review the matter and disclose the conflict to the client(s) to
obtain prior to voting.
Froley, Revy Investment Co.: Froley, Revy has adopted a proxy voting policy
which requires that proxies be voted in the best ultimate long-term economic
interests of the Fund. Froley, Revy's primary consideration in deciding how to
vote a proxy is the ultimate eceonomic impact of a proxy proposal on the value
of the comapny's stock based on Froley, Revy's independent analysis of the
Stock's investment considerations.
Froley, Revy utilizes a proxy committee made up of portfolio managers and
research analysts. With respect to each proxy issue, the committee will analyze
the economic impact on the company of voting in favor or against the proposal.
Where proxy voting involves a potential conflict of interests, the committee
shall disclose its conflict to the client and allow the client an opportunity to
approve the recommended vote based upon the committee's communicated rationale.
Symphony Asset Management: Symphony uses the services of Institutional
Shareholder Services ("ISS"), an independent proxy voting service, which handles
all proxy voting for Symphony client accounts, including the registrant. The
proxy voting policies and procedures of ISS are reviewed and approved each year
by Symphony.
ITEM 8. [RESERVED]
ITEM 9. 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 these
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
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 registrant's last
fiscal half-year (the registrant's second fiscal half-year in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 10. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(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
because posted on registrant's website.
(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 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certification required by Rule 30a-2(b) under the 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: October 8, 2003
-------------------------------------------------------------------
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: October 8, 2003
-------------------------------------------------------------------
By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(Principal Financial Officer)
Date: October 8, 2003
-------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.