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
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Date of reporting period: January 31
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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 Investments
Closed-End
Exchange-Traded
Funds
SEMIANNUAL REPORT January 31, 2004
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND
JPC
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND 2
JQC
Photo of: Man holding up small boy.
Photo of: 2 women with 2 girls looking at seashells.
HIGH CURRENT INCOME
FROM A PORTFOLIO OF
PREFERRED AND
CONVERTIBLE SECURITIES
Logo: NUVEEN Investments
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Logo: NUVEEN Investments
Photo of: Timothy R. Schwertfeger
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
I am pleased to report that over the period covered by this report both JPC and
JQC essentially completed their initial investment processes, paid attractive
monthly dividends and generated appealing cumulative returns. While it is too
early to draw many conclusions about the overall performance of either Fund, we
believe both provided investors with a quality-oriented portfolio and the
opportunity for additional asset class diversification within their overall
investment portfolios.
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 blended asset classes in your
Fund may be important building blocks in a portfolio crafted to perform well
through a variety of market conditions.
For more information on the specific performance of the Funds, I urge you to
read the portfolio managers' perspective and performance overview pages in this
report. I also ask 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 details.
Thank you for the confidence you have shown in Nuveen Investments. For more than
100 years, Nuveen Investments 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 services and products that
can help you meet your financial objectives.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
March 15, 2004
1
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUNDS (JPC, JQC)
Managers' PERSPECTIVE
The Funds are managed by Nuveen Institutional Advisory Corp. (NIAC), and
subadvised 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 securities and other debt instruments in both Funds. Here representatives
from Spectrum, Froley, Revy and NIAC talk about general economic conditions,
fund performance and their management strategies for the reporting period ended
January 31, 2004.
WHAT WAS THE GENERAL MARKET ENVIRONMENT FOR PREFERRED AND CONVERTIBLE SECURITIES
AND HIGH YIELD DEBT FOR THE PERIOD ENDED JANUARY 31, 2004?
Looking at preferred securities first, market conditions for most of this period
were favorable. As a result, preferred securities were among the best performers
within the fixed-income sector for the 12 months ended January 31, 2004. Both
individual and institutional investors were aggressive buyers of preferred
securities during this period because, in our opinion, of the attractive yields
that preferred securities offered relative to alternative investments. The
credit quality environment, especially among the financial industry- oriented
issuers, was positive, reflecting improvement in the general economy and in the
equity markets. New issuance of preferred securities was robust over the period,
with a total of $42.1 billion coming to market during 2003. As of December 31,
2003, the size of the hybrid preferred securities market, in which the Funds
primarily invest, was approximately $219 billion.
Generally, conditions also were favorable in the convertible securities market
during the reporting period. For the six month period ending January 31, 2004,
the convertible securities market, as measured by Merrill Lynch's All U. S.
Convertible Index, provided a total return of 14.56%. This return represented
about 75% of the NASDAQ 100 Index's return over the same period, and 95% of the
S&P 500 Index's six month return. While convertibles performed well, they did
not capture as much of the equity index gains as some might have expected
because much of the convertible market during this period was trading primarily
as yield alternatives with very low sensitivity to equity market movements.
In addition, the high yield securities market performed well during the
reporting period. All 23 sectors of the CSFB High Yield Index provided positive
returns for the fourth quarter and full year of 2003. Lower-rated bonds and
loans significantly outperformed the middle and upper tier, due in our opinion
to investors' increased risk appetites and the improved high yield environment.
Default rates in the leveraged loan market continued to improve throughout 2003,
falling to 2.92% from 7.32%. Importantly, distressed high yield debt declined
90% in 2003, to $5.8 billion from $59.0 billion. In addition, the ratio of
upgraded to downgraded issues increased in 2003 for the first time in five
years.
IN THIS ENVIRONMENT, HOW DID THE FUNDS PERFORM?
The portfolios of both Funds contain allocations of preferred, convertible and
high yield securities. Cumulative total returns for the periods from the Funds'
inceptions through January 31, 2004, are shown in the nearby chart, along with
the performance over similar periods of some widely-followed unmanaged,
unleveraged indexes of the major asset classes in which the Funds invest.
CUMULATIVE TOTAL RETURN ON NET ASSET VALUE
-----------------------------------------------------------
JPC (inception 3/26/03 - 1/31/04) 16.64%
Merrill Lynch Preferred Stock Hybrid
Securities Index1 (3/31/03-1/31/04) 8.47%
Merrill Lynch All U.S. Convertible
Index2 (3/31/03 - 1/31/04) 27.10%
CSFB High Yield Index3
(3/31/03 - 1/31/04) 21.99%
JQC (inception 6/25/03 - 1/31/04) 10.35%
Merrill Lynch Preferred Stock Hybrid
Securities Index1 (6/30/03-1/31/04) 3.71%
Merrill Lynch All U.S. Convertible
Index2 (6/30/03 - 1/31/04) 14.88%
CSFB High Yield Index3
(6/30/03 - 1/31/04) 11.16%
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During much of the performance periods shown here, both Funds were engaged in
the initial investment of the proceeds raised from their common and preferred
share offerings. While we are generally pleased with the performance of the
Funds since their
1 The Merrill Lynch Preferred Stock Hybrid Securities Index is an unmanaged
index of investment-grade, exchange-traded preferred stocks with
outstanding market values of at least $30 million and at least one year to
maturity.
2 The Merrill Lynch All U.S. Convertibles Index consists of approximately 575
convertible securities with par value greater than $50 million that were
issued by U.S. companies or non-U.S. based issuers that have a significant
business presence in the U.S.
3 The CSFB High Yield Index includes approximately $375 billion of
$US-denominated high yield debt with a minimum of $75 million in par value
and at least one rating below investment-grade.
2
inceptions, we think that a few months of initial data provide little basis for
a proper evaluation of Fund performance. The cumulative Fund returns shown here
lie between the returns posted by indexes representing the asset classes in
which the Funds primarily invest. We believe this was to be expected, given the
blended nature of both Funds' portfolios.
Both Funds provided attractive monthly income during the reporting period. Each
Fund seeks to pay dividends at a rate that reflects the past and projected
performance of the Fund. To permit a Fund to maintain a more stable monthly
dividend, the Fund may pay dividends at a rate that may be more or less than the
amount of net investment income actually earned by the Fund during the period.
If the Fund has cumulatively earned more than it has paid in dividends, it will
hold the excess in reserve as undistributed net investment income (UNII) as part
of the Fund's net asset value. Conversely, if the Fund has cumulatively paid in
dividends more than it has earned, the excess will constitute a negative UNII
balance which will likewise be reflected in the Fund's net asset value. Each
Fund will, over time, pay all its net investment income as dividends to
shareholders. As of January 31, 2004, both Funds had negative UNII.
As of January 31, 2004, both JPC and JQC were trading at discounts to their
respective net asset values. For additional performance information, please see
the individual Performance Overview pages for your Fund in this report.
WHAT STRATEGIES DID YOU EMPLOY IN MANAGING THE FUNDS?
For the preferred securities portion of each Fund's portfolio, we tried to
generate income and enhance total return by looking to exploit inefficiencies
between preferred valuations and senior debt levels, as well as between $25 par
listed preferred shares and $1000 par unlisted preferred capital securities of
the same issuer. In addition, we sought to lessen the potential effects of
higher interest rates by focusing on higher coupon, "cushioned" issues trading
at a premium to par in the secondary market. When they were available, we
believed these cushioned securities represented better value than many of the
new issues reflecting today's relatively low interest rates.
Looking at the convertible securities allocations, both Funds were positioned
initially to balance income needs with the desire for capital gains. Generally,
we looked for securities with greater equity-tracking sensitivity when we had
strong views on the attractiveness of either a sector or a specific company. As
of January 31, 2004, about 10% of both Funds' convertible securities allocations
were hedged in an effort to reduce overall risk and increase cash flow.
With the high-yield allocations, we concentrated on finding what we thought were
higher- quality credits with strong fundamental business models, diversified
revenue streams and relatively less earnings volatility. We focused on investing
the assets across multiple sectors such as gaming/lodging, home- building,
retail, media and food.
3
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND
Performance
OVERVIEW As of January 31, 2004
JPC
Portfolio Statistics
==================================================
Share Price $15.49
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Common Share Net Asset Value $15.67
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Premium/(Discount) to NAV -1.15%
--------------------------------------------------
Latest Dividend $.1005
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Market Yield 7.79%
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Net Assets Applicable to
Common Shares ($000) $1,568,810
--------------------------------------------------
% of Total
Top Five Industries Investments
==================================================
Banking 13%
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Real Estate Investment Trusts 12%
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Banking - Foreign 10%
--------------------------------------------------
Financial 5%
--------------------------------------------------
Auto 4%
--------------------------------------------------
% of Total
Top Five Issuers Investments
==================================================
Wachovia Corporation 2.8%
--------------------------------------------------
General Motors Corporation 2.2%
--------------------------------------------------
Ford Motor Company 2.0%
--------------------------------------------------
PartnerRe Limited 1.9%
--------------------------------------------------
Citigroup 1.8%
--------------------------------------------------
Cumulative Total Return
(Inception Date 3/26/03)
==================================================
on Share Price on NAV
--------------------------------------------------
Since Inception 10.17% 16.64%
--------------------------------------------------
Bar Chart:
2003-2004 MONTHLY DIVIDENDS PER SHARE1
May 0.1005
Jun 0.1005
Jul 0.1005
Aug 0.1005
Sep 0.1005
Oct 0.1005
Nov 0.1005
Dec 0.1005
Jan 0.1005
Line Chart:
SHARE PRICE PERFORMANCE
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
14.47
14.75
14.1
14.01
14.25
14.43
14.42
14.42
14.23
14.66
14.74
14.67
14.85
14.95
14.99
14.76
14.95
15.17
15.05
15.52
15.52
15.4
15.36
1/31/04 15.49
Weekly Closing Price
Past performance is not predictive of future results.
1 The Fund paid shareholders a short-term capital gains distribution in
December 2003 of $0.0568 per share.
4
NUVEEN PREFERRED AND CONVERTIBLE INCOME FUND 2
Performance
OVERVIEW As of January 31, 2004
JQC
Portfolio Statistics
==================================================
Share Price $14.89
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Common Share Net Asset Value $15.19
--------------------------------------------------
Premium/(Discount) to NAV -1.97%
--------------------------------------------------
Latest Dividend $.0975
--------------------------------------------------
Market Yield 7.86%
--------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $2,141,490
--------------------------------------------------
% of Total
Top Five Industries Investments
==================================================
Banking 16%
--------------------------------------------------
Banking - Foreign 13%
--------------------------------------------------
Real Estate Investment Trusts 8%
--------------------------------------------------
Broadcast Cable 4%
--------------------------------------------------
Financial 4%
--------------------------------------------------
% of Total
Top Five Issuers Investments
==================================================
Wachovia Corporation 2.2%
--------------------------------------------------
Citigroup 1.9%
--------------------------------------------------
HBOS Public Limited Company 1.8%
--------------------------------------------------
ING Groep NV 1.7%
--------------------------------------------------
General Motors Corporation 1.6%
--------------------------------------------------
Cumulative Total Return
(Inception Date 6/25/03)
==================================================
on Share Price on NAV
--------------------------------------------------
Since Inception 3.38% 10.35%
--------------------------------------------------
Bar Chart:
2003-2004 MONTHLY DIVIDENDS PER SHARE
Aug 0.0975
Sep 0.0975
Oct 0.0975
Nov 0.0975
Dec 0.0975
Jan 0.0975
Line Chart:
SHARE PRICE PERFORMANCE
6/27/03 15
15.09
15.25
15.01
14.69
14.21
14.01
13.73
13.82
14.05
13.99
13.97
13.97
14.33
14.29
14.3
14.35
14.43
14.37
14.37
14.44
14.73
14.35
14.68
14.97
14.83
14.89
1/31/04 14.89
Weekly Closing Price
Past performance is not predictive of future results.
5
Shareholder
MEETING REPORT
The Shareholder Meeting was held in Chicago, Illinois on October 22, 2003.
JPC
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APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
Common and
FundPreferred FundPreferred
shares voting shares voting
together together
as a class as a class
====================================================================================================================================
William E. Bennett
For 97,461,135 --
Withhold 588,432 --
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Total 98,049,567 --
====================================================================================================================================
Robert P. Bremner
For 97,456,031 --
Withhold 593,536 --
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Total 98,049,567 --
====================================================================================================================================
Lawrence H. Brown
For 97,496,618 --
Withhold 552,949 --
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Total 98,049,567 --
====================================================================================================================================
Jack B. Evans
For 97,496,864 --
Withhold 552,703 --
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Total 98,049,567 --
====================================================================================================================================
Anne E. Impellizzeri
For 97,442,158 --
Withhold 607,409 --
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Total 98,049,567 --
====================================================================================================================================
William L. Kissick
For 97,459,678 --
Withhold 589,889 --
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Total 98,049,567 --
====================================================================================================================================
Thomas E. Leafstrand
For 97,483,082 --
Withhold 566,485 --
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Total 98,049,567 --
====================================================================================================================================
Peter R. Sawers
For 97,461,049 --
Withhold 588,518 --
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Total 98,049,567 --
====================================================================================================================================
6
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS: (CONTINUED)
JPC
------------------------------------------------------------------------------------------------------------------------------------
Common and
FundPreferred FundPreferred
shares voting shares voting
together together
as a class as a class
====================================================================================================================================
William J. Schneider
For -- 17,824
Withhold -- 38
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Total -- 17,862
====================================================================================================================================
Timothy R. Schwertfeger
For -- 17,828
Withhold -- 34
------------------------------------------------------------------------------------------------------------------------------------
Total -- 17,862
====================================================================================================================================
Judith M. Stockdale
For 97,461,951 --
Withhold 587,616 --
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Total 98,049,567 --
====================================================================================================================================
Sheila W. Wellington
For 96,974,859 --
Withhold 1,074,708 --
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Total 98,049,567 --
====================================================================================================================================
7
Nuveen Preferred and Convertible Income Fund (JPC)
Portfolio of
INVESTMENTS January 31, 2004 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
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PREFERRED SECURITIES - 49.5% (34.2% OF TOTAL INVESTMENTS)
AUTOMOBILE - 1.6%
331,800 Ford Motor Company, 8.000% (CORTS) $ 8,835,834
129,900 Ford Motor Company, Series F, 8.000% (CBTCS) 3,452,093
520,000 General Motors Corporation, 7.375% 13,587,600
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AUTOMOBILE - FOREIGN - 0.0%
16,500 Magna International Inc., Series B, 8.875% 430,650
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AUTOMOBILE PARTS - 0.6%
340,898 Delphi Trust I, 8.250% 9,088,341
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BANKING - 8.4%
500 ABN AMRO North America, Series L-144A, 6.460% (a) 531,875
2,000 ABN AMRO North America, Series 144A, 6.590% (a) 2,127,500
51,000 ASBC Capital I, 7.625% 1,389,240
65,185 BAC Capital Trust I, 7.000% 1,755,432
135,755 BAC Capital Trust II, 7.000% 3,630,089
284,700 BAC Capital Trust III, 7.000% 7,840,638
22,800 Bank One Capital Trust V, 8.000% 1,935,471
72,300 Bank One Capital Trust VI, 7.200% 621,300
26,000 BankNorth Capital Trust II, 8.000% 713,180
500 BNY Capital Trust IV, Series E, 6.875% 12,675
300,000 BNY Capital Trust V, Series F, 5.950% 7,641,000
3,000 Chase Capital Trust V, Series E, 7.030% 75,930
62,200 Chittenden Capital Trust I, 8.000% 1,676,290
52,500 Citigroup Capital Trust VI, 6.875% 1,336,125
22,200 Citigroup Capital Trust VII, 7.100% 601,398
331,300 Citigroup Capital Trust VIII, 6.950% 8,858,962
251,574 Citigroup Capital Trust IX, 6.000% 6,472,999
Citigroup Inc.:
37,000 Series F, 6.365% (a) 2,072,000
100,000 Series G, 6.213% (a) 5,437,500
60,000 Series H, 6.231% (a) 3,240,000
80,000 Series M, 5.864% (a) 4,300,000
110,000 Cobank ABC, Series 144A, 7.000% (a) 5,817,020
76,100 Comerica Capital Trust I, 7.600% 2,063,071
123,600 Compass Capital Trust III, 7.350% 3,311,244
17,900 First Union Capital II, Series II, 7.500% (CORTS) 486,343
41,500 First Union Institutional Capital II, 8.200% (CORTS) 1,191,050
292,579 Fleet Capital Trust VII, 7.200% 7,829,414
337,000 Fleet Capital Trust VIII, 7.200% 9,045,080
3,400 Harris Preferred Capital Corporation, Series A 7.375% 85,918
8
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BANKING (continued)
28,000 JPM Capital Trust, 7.200% (CORTS) $ 735,280
50,000 JPMorgan Chase & Company, 7.125% (PCARS) 1,323,500
395,067 JPMorgan Chase Capital Trust X, 7.000% 10,654,957
50,000 JPMorgan Chase Capital Trust XI, 5.875% 1,237,500
47,200 JPMorgan Chase Trust, Series 2002-6, Class A, 7.125% (SATURNS) 1,258,824
KeyCorp:
6,800 Series 2001-7, 7.750% (CORTS) 181,628
18,800 Series B, 8.250% (CORTS) 511,172
142,200 National Commerce Capital Trust II, 7.700% 3,855,042
15,000 PNC Capital Trust, 6.125% 379,950
1,000 Regions Finance Trust I, 8.000% 27,180
74,300 SunTrust Capital Trust IV, 7.125% 2,000,156
36,500 SunTrust Capital Trust V, 7.050% 983,675
41,900 USB Capital Trust III, 7.750% 1,143,451
159,400 USB Capital Trust IV, 7.350% 4,279,890
43,900 USB Capital Trust V, 7.250% 1,187,495
21,500 VNB Capital Trust I, 7.750% 584,155
3,000 Washington Mutual Capital Trust I, Series 2001-22, Class A-1, 7.650% (CORTS) 79,785
3,300 Wells Fargo Capital Trust IV, 7.000% 90,057
57,335 Wells Fargo Capital Trust V, 7.000% 1,544,605
14,700 Wells Fargo Capital Trust VI, 6.950% 395,577
230,000 Wells Fargo Capital Trust VII, 5.850% 5,844,300
52,800 Zions Capital Trust B, 8.000% 1,464,672
------------------------------------------------------------------------------------------------------------------------------------
BANKING - FOREIGN - 1.5%
40,000 Abbey National plc, 7.375% 1,100,000
138,500 ABN AMRO Capital Fund Trust II, 7.125% 3,508,205
30,000 ABN AMRO Capital Fund Trust V, 5.900% 742,500
63,400 Banco Totta & Acores Finance, Series A, 8.875% 1,785,109
186,114 Banesto Holdings, Series A-144A, 10.500% 5,885,855
11,000 BCH Capital Ltd., Series B, 9.430% 302,995
73,450 BSCH Finance Ltd., Series Q, 8.625% 2,001,513
42,500 Espirito Santo Overseas, 8.500% 1,105,425
32,900 National Westminster Bank plc, Series A, 7.875% 835,660
250,000 Royal Bank of Scotland Group plc, 5.750% 6,182,500
9,900 Westpac Capital Trust I, 8.000% 255,222
------------------------------------------------------------------------------------------------------------------------------------
BROKERAGE - 3.8%
10,100 Bear Stearns Capital Trust III, 7.800% 272,700
16,900 Goldman Sachs Group Inc., 6.000% (PPLUS) 433,485
16,000 Goldman Sachs Group Inc., Series 2003-06, 6.000% (SATURNS) 409,600
526,388 Lehman Brothers Holdings Capital Trust, III, Series K, 6.375% 13,622,921
100,000 Merrill Lynch Capital Trust, 7.000% 2,709,000
23,900 Merrill Lynch Capital Trust II, 8.000% 676,370
27,600 Merrill Lynch Preferred Capital Trust, 7.750% 761,208
113,600 Merrill Lynch Preferred Capital Trust IV, 7.120% 6,210,000
9
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BROKERAGE (continued)
225,000 Merrill Lynch Preferred Capital Trust V, 7.280% $ 3,100,144
21,400 Morgan Stanley, 7.050% (PPLUS) 576,088
66,100 Morgan Stanley Capital Trust II, 7.250% 1,766,853
403,239 Morgan Stanley Capital Trust III, 6.250% 10,383,404
716,200 Morgan Stanley Capital Trust IV, 6.250% 18,327,558
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER - 0.0%
8,000 IBM Inc., 7.125% (CORTS) 213,120
3,000 IBM Inc., Series 2001-1, 7.125% (SATURNS) 79,830
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - FOREIGN - 0.1%
15,300 EnCana Corporation, 9.500% 406,215
14,700 Talisman Energy Inc., 9.000% 367,500
24,200 Talisman Energy Inc., 8.900% 616,132
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 0.1%
37,600 Viacom Inc., 7.300% 1,015,200
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 3.8%
6,800 CIT Group Incorporated, 7.750% (CORTS) 195,500
95,700 Countrywide, 8.050% (PPLUS) 2,631,750
1,200,200 Countrywide Capital Trust IV, 6.750% 31,325,220
7,200 Financial Security Assurance Holdings, 6.875% 193,464
13,000 Financial Security Assurance Holdings, 6.250% 337,350
33,100 General Electric Capital Corporation, 6.625% 889,397
40,000 General Motors Acceptance Corporation, 7.350% 1,045,600
4,800 Household Capital Trust V, Series X, 10.000% 132,480
20,400 Household Capital Trust VI, 8.250% 555,084
39,200 Household Capital Trust VII, 7.500% 1,062,320
773,900 Household Finance Corporation, 6.875% 20,570,262
1,300 Philadelphia Industrial Development Authority, Pennsylvania, Pension, 6.550% 32,682
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 2.4%
6,900 CSFB USA, Series 2002-10, 7.000% (SATURNS) 182,919
93,500 ING Capital Funding Trust, 7.700% 2,401,080
506,518 ING Group NV, 7.200% 20,487,035
747,975 ING Group NV, 7.050% 13,964,701
------------------------------------------------------------------------------------------------------------------------------------
FOOD - 0.4%
60,000 Dairy Farmers of America Inc., Series 144A, 7.875% (a) 6,172,500
------------------------------------------------------------------------------------------------------------------------------------
FOOD - FOREIGN - 0.2%
126,500 Grand Metropolitan Delaware LP, 9.420% 3,332,010
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.1%
20,100 AGL Capital Trust II, 8.000% 548,931
39,100 Dominion CNG Capital Trust I, 7.800% 1,058,437
------------------------------------------------------------------------------------------------------------------------------------
GAS - FOREIGN - 0.0%
1,000 TransCanada Pipeline, 8.250% 25,740
10
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.0%
7,800 Sherwin Williams Company, Series III, 7.250% (CORTS) $ 205,062
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - FINANCIAL - 0.3%
103,157 AMBAC Financial Group Inc., 5.950% 2,684,145
50,000 AMBAC Financial Group Inc., 5.875% 1,274,500
1,300 MBIA Inc., 8.000% 35,997
55,100 W.R. Berkley Capital Trust, Series 2002-1, 8.125% (CBTCS) 595,356
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 2.8%
273,500 Aetna Inc., 8.500% 7,567,745
1,216,000 Delphi Financial Group Inc., 8.000% 32,588,800
11,000 Great-West L&A Capital Trust I, Series A, 7.250% 282,590
25,200 Lincoln National Capital Trust V, Series E, 7.650% 692,748
73,100 PLC Capital Trust III, 7.500% 1,964,928
15,200 PLC Capital Trust IV, 7.250% 408,880
12,800 Torchmark Capital Trust I, 7.750% 348,800
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTIPLE LINE - 0.9%
108,360 AIG Capital Securities, Series 2002-11, 6.000% (SATURNS) 2,774,016
188,900 Hartford Capital Trust III, Series C, 7.450% 5,075,743
Hartford Life Capital Trust I:
78,000 Series A, 7.200% 1,981,980
13,600 Series B, 7.625% 362,440
13,200 Safeco Capital Trust I, 8.750% (CORTS) 396,000
4,300 Safeco Capital Trust I, Series 2001-4, 8.750% (CORTS) 116,100
30,000 Safeco Capital Trust III, 8.072% (CORTS) 805,200
3,600 Safeco Capital Trust IV, 8.375% (CORTS) 99,162
Safeco Corporation:
38,600 Series 2001-7, 8.250% (SATURNS) 1,066,132
35,100 Series 2002-5, 8.250% (SATURNS) 970,515
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - FOREIGN - 5.4%
2,000 Ace Capital Trust I, Series 1999, 8.875% 53,000
504,310 Ace Ltd., Series C, 7.800% 14,024,861
232,560 Converium Finance. 8.250% 6,418,656
91,000 EverestRe Group Limited, 7.850% 2,542,540
72,000 PartnerRe Limited, 7.900% 1,967,760
1,550,312 PartnerRe Limited, Series C, 6.750% 40,866,224
RenaissanceRe Holdings Ltd.:
88,800 Series A, 8.100% 2,466,864
325,310 Series B, 7.300% 8,832,167
XL Capital Ltd.:
64,000 Series A, 8.000% 1,797,760
192,600 Series B, 7.625% 5,319,612
------------------------------------------------------------------------------------------------------------------------------------
OIL - FOREIGN - 0.6%
372,500 Nexen Inc., 7.350% 9,852,625
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - FOREIGN - 0.0%
6,800 Rhone-Poulenc Overseas, Series A, 8.125% 173,468
11
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 13.7%
60,000 AMB Property Corporation, Series L, 6.500% $ 1,506,000
10,700 AvalonBay Communities Inc., Series H, 8.700% 307,090
2,300 BRE Properties, Series B, 8.080% 63,250
201,925 CarrAmerica Realty Corporation, Series E, 7.500% 5,431,783
Developers Diversified Realty Corporation:
14,400 Series F, 8.600% 393,552
656,785 Series G, 8.000% 17,772,602
72,000 Series H, 7.375% 1,928,880
109,081 Equity Office Properties Trust, Series G, 7.750% 3,011,726
Equity Residential Properties Trust:
6,100 Series B, 9.125% 522,104
18,700 Series C, 9.125% 140,050
5,000 Series D, 8.600% 166,957
610,800 Equity Residential Properties Trust, Series N, 6.480%, 15,373,836
First Industrial Realty Trust Inc.:
72,900 Series D, 7.950% 1,842,183
199,500 Series E, 7.900% 5,065,305
708,634 Gables Residential Trust, Series D, 7.500%, 18,778,801
HRPT Properties Trust:
30,000 Series A, 9.875% 827,100
292,600 Series B, 8.750% 8,166,466
949,983 Kimco Realty Corporation, Series F, 6.650%, 24,661,559
New Plan Excel Realty Trust:
13,693 Series D, 7.800%, 745,841
972,775 Series E, 7.625% 26,654,035
Prologis Trust:
32,982 Series C, 8.540%, 2,039,732
20,000 Series G, 6.750% 501,400
Public Storage Inc.:
14,800 Series L, 8.250% 375,180
159,400 Series R, 8.000% 4,330,898
28,900 Series S, 7.875% 782,034
26,500 Series T, 7.625% 715,500
24,500 Series U, 7.625% 667,625
32,000 Series V, 7.500% 870,080
281,000 Regency Centers Corporation, 7.450% 7,558,900
7,000 Simon Property Group Inc., Series G, 7.890% 385,000
1,609,945 Wachovia Preferred Funding Corporation, 7.250% 46,527,411
710,000 Weingarten Realty Trust, 6.750% 19,134,500
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.9%
15,200 AT&T Wireless Services Equity, Series 2002-B, 9.250% (SATURNS) 444,448
14,100 AT&T Wireless, Series 2002-7, 8.000% (CBTCS) 389,865
25,400 BellSouth Corporation, Series 2001-3, 7.125% (SATURNS) 662,432
6,500 BellSouth Inc., 7.000% (CORTS) 171,860
6,800 BellSouth Telecommunications, 7.300% (PPLUS) 180,608
128,500 Citizens Communications Company, 8.375% (PPLUS) 3,406,535
30,500 Citizens Communications Company, Series 2001-2, 8.625% (SATURNS) 832,650
25,550 Deutsche Telekom International Finance, B.V., Series 2001-24, Class A-1, 7.875% (CBTCS) 680,269
15,900 SBC Communications Inc., 7.000% 426,279
70,700 Telephone and Data Systems Inc., 7.600% 1,901,830
12
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (continued)
33,800 United States Cellular Corporation, 8.750% $ 975,130
19,900 Verizon Communications, 7.375% (CORTS) 540,285
110,000 Verizon Communications, 6.200% (CBTCS) 2,761,000
14,800 Verizon Communications, Series VZ, 7.625% (CORTS) 407,592
11,500 Verizon New England Inc., Series B, 7.000% 304,750
25,855 Verizon South Inc., Series F, 7.000% 687,226
------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES GOVERNMENT AGENCY - 0.9%
197,900 Fannie Mae, 5.125% (a) 9,667,415
10,000 Federal Home Loan Mortgage Corporation, 5.000% (a) 473,000
20,000 SLM Corporation, 6.000% 507,000
120,732 Tennessee Valley Authority, Series D, 6.750% 3,163,178
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 0.1%
6,500 Atlantic Capital Trust II, Series C, 7.375% 164,710
16,300 Consolidated Edison Company, 7.250% 445,968
4,100 Consolidated Edison Company of New York Inc., 7.500% 112,053
3,000 Detroit Edison Company, 7.375% 75,900
22,200 DTE Energy Trust I, 7.800% 598,734
26,000 Energy East Capital Trust I, 8.250% 700,180
30,970 Entergy Louisiana Inc., 7.600% 847,030
239,400 Georgia Power Company, 5.900% 6,154,974
3,000 Georgia Power Capital Trust IV, 6.850% 75,600
43,570 Georgia Power Capital Trust V, 7.125% 1,176,826
65,000 Mississippi Power Company, 5.625% 1,651,650
124,000 Virginia Power Capital Trust, 7.375% 3,351,720
------------------------------------------------------------------------------------------------------------------------------------
Total Preferred Securities (cost $749,502,942) 777,851,340
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 20.2% (13.9% OF TOTAL INVESTMENTS)
AEROSPACE AND DEFENSE - 0.5%
76,000 Northrop Grumman Corporation, 7.250% 7,915,400
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE - 0.8%
224,450 Ford Motor Company Capital Trust II, 6.500% 12,041,743
------------------------------------------------------------------------------------------------------------------------------------
BANKING - 1.9%
217,900 Citigroup Global Markets, 2.000% 8,492,217
56,200 State Street Corporation, 6.750% 14,058,430
144,000 Washington Mutual Inc. Unit 1 Trust, 5.375% 8,688,960
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING AND CABLE TV - 1.5%
508,250 Cablevision Systems Corporation, Trust I, 6.500% 13,504,203
185,000 Emmis Communications Corporation, Series A, 6.250% 9,435,000
10,000 Sinclair Broadcast Group Inc., Series D, 6.000% 492,500
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES - 1.5%
330,000 Cendant Corporation, 7.750% 16,509,900
105,300 Interpublic Group, Series A, 5.375% 6,344,325
------------------------------------------------------------------------------------------------------------------------------------
DISTILLERS/BREWERS - 0.1%
42,300 Constellation Brands Inc., 5.750% 1,332,873
13
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS - 0.8%
175,000 Pioneer-Standard Financial Trust, 6.750% $ 8,903,125
200,000 Solectron Corporation, 7.250% 3,956,000
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.2%
68,250 Kerr McGee Corporation, 5.500% 3,310,808
------------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES - 0.5%
97,375 Allied Waste Industries Inc., 6.250% 7,369,340
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.6%
200,000 Affiliated Managers Group Inc., 6.000% 5,502,000
154,000 Gabelli Asset Management Inc., 6.950% 4,093,320
------------------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS/PAPER - 0.4%
112,500 Temple Inland Inc., 7.500% 6,197,625
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.3%
185,000 Sempra Energy, 8.500% 5,274,350
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE DISTRIBUTORS AND SERVICES - 0.3%
41,000 Anthem Inc., 6.000% 3,971,260
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.3%
106,675 Newell Financial Trust I, 5.250% 5,120,400
------------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES - 0.3%
239,000 Electronic Data Systems Corporation, 7.625% 5,226,930
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 0.9%
206,000 Reinsurance Group of America Inc., 5.750% 12,354,850
65,000 UnumProvident Corporation, 8.250% 2,218,450
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTIPLE LINE - 1.1%
86,200 Hartford Financial Services Group Inc., 7.000% 5,516,800
140,000 Phoenix Companies Inc., 7.000% 4,707,500
98,000 Prudential Financial Capital Trust I, 6.750% 6,634,600
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - 0.3%
100,000 Chubb Corporation, 7.000% 2,915,000
51,525 PMI Group Inc., 5.875% 1,326,254
------------------------------------------------------------------------------------------------------------------------------------
OIL SERVICES - 0.1%
25,000 Hanover Compressor Capital Trust, 7.250% 1,250,000
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 0.5%
165,000 Equity Office Properties Trust, Series B, 5.250% 8,266,500
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - OTHER - 0.9%
250,000 Host Marriott Financial Trust, 6.750% 13,593,750
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.8%
225,000 Toys R Us Inc., 6.250% 9,562,500
53,000 United Rentals Trust I, 6.500% 2,557,250
------------------------------------------------------------------------------------------------------------------------------------
SAVINGS AND LOAN - 0.4%
118,000 Capital One Financial Corporation, 6.250% 6,254,000
14
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
STEEL - 0.9%
85,800 TXI Capital Trust I, 6.500% $ 3,766,620
84,700 United States Steel Corporation, Series B, 7.000% 9,981,048
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.8%
131,000 Alltel Corporation, 7.750% 6,615,500
633,900 Sprint Corporation, 7.125% 5,876,253
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 1.1%
6,010 Lucent Technologies Capital Trust I, 7.750% 8,143,550
65 Nortel Networks Corp., 7.000% 8,878,848
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 2.4%
157,000 Cinergy Corporation, 9.500% 9,994,620
344,500 Detroit Edison Company, 8.750% 8,788,195
144,800 Dominion Resources Inc., 8.750% 8,159,480
217,900 FPL Group Inc., 8.000% 12,572,830
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $264,168,507) 317,675,107
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - HYBRID SECURITIES - 3.9% (2.7% OF TOTAL INVESTMENTS)
BANKING - FOREIGN - 1.0%
15 BBVA Privanza International Gibraltar, Series 144A, 7.764% 16,050,000
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 2.0%
300 Union Planters Preferred Fund, Series 144A, 7.750% 31,312,500
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.9%
10,957 Centaur Funding Corporation, Series B, Series 144A, 9.080% 14,021,541
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Hybrid Securities (cost $56,344,303) 61,384,041
--------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 27.5% (18.9% OF TOTAL INVESTMENTS)
AEROSPACE AND DEFENSE - 0.5%
7,600 AAR Corporation, Series 144A, 2.875%, 2/01/24 7,638,000
------------------------------------------------------------------------------------------------------------------------------------
AIRLINES - 0.6%
6,110 Delta Air Lines Incorporated, Series 144A, 8.000%, 6/03/23 5,468,450
3,200 Northwest Airlines Corporation, Convertible Notes, Series 144A, 6.625%, 5/15/23 3,656,000
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE - 1.2%
2,260 Fleetwood Enterprises Inc., Series 144A, 5.000%, 12/15/23 3,000,150
General Motors Corporation, Convertible Notes, Senior Debentures:
185,250 Series A, 4.500%, 3/06/32 4,940,618
185,100 Series B, 5.250%, 3/06/32 4,868,130
6,000 Sonic Automotive Inc., Convertible Senior Subordinated Notes, 5.250%, 5/07/09 5,812,500
------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 1.1%
4,000 Echostar Communications Corporation, Convertible Subordinated Notes, 5.750%, 5/15/08 4,255,000
6,650 Fisher Scientific International Inc., Convertible Senior Notes, 2.500%, 10/01/23 7,838,688
4,500 Ivax Corporation, Convertible Senior Subordinated Notes, 4.500%, 5/15/08 4,590,000
15
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING AND CABLE TV - 2.0%
325,000 Comcast Corporation, 2.000%, 10/15/29 $ 11,667,500
9,900 Liberty Media Corporation, Senior Debentures Exchangeable for Class B, 3.250%, 3/15/31 9,726,750
6,500 Mediacom Communications Corporation, Convertible Senior Notes, 5.250%, 7/01/06 6,426,875
3,425 Sinclair Broadcast Group, Convertible Step Coupon, Senior Series 144A, 4.875%, 7/15/18 3,600,531
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES - 0.5%
6,700 Bowne and Company Incorporated, Series 144A, 5.000%, 10/01/33 7,445,375
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER - 2.8%
2,500 Computer Associates International Inc., 5.000%, 3/15/07 3,118,750
6,435 Electronic Data Systems, Convertible Senior Notes, Series 144A, 3.875%, 7/15/23 6,837,188
4,000 FEI Company, Convertible Notes, 5.500%, 8/15/08 4,055,000
18,740 Hewlett-Packard Company, 0.000%, 10/14/17 10,658,375
1,061 Juniper Networks, Convertible Subordinated Notes, 4.750%, 3/15/07 1,087,525
4,250 Lam Research Corporation, Convertible Subordinated Notes, 4.000%, 6/01/06 4,159,688
2,625 Maxtor Corporation, Convertible Senior Notes, Series 144A, 6.800%, 4/30/10 3,487,969
6,600 Mentor Graphics Corporation, Convertible Subordinate Notes, 6.875%, 6/15/07 7,243,500
2,000 Red Hat Inc., Convertible Bonds, Series 144A, 0.500%, 1/15/24 2,087,500
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED METALS - 0.5%
4,785 Freeport-McMoran Inc., 7.000%, 2/11/11 7,416,750
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS - 1.5%
21,500 Arrow Electronics Inc., 0.000%, 2/21/21 11,798,125
7,700 Celestica Inc., 0.000%, 8/01/20 4,109,875
46,475 General Cable Corporation, Series 144A, 5.750%, 11/24/13 2,782,691
4,100 Teradyne Inc., Convertible Senior Notes, 3.750%, 10/15/06 4,853,375
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.6%
7,130 McMoran Exploration Corporation, Notes, Series 144A, 6.000%, 7/02/08 10,178,075
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 0.2%
3,200 Lions Gate Entertainment Corporation, Convertible Bonds, Series 144A, 4.875%, 12/15/10 3,812,000
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.4%
6,900 Providian Financial Corporation, Convertible Senior Notes, 3.250%, 8/15/05 6,598,125
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.1%
39,750 Southern Union Company, Series B, 5.750%, 8/16/06 2,258,794
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE DISTRIBUTORS AND SERVICES - 0.6%
7,050 Alza Corporation, 0.000%, 7/28/20 5,287,500
4,200 Province Healthcare Inc., Convertible Subordinated Notes, 4.500%, 11/20/05 4,242,000
------------------------------------------------------------------------------------------------------------------------------------
HOTELS - 0.3%
4,075 Fairmont Hotels and Resorts Inc., Convertible Notes, Series 144A, 3.750%, 12/01/23 4,334,781
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.3%
3,350 Tyco International Group Limited, Convertible Notes, Series 144A, 3.125%, 1/15/23 4,618,813
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.2%
2,500 EDO Corporation, Convertible Subordinate Notes, 5.250%, 4/15/07 2,706,250
16
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES - 0.5%
2,090 Acxiom Corporation, 3.750%, 2/15/09 $ 2,468,813
4,000 HNC Software Inc., 5.250%, 9/01/08 4,720,000
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTIPLE LINE - 0.1%
2,300 American International Group Inc., 0.500%, 5/15/07 2,228,125
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - 0.6%
383,300 Travelers Property and Casualty Company, 4.500%, 4/15/32 9,850,810
------------------------------------------------------------------------------------------------------------------------------------
LEISURE FACILITIES - 1.0%
10,500 Carnival Corporation, 0.000%, 10/24/21 8,098,125
15,500 Royal Caribbean Cruises Limited, Senior Notes, 0.000%, 2/02/21 (LYONS) 8,311,875
------------------------------------------------------------------------------------------------------------------------------------
NETWORKING EQUIPMENT - 0.6%
9,800 Brocade Communications Systems Inc., 2.000%, 1/01/07 9,138,500
------------------------------------------------------------------------------------------------------------------------------------
OIL - 0.5%
7,000 Schlumberger Limited, 2.125%, 6/01/23 7,323,750
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 1.8%
3,950 Connectics Corporation, Series 144A, 2.250%, 5/30/08 4,878,250
4,470 Indevus Pharmaceuticals Inc., Convertible Senior Debentures, Series 144A, 6.250%, 7/15/08 6,118,313
Teva Pharmaceutical Finance:
3,400 Series A, 0.500%, 2/01/24 3,476,500
7,100 Series B, 0.250%, 2/01/24 7,357,375
Valeant Pharmaceuticals International, Series 144A:
3,295 3.000%, 8/16/10 3,521,531
1,940 4.000%, 11/15/13 2,102,475
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - FOREIGN - 0.7%
12,290 Roche Holdings Inc., 0.000%, 1/19/15 (LYONS) 10,308,238
------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING AND PRINTING - 0.5%
96,000 Tribune Company, Exchangeable Subordinated Debentures, 2.000%, 5/15/29 8,028,000
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 1.1%
11,850 EOP Operating LP, Convertible Notes, 7.250%, 11/15/08 12,531,375
6,390 TrizecHahn Corporation, 3.000%, 1/29/21 4,568,850
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.7%
4,750 Best Buy Company Inc., 2.250%, 1/15/22 5,082,500
9,500 Brinker International Inc., 0.000%, 10/10/21 6,650,000
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIALTY - 1.4%
9,270 K2 Corporation, Convertible Notes, Series 144A, 5.000%, 6/15/10 14,820,413
4,665 Venator Group Inc, Convertible Notes, 5.500%, 6/01/08 7,452,338
------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR - 0.9%
4,890 ASM Lithography Holding NV, 5.750%, 10/15/06 6,161,400
7,750 RF Micro Devices Inc., Convertible Subordinated Notes, 3.750%, 8/15/05 7,769,375
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 1.4%
5,565 Comverse Technology Inc., Series 144A, 0.000%, 5/15/23 6,538,875
2,850 Lucent Technologies Inc., 2.750%, 6/15/23 4,563,563
4,800 Nextel Communications Inc, Convertible Senior Notes, 6.000%, 6/01/11 5,688,000
17
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (continued)
NII Holdings Inc., Series 144A:
$ 2,225 3.500%, 9/15/33 $ 3,198,438
2,255 2.880%, 2/01/34 2,243,725
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 1.9%
7,757 Ciena Corporation, 3.750%, 2/01/08 7,301,276
17,625 Liberty Media Corporation, Senior Debentures Exchangeable for Motorola, 3.500%, 1/15/31 16,082,813
5,000 Skyworks Solutions Inc., 4.750%, 11/15/07 7,118,750
------------------------------------------------------------------------------------------------------------------------------------
TOY MANUFACTURER - 0.4%
5,300 Hasbro Inc., 2.750%, 12/01/21 6,061,875
------------------------------------------------------------------------------------------------------------------------------------
TRUCKING - 0.0%
585 Yellow Corporation, Series 144A, 3.375%, 11/25/23 625,219
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (cost $383,333,560) 431,056,681
--------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 17.5% (12.1% OF TOTAL INVESTMENTS)
AUTOMOBILE - 1.9%
4,100 Asbury Automotive Group Inc., 9.000%, 6/15/12 4,346,000
Ford Motor Company:
3,500 8.900%, 1/15/32 4,030,754
5,590 9.980%, 2/15/47 7,064,027
10,000 7.700%, 5/15/97 9,763,720
General Motors Corporation, Senior Debentures:
1,760 8.375%, 7/15/33 2,012,516
2,070 7.375%, 5/23/48 2,010,587
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE PARTS - 0.4%
5,500 Tenneco Automotive Inc., 10.250%, 7/15/13 6,407,500
------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 0.1%
2,000 Fisher Scientific International Inc., 8.000%, 9/01/13 2,200,000
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING AND CABLE TV - 1.2%
4,000 Allbritton Communications Company, Series B, 7.750%, 12/15/12 4,220,000
5,000 Cablevision Systems Corporation, 7.250%, 7/15/08 5,362,500
1,000 Cablevision Systems Corporation, Series B, 8.125%, 8/15/09 1,100,000
2,750 Canwest Media Incorporated, 7.625%, 4/15/13 3,025,000
4,000 Young Broadcasting Inc., Senior Subordinate Notes, 10.000%, 3/01/11 4,380,000
------------------------------------------------------------------------------------------------------------------------------------
CEMENT AND GYPSUM - 0.1%
2,000 Texas Industries Inc., 10.250%, 6/15/11 2,310,000
------------------------------------------------------------------------------------------------------------------------------------
CHEMICAL SPECIALTY - 0.1%
1,335 OM Group Inc., 9.250%, 12/15/11 1,415,100
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.5%
2,400 Baytex Energy Ltd., 9.625%, 7/15/10 2,589,000
1,000 Chesapeake Energy Corporation, 9.000%, 8/15/12 1,150,000
Tesoro Petroleum Corporation, Senior Subordinate Notes, Series B:
2,000 9.000%, 7/01/08 2,090,000
2,000 9.625%, 11/01/08 2,215,000
250 Tesoro Petroleum Corporation, Senior Secondary Notes, 8.000%, 4/15/08 271,875
18
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 2.0%
$ 4,000 AMC Entertainment Inc., 9.875%, 2/01/12 $ 4,510,000
Boyd Gaming Corporation:
2,000 8.750%, 4/15/12 2,220,000
2,000 7.750%, 12/15/12 2,162,500
3,000 Las Vegas Sands Inc., Venetian Casino Resorts, LLC Mortgage Notes, 11.000%, 6/15/10 3,435,000
2,500 Park Place Entertainment Corp., 7.000%, 4/15/13 2,712,500
1,600 Park Place Entertainment, Senior Subordinate Notes, 8.125%, 5/15/11 1,816,000
4,040 Park Place Entertainment, Unsecured Senior Subordinate Notes, 7.875%, 12/15/05 4,332,900
7,000 PennNational Gaming Inc., Senior Subordinated Notes, 8.875%, 3/15/10 7,665,000
750 Pinnacle Entertainment Inc., 8.750%, 10/01/13 783,750
2,000 Pinnacle Entertainment Inc., Senior Subordinate Notes, Series B, 9.250%, 2/15/07 2,075,000
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 1.9%
500 Forest City Enterprises, Senior Notes, 7.625%, 6/01/15 545,000
20,500 General Motors Acceptance Corporation, Notes, 8.000%, 11/01/31 22,546,536
2,000 MDP Acquisitions plc, Senior Notes, 9.625%, 10/01/12 2,280,000
4,000 Universal City Development Partners, Senior Notes, Series 144A 11.750%, 4/01/10 4,770,000
------------------------------------------------------------------------------------------------------------------------------------
FOOD - 0.6%
1,000 Dole Food Inc., 8.875%, 3/15/11 1,095,000
5,943 Dole Foods Company, 7.875%, 7/15/13 6,567,015
1,000 Seminis Vegetable Seeds Inc., Series 144A, 10.250%, 10/01/13 1,085,000
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.1%
2,000 Suburban Propane Partnership LP, 6.875%, 12/15/13 2,060,000
------------------------------------------------------------------------------------------------------------------------------------
HOMEBUILDING - 0.8%
3,000 KB Home, 8.625%, 12/15/08 3,390,000
5,175 Technical Olympic USA Inc., Senior Subordinate Notes, 10.375%, 7/01/12 5,977,125
2,500 William Lyon Homes Inc., Unsecured Senior Notes, 10.750%, 4/01/13 2,937,500
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 1.8%
Allied Waste North America:
6,250 10.000%, 8/01/09 6,765,625
1,000 7.875%, 4/15/13 1,096,250
1,520 Berry Plastics Corporation, 10.750%, 7/15/12 1,778,400
2,000 K. Hovnanian Enterprises Inc., Senior Subordinate Notes, 8.875%, 4/01/12 2,200,000
3,000 Laidlaw International Inc., Senior Notes, Series 144A, 10.750%, 6/15/11 3,498,750
2,000 Owens-Brockway Glass Containers, Guaranteed Senior Notes, 8.250%, 5/15/13 2,150,000
2,000 Owens-Illinois Inc., 7.800%, 5/15/18 2,040,000
Terex Corporation, Senior Subordinated Notes:
1,220 10.380%, 4/01/11 1,396,900
6,095 9.250%, 7/15/11 6,811,163
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - FOREIGN - 0.6%
7,500 Sun Life Canada Capital Trust, 8.526%, 5/06/47 8,916,120
------------------------------------------------------------------------------------------------------------------------------------
LEISURE FACILITIES - 0.6%
2,900 Intrawest Corporation, 7.500%, 10/15/13 3,030,500
4,000 Intrawest Corporation, Senior Notes, 10.500%, 2/01/10 4,435,000
2,000 Town Sports International Inc., 9.625%, 4/15/11 2,120,000
19
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS - 0.3%
Iasis Healthcare Corporation:
$ 3,000 13.000%, 10/15/09 $ 3,382,500
1,000 8.500%, 10/15/09 1,055,000
------------------------------------------------------------------------------------------------------------------------------------
NETWORKING EQUIPMENT - 0.3%
3,500 Avaya Inc., 11.125%, 4/01/09 4,121,250
------------------------------------------------------------------------------------------------------------------------------------
OFFICE ELECTRONICS - 0.3%
4,000 IOS Capital LLC, Senior Notes, 7.250%, 6/30/08 4,310,000
------------------------------------------------------------------------------------------------------------------------------------
PAPER - 0.5%
2,000 Georgia Pacific Corporation, Debentures, 7.700%, 6/15/15 2,105,000
5,000 Georgia Pacific Corporation, Notes, 8.125%, 5/15/11 5,462,500
------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING AND PRINTING - 1.7%
2,000 American Media Operations Inc., 8.875%, 1/15/11 2,210,000
4,180 American Media Operations Inc., Series B, 10.250%, 5/01/09 4,462,150
500 CBD Media LLC/CBD Finance Inc. Combined, 8.625%, 6/01/11 550,000
5,800 Mail-Well I Corporation, Senior, Unsecured Notes, Series 144A, 9.625%, 3/15/12 6,554,000
6,000 Primedia Inc., Senior Notes, 8.875%, 5/15/11 6,300,000
6,750 Vertis Inc., 9.750%, 4/01/09 7,374,375
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - OTHER - 0.5%
2,500 CB Richard Ellis Services Inc., 9.750%, 5/15/10 2,850,000
4,425 LNR Property Corporation, 7.625%, 7/15/13 4,801,125
------------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS - 0.2%
3,500 Dominos Inc., 8.250%, 7/01/11 3,762,500
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.1%
1,650 Central Garden & Pet Company, 9.125%, 2/01/13 1,831,500
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - DEPARTMENT STORES - 0.5%
Saks Inc., Notes:
3,500 7.380%, 2/15/19 3,587,500
2,000 9.875%, 10/01/11 2,420,000
1,195 Saks Inc., Series 144A, 7.000%, 12/01/13 1,248,775
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - DRUG STORES - 0.1%
2,000 Rite Aid Corporation, Series 144A, 6.000%, 12/15/05 2,010,000
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIALTY - 0.3%
5,000 Warnaco Inc., Senior Notes, Series 144A, 8.875%, 6/15/13 5,350,000
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $257,548,337) 274,916,288
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 17.9% (12.3% OF TOTAL INVESTMENTS)
BANKING - 8.6%
7,000 AgFirst Farm Credit Bank, 7.300%, 10/15/49 7,126,700
2,500 Ahmanson Capital Trust I, 8.360%, 12/01/26 2,904,925
1,000 BankAmerica Capital II, Series 2, 8.000%, 12/15/26 1,159,344
6,000 BankBoston Capital Trust I, Series B, 8.250%, 12/15/26 7,028,532
3,000 Bank One Capital III, 8.750%, 9/01/30 4,012,008
1,500 BanPonce Trust I, Series A, 8.327%, 2/01/27 1,719,266
1,000 BT Capital Trust, Series B1, 7.900%, 1/15/27 1,141,496
4,850 BT Institutional Capital Trust A, Series 144A, 8.090%, 12/01/26 5,609,888
20
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BANKING (continued)
$ 3,000 Centura Capital Trust I, Series 144A, 8.845%, 6/01/27 $ 3,483,276
18,125 Chase Capital Trust I, Series A, 7.670%, 12/01/26 20,312,470
13,500 Corestates Capital Trust I, Series 144A, 8.000% 12/15/26 15,563,327
1,000 First Chicago NBD Institutional Capital, 7.950%, 12/01/26 1,136,650
6,200 First Empire Capital Trust I, 8.234%, 2/01/27 7,238,463
2,000 First Midwest Bancorp Inc., Series 144A, 6.950%, 12/01/33 2,146,772
6,300 KeyCorp Institutional Capital Trust A, 7.826%, 12/01/26 7,094,600
20,000 M&I Capital Trust A, 7.650%, 12/01/26 22,240,600
5,000 NB Capital Trust IV, 8.250%, 4/15/27 5,881,965
1,000 North Fork Capital Trust I, 8.700%, 12/15/26 1,200,811
11,000 North Fork Capital Trust II, 8.000%, 12/15/27 12,411,718
100 Reliance Capital Trust I, Series B, 8.170%, 5/01/28 113,736
100 Wachovia Capital Trust I, Capital Securities, Series 144A, 7.640%, 1/15/27 114,080
5,000 Zions Institutional Capital Trust, Series A, 8.536%, 12/15/26 5,846,525
------------------------------------------------------------------------------------------------------------------------------------
BANKING - FOREIGN - 4.0%
13,000 Abbey National Capital Trust I, 8.963%, 6/30/20 17,562,285
10,530 Barclays Bank PLC, Series 144A, 8.550%, 6/15/49 13,128,636
1,000 CBA Capital Trust I, Series 144A, 5.805%, 12/31/49 1,046,178
10,000 HSBC Capital Funding LP, 10.176%, 6/30/50 14,876,340
8,000 Sparebanken Rogaland, Notes, Series 144A, 6.443%, 5/01/49 8,117,600
4,300 UBS Preferred Funding Trust I, 8.622%, 10/29/49 5,328,057
2,000 Unicredito Italiano Capital Trust, Series 144A, 9.200%, 10/05/49 2,525,140
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 1.0%
3,000 AB Svensk Exportkredit, 6.375%, 10/27/49 3,098,268
10,500 St. George Funding Company LLC, 8.485%, 6/30/17 12,430,247
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.5%
1,200 KN Capital Trust I, 8.560%, 4/15/27 1,423,141
5,110 KN Capital Trust III, 7.630%, 4/15/28 5,784,832
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - FINANCIAL - 1.3%
18,596 Berkeley Capital Trust, 8.197%, 12/20/45 20,153,136
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTIPLE LINE - 0.9%
5,107 Safeco Capital Trust I, Capital Securities, 8.072%, 7/15/37 5,895,638
7,250 Zurich Capital Trust I, 8.376%, 6/01/37 8,285,097
------------------------------------------------------------------------------------------------------------------------------------
SAVINGS AND LOAN - 1.2%
12,250 Dime Capital Trust I, Series A, 9.330%, 5/06/27 15,245,223
1,000 Great Western Financial Trust II, Series A, 8.206%, 2/01/27 1,160,374
2,500 Washington Mutual Capital Trust I, 8.375%, 6/01/27 2,945,413
------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES GOVERNMENT AGENCY - 0.2%
3,000 Farm Credit Bank of Texas, 7.561%, 11/05/49 3,112,578
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 0.2%
3,000 PECO Energy Capital Trust IV, 5.750%, 6/15/33 2,719,164
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $277,584,657) 280,324,499
--------------------------------------------------------------------------------------------------------------------
21
Nuveen Preferred and Convertible Income Fund (JPC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED EURO-MARKET LISTED SECURITIES - 7.8% (5.3% OF TOTAL INVESTMENTS)
BANKING - FOREIGN - 7.6%
$ 6,000 BNP Paribas Capital Trust, 7.200%, 12/31/49 $ 6,265,980
28,750 C.A. Preferred Funding Trust, 7.000%, 1/30/49 29,628,743
38,500 HBOS Capital Funding LP, Notes, 6.850%, 3/01/49 38,940,090
18,600 Lloyds TSB Bank plc, Subordinate Notes, 6.900%, 11/22/49 19,264,034
23,850 RBS Capital Trust B, 6.800%, 12/31/49 24,184,611
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 0.2%
3,500 Old Mutual Capital Funding, Notes, 8.000%, 6/22/53 3,515,071
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Euro-Market Listed Securities (cost $124,360,062) 121,798,529
--------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.9% (0.6% OF TOTAL INVESTMENTS)
13,680 State Street Repurchase Agreement, 0.920%, date 1/30/04, due 2/02/04, 13,680,000
------------- repurchase price $13,681,049, collateralized by U.S. Treasury Bonds
--------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $13,680,000) 13,680,000
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,126,522,368) - 145.2% 2,278,686,485
--------------------------------------------------------------------------------------------------------------------
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK SOLD SHORT - (3.3)%
AIRLINES - (0.1)%
(138,500) Delta Air Lines Inc. (1,454,250)
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING AND CABLE TV - (0.3)%
(188,935) Cablevision Systems Corporation (4,832,957)
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS - (0.2)%
(426,900) Solectron Corporation (3,030,990)
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - (0.2)%
(53,502) Devon Energy Corporation (3,020,723)
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - (0.6)%
(50,000) Affiliated Managers Group Inc. (4,240,000)
(70,335) Capital One Financial Corporation (4,999,412)
------------------------------------------------------------------------------------------------------------------------------------
GAS - (0.2)%
(86,000) Sempra Energy (2,678,040)
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - FINANCIAL - (0.2)%
(103,200) Hilb, Roga, & Hamilton Companies (3,299,304)
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - (0.1)%
(107,775) UnumProvident Corporation (1,684,523)
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTIPLE LINE - (0.3)%
(67,725) Hartford Financial Services Group (4,357,427)
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - (0.1)%
(29,500) Chubb Corporation (2,108,955)
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIALTY - (0.1)%
(51,380) K2 Inc. (923,299)
22
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
STEEL - (0.5)%
(256,676) United States Steel Corporation $ (8,739,818)
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - (0.3)%
(611,880) Sprint Corporation PCS Group (4,974,584)
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - (0.1)%
(95,300) Southern Union Company (1,711,588)
------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks Sold Short (proceeds $40,653,707) (52,055,870)
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 3.2% 50,178,932
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (45.1)% (708,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $1,568,809,547
====================================================================================================================
(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 Receivable
Deduction.
(CBTCS) Corporate Backed Trust Certificates.
(CORTS) Corporate Backed Trust Securities.
(LYONS) Liquid Yield Option Notes.
(PCARS) Public Credit and Repackaged Securities.
(PPLUS) PreferredPlus Trust.
(SATURNS) Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
23
Nuveen Preferred and Convertible Income Fund 2 (JQC)
Portfolio of
INVESTMENTS January 31, 2004 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
PREFERRED SECURITIES - 44.4% (30.6% OF TOTAL INVESTMENTS)
AUTOMOBILE - FOREIGN - 0.0%
22,600 Magna International Inc., Series B, 8.875% $ 589,860
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE PARTS - 0.6%
518,000 Delphi Trust I, 8.250% 13,809,880
------------------------------------------------------------------------------------------------------------------------------------
BANKING - 11.4%
100,000 ABN AMRO Capital Fund Trust VI, 6.250% 2,576,000
98,700 ASBC Capital I, 7.625% 2,688,588
203,410 BAC Capital Trust I, 7.000% 5,477,831
560,200 BAC Capital Trust II, 7.000% 14,979,748
163,900 BAC Capital Trust III, 7.000% 4,513,806
30,000 BAC Capital Trust IV, 5.875% 764,100
100 Bank One Capital I, 8.000% 2,627
15,700 Bank One Capital II, 8.500% 434,262
30,300 Bank One Capital V, 8.000% 825,675
167,700 Bank One Capital Trust VI, 7.200% 4,489,329
46,700 BankNorth Capital Trust II, 8.000% 1,280,981
27,000 BNY Capital Trust IV, Series E, 6.875% 684,450
306,984 BNY Capital Trust V, Series F, 5.950% 7,818,882
31,300 Chase Capital Trust V, Series E, 7.030% 792,203
2,100 Chase Capital VII, 7.000% 53,151
135,000 Chittenden Capital Trust I, 8.000% 3,638,250
195,234 Citigroup Capital Trust VI, 6.875% 4,968,705
180,700 Citigroup Capital Trust VII, 7.100% 4,895,163
965,400 Citigroup Capital Trust VIII, 6.950% 25,814,796
373,750 Citigroup Capital Trust IX, 6.000% 9,616,588
24,000 Citigroup Inc., Series H, 6.231% (a) 1,296,000
150,000 Cobank ABC, Series 144A, 7.000% (a) 7,932,300
80,800 Comerica Capital Trust I, 7.600% 2,190,488
133,300 Compass Capital Trust III, 7.350% 3,571,107
42,600 First Union Capital II, Series II, 7.500% (CORTS) 1,157,442
18,700 First Union Institutional Capital II, 8.200% (CORTS) 536,690
2,900 First Union Institutional Capital II, Series III, 7.500% (CORTS) 76,879
15,400 Fleet Capital Trust II, 8.000% (CORTS) 420,420
4,400 Fleet Capital Trust VI, 8.800% 120,692
512,200 Fleet Capital Trust VII, 7.200% 13,706,472
430,300 Fleet Capital Trust VIII, 7.200% 11,549,252
30,300 Harris Preferred Capital Corporation, Series A, 7.375% 765,681
4,500 JPM Capital Trust I, Series 2001-1, Class A-1, 7.850% (CORTS) 121,050
43,200 JPM Capital Trust I, Series 2001-1, Class A-1, 7.200% (CORTS) 1,134,432
24
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BANKING (continued)
71,965 JPMorgan Chase & Company, 7.125% (PCARS) $ 1,904,914
20,500 JPMorgan Chase Capital Trust IX, Series I, 7.500% 548,375
692,420 JPMorgan Chase Capital Trust X, 7.000% 18,674,567
231,600 JPMorgan Chase Capital Trust XI, 5.875% 5,732,100
73,600 JPMorgan Chase Trust, Series 2002-6, Class A, 7.125% (SATURNS) 1,962,912
35,000 KeyCorp, 7.500% (CORTS) 950,250
195,070 KeyCorp Capital Trust V, 5.875% 4,843,588
26,700 KeyCorp, Series 2001-7, 7.750% (CORTS) 713,157
20,300 KeyCorp, Series B, 8.250% (CORTS) 551,957
58,900 National Commerce Capital Trust II, 7.700% 1,596,779
21,700 ONB Capital Trust II, 8.000% 576,135
48,300 PNC Capital Trust, 6.125% 1,223,439
136,400 SunTrust Capital Trust IV, 7.125% 3,671,888
98,900 SunTrust Capital Trust V, 7.050% 2,665,355
660,200 USB Capital Trust III, 7.750% 18,016,858
328,500 USB Capital Trust IV, 7.350% 8,820,225
277,000 USB Capital Trust V, 7.250% 7,492,850
35,800 VNB Capital Trust I, 7.750% 972,686
28,900 Washington Mutual Capital Trust I, Series 2001-22, Class A-1, 7.650% (CORTS) 768,596
40,000 Wells Fargo Capital Trust IV, 7.000% 1,091,600
420,800 Wells Fargo Capital Trust V, 7.000% 11,336,352
85,100 Wells Fargo Capital Trust VI, 6.950% 2,290,041
236,550 Wells Fargo Capital Trust VII, 5.850% 6,010,736
74,600 Zions Capital Trust, Series B, 8.000% 2,069,404
------------------------------------------------------------------------------------------------------------------------------------
BANKING - FOREIGN - 3.0%
299,600 Abbey National plc, 7.375% 8,239,000
53,700 Abbey National plc, 7.250% 1,425,198
12,100 Abbey National plc, 7.250% 311,091
17,200 Abbey National plc, 7.000% 435,504
34,200 Abbey National, Series B, 7.375% 942,894
302,939 ABN AMRO Capital Fund Trust II, 7.125% 7,673,445
1,004,270 ABN AMRO Capital Fund Trust V, 5.900% 24,855,683
66,600 Banco Totta & Acores Finance, Series A, 8.875% 1,875,210
1,100 BCH Capital Ltd., Series B, 9.430% 30,300
56,300 BSCH Finance Ltd., Series Q, 8.625% 1,534,175
37,900 Espirito Santo Overseas, 8.500% 985,779
61,200 National Westminster Bank plc, Series A, 7.875% 1,554,480
488,700 Royal Bank of Scotland Group plc, 5.750% 12,085,551
52,600 Westpac Capital Trust I, 8.000% 1,356,028
------------------------------------------------------------------------------------------------------------------------------------
BROKERAGE - 4.0%
85,200 Bear Stearns Capital Trust III, 7.800% 2,300,400
269,600 Bear Stearns Companies, Series G, 5.490% (a) 14,081,208
9,000 Goldman Sachs Group Inc., 6.000% (PPLUS) 230,850
13,000 Goldman Sachs Group Inc., Series, 2003-06, 6.000% (SATURNS) 332,800
22,700 Lehman Brothers Capital Trust I, 8.000% 576,807
25
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BROKERAGE (continued)
41,100 Lehman Brothers Holdings Capital Trust II, Series J, 7.875% $ 1,058,325
Lehman Brothers Holdings Inc.:
198,550 Series C, 5.940% (a) 10,334,528
118,300 Series D, 5.670% (a) 6,154,558
450,000 Series F, 6.500% (a) 12,361,500
221,700 Merrill Lynch Capital Trust, 7.000% 6,005,853
63,900 Merrill Lynch Capital Trust II, 8.000% 1,808,370
38,100 Merrill Lynch Preferred Capital Trust, 7.750% 1,050,798
164,700 Merrill Lynch Preferred Capital Trust IV, 7.120% 4,494,663
254,700 Merrill Lynch Preferred Capital Trust V, 7.280% 7,029,720
181,750 Morgan Stanley Capital Trust II, 7.250% 4,858,178
235,700 Morgan Stanley Capital Trust III, 6.250% 6,069,275
137,400 Morgan Stanley Capital Trust IV, 6.250% 3,516,066
51,500 Morgan Stanley Capital Trust V, 5.750% 1,264,840
105,880 Morgan Stanley, 7.050% (PPLUS) 2,850,290
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER - 0.1%
14,400 IBM Inc., 7.125% (CORTS) 383,616
27,500 IBM Inc., Series 2001-1, 7.125% (SATURNS) 731,775
2,700 IBM Trust IV, 7.000% (CORTS) 74,790
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - FOREIGN - 0.2%
5,200 EnCana Corporation, 9.500% 138,060
121,600 Talisman Energy Inc., 9.000% 3,040,000
17,800 Talisman Energy Inc., 8.900% 453,188
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 0.0%
29,100 Viacom Inc., 7.300% 785,700
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 1.8%
17,200 CIT Group Incorporated, 7.750% (CORTS) 494,500
55,400 Countrywide, 8.050% (PPLUS) 1,523,500
51,600 Countrywide Capital Trust II, Series II, 8.000% (CORTS) 1,395,780
666,000 Countrywide Capital Trust IV, 6.750% 17,382,600
8,000 Financial Security Assurance Holdings, 6.875% 214,960
15,100 General Electric Capital Corporation, 6.625% 405,737
7,000 Household Capital Trust V, Series X, 10.000% 193,200
35,900 Household Capital Trust VI, 8.250% 976,839
98,100 Household Capital Trust VII, 7.500% 2,658,510
53,000 Household Finance Corporation, 6.875% 1,408,740
43,900 Philadelphia Industrial Development Authority, Pennsylvania, Pension, 6.550% 1,103,646
174,000 SLM Corporation, Series A, 6.970% (a) 9,909,300
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 1.9%
30,300 CSFB USA, Series 2002-10, 7.000% (SATURNS) 803,253
190,100 ING Capital Funding Trust, 7.700% 4,881,768
534,220 ING Group NV, 7.200% 14,728,445
720,875 ING Group NV, 7.050% 19,744,766
26
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
FOOD - 0.4%
75,000 Dairy Farmers of America Inc., Series 144A, 7.875% (a) $ 7,715,625
------------------------------------------------------------------------------------------------------------------------------------
FOOD - FOREIGN - 0.1%
41,900 Grand Metropolitan Delaware LP, 9.420% 1,103,646
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.1%
66,600 AGL Capital Trust II, 8.000% 1,818,846
22,500 Dominion CNG Capital Trust I, 7.800% 609,075
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.0%
26,000 Sherwin Williams Company, Series III, 7.250% (CORTS) 683,540
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - FINANCIAL - 0.4%
155,400 AMBAC Financial Group Inc., 5.950% 4,043,508
5,000 AMBAC Financial Group Inc., 5.875% 127,450
3,600 MBIA Inc., 8.000% 99,684
93,500 Nationwide Financial Services Capital Trust II, 7.100% 2,348,720
101,400 W.R. Berkley Capital Trust, Series 2002-1, 8.125% (CBTCS) 1,095,627
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 3.4%
376,200 Aetna Incorporated, 8.500% 10,409,454
2,800 AIG Capital Securities, Series 2002-11, 6.000% (SATURNS) 71,680
13,100 American General Capital Trust I, 7.875% 342,434
670,301 Delphi Financial Group Inc., 8.000% 17,964,067
20,200 Great-West L&A Capital Trust I, Series A, 7.250% 518,938
47,200 Lincoln National Capital Trust V, Series E, 7.650% 1,297,528
1,402,300 Lincoln National Capital Trust VI, 6.750% 36,810,375
62,800 PLC Capital Trust III, 7.500% 1,688,064
61,800 PLC Capital Trust IV, 7.250% 1,662,420
37,400 Torchmark Capital Trust I, 7.750% 1,019,150
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTIPLE LINE - 0.6%
281,400 Hartford Capital Trust III, Series C, 7.450% 7,561,218
56,800 Hartford Life Capital Trust I, Series A, 7.200% 1,443,288
28,400 Hartford Life Capital Trust II, Series B, 7.625% 756,860
15,600 Safeco Capital Trust I, 8.750% (CORTS) 468,000
16,300 Safeco Capital Trust I, 8.700% (CORTS) 442,382
3,800 Safeco Capital Trust I, Series 2001-4, 8.750% (CORTS) 102,600
20,900 Safeco Capital Trust III, 8.072% (CORTS) 560,956
10,500 Safeco Capital Trust IV, 8.375% (CORTS) 289,223
27,900 Safeco Corporation, Series 2001-7, 8.250% (SATURNS) 770,598
24,500 Safeco Corporation, Series 2002-5, 8.250% (SATURNS) 677,425
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - 0.1%
900 Allstate Corporation, 7.150% (PCARS) 23,931
65,200 EverestRe Group Limited, 7.850% 1,821,688
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - FOREIGN - 4.0%
156,300 Ace Capital Trust I, Series 1999, 8.875% 4,141,950
1,337,883 Ace Ltd., Series C, 7.800% 37,206,526
27
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - FOREIGN (continued)
314,800 Converium Finance, 8.250% $ 8,688,480
62,800 PartnerRe Limited, 7.900% 1,716,324
900,702 PartnerRe Limited, Series C, 6.750% 23,742,505
RenaissanceRe Holdings Ltd.:
91,400 Series A, 8.100% 2,539,092
114,600 Series B, 7.300% 3,111,390
XL Capital Ltd.:
52,000 Series A, 8.000% 1,460,680
101,100 Series B, 7.625% 2,792,382
------------------------------------------------------------------------------------------------------------------------------------
OIL - FOREIGN - 0.8%
685,000 Nexen Inc., 7.350% 18,118,250
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - FOREIGN - 0.0%
11,000 Rhone-Poulenc Overseas, Series A, 8.125% 280,610
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 9.5%
318,355 AMB Property Corporation, Series L, 6.500% 7,990,711
77,100 AvalonBay Communities Inc., Series H, 8.700% 2,212,770
216,000 BRE Properties, Series B, 8.080% 5,940,000
1,166,500 CarrAmerica Realty Corporation, Series E, 7.500% 31,378,850
Developers Diversified Realty Corporation:
102,100 Series G, 8.000% 2,762,826
1,277,845 Series H, 7.375% 34,233,468
3,000 Duke-Weeks Realty Corporation, Series I, 8.450% 82,920
130,000 Duke-Weeks Realty Corporation, Series I, 6.625% 3,356,600
124,700 Equity Office Properties Trust, Series G, 7.750% 3,442,967
Equity Residential Properties Trust:
3,200 Series C, 9.125% 89,344
11,000 Series D, 8.600% 308,110
467,489 Series N, 6.480% 11,766,698
First Industrial Realty Trust Inc.:
2,400 Series C, 8.625% 66,852
23,500 Series D, 7.950% 593,845
16,700 Series E, 7.900% 424,013
92,800 Gables Residential Trust, Series D, 7.500% 2,459,200
HRPT Properties Trust:
416,129 Series A, 9.875% 11,472,677
156,300 Series B, 8.750% 4,362,333
96,400 New Plan Excel Realty Trust, Series E, 7.625% 2,641,360
Prologis Trust:
3,997 Series C, 8.540% 247,190
96,075 Series G, 6.750% 2,408,600
40,000 PS Business Parks Inc., 7.000% 990,000
Public Storage Inc.:
2,000 Series L, 8.250% 50,700
5,000 Series M, 8.750% 130,350
24,900 Series Q, 8.600% 682,011
129,450 Series R, 8.000% 3,517,157
48,560 Series S, 7.875% 1,314,034
42,000 Series T, 7.625% 1,134,000
152,200 Series U, 7.625% 4,147,450
14,000 Series V, 7.500% 380,660
28
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (continued)
166,100 Regency Centers Corporation, 7.450% $ 4,468,090
Simon Property Group Inc.:
10,300 Series F, 8.750% 284,177
15,100 Series G, 7.890% 830,500
6,300 Vornado Realty Trust, Series C, 8.500% 160,650
1,987,734 Wachovia Preferred Funding Corporation, 7.250% 57,445,513
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 1.3%
36,900 AT&T Wireless, Series 2002-7, 8.000% (CORTS) 1,020,285
22,800 AT&T Wireless Services Equity, Series 2002-B, 9.250% (SATURNS) 666,672
18,300 BellSouth Capital Funding, 7.100% (CORTS) 482,114
3,000 BellSouth Capital Funding Corporation, 7.375% 77,250
1,000 BellSouth Corporation, 7.000% (CORTS) 26,690
16,300 BellSouth Corporation, CABCO Trust, 9.750% (CORTS) 424,289
39,800 BellSouth Corporation, Series 2001-3, 7.125% (SATURNS) 1,037,984
29,800 BellSouth Inc., Series BLS, 7.000% (CORTS) 787,912
66,000 BellSouth Telecommunications, 7.300% (PPLUS) 1,752,960
69,100 Citizens Communications Company, 8.375% (PPLUS) 1,831,841
22,200 Citizens Communications Company, Series 2001-2, 8.625% (SATURNS) 606,060
42,800 Deutsche Telekom International Finance, B.V., Series 2001-24, Class A-1, 7.875% (CORTS) 1,139,550
50,000 SBC Communications Inc., 7.000% 1,340,500
109,700 Telephone and Data Systems Inc., 7.600% 2,950,930
27,100 U.S. Cellular Corporation, 8.750% 781,835
44,300 Verizon Communications, 7.375% (CORTS) 1,202,745
369,300 Verizon Communications, 6.200% (CORTS) 9,269,430
16,100 Verizon Communications, Series VZ, 7.625% (CORTS) 443,394
49,000 Verizon New England Inc., Series B, 7.000% 1,298,500
19,000 Verizon South Inc., Series F, 7.000% 505,020
------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES GOVERNMENT AGENCY - 0.3%
41,700 Fannie Mae, 5.125% (a) 2,037,045
101,700 Fannie Mae, 4.750% (a) 4,678,200
15,000 Federal Home Loan Mortgage Corporation, 5.000% (a) 709,500
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 0.4%
5,100 Consolidated Edison Company, 7.250% 139,536
9,000 Consolidated Edison Company of New York Inc., 7.500% 245,970
4,200 Detroit Edison Company, 7.375% 106,260
2,300 DTE Energy Trust I, 7.800% 62,031
28,400 Energy East Capital Trust I, 8.250% 764,812
3,000 Entergy Louisiana Inc., 7.600% 82,050
3,000 Georgia Power Capital Trust V, 7.125% 81,030
150,000 Interstate Power and Light Company, 7.100% (a) 4,197,750
5,000 Mississippi Power Capital Trust II, 7.200% 134,625
4,700 Northern States Power Company, 8.000% 130,425
1,500 OGE Energy Capital Trust I, 8.375% 39,300
29
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES (continued)
700 Ohio Power Company, 7.375% $ 17,689
3,700 Southern Company Capital Trust I, 8.190% (CORTS) 104,192
17,500 Southern Company Capital Trust I, 7.375% (CORTS) 462,000
4,600 Southern Company Capital Trust VI, 7.125% 126,500
95,800 Virginia Power Capital Trust, 7.375% 2,589,474
------------------------------------------------------------------------------------------------------------------------------------
Total Preferred Securities (cost $925,444,506) 951,171,749
--------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SECURITIES - 20.5% (14.2% OF TOTAL INVESTMENTS)
AEROSPACE AND DEFENSE - 0.6%
127,800 Northrop Grumman Corporation, 7.250% 13,310,370
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE - 1.9%
181,800 Ford Motor Company Capital Trust II, 6.500% 9,753,570
1,046,200 General Motors Corporation, 6.250% 32,400,814
------------------------------------------------------------------------------------------------------------------------------------
BANKING - 1.6%
281,600 Citigroup Global Markets, 2.000% 10,974,797
45,600 Provident Financial Group Incorporated, 9.000% 1,443,240
29,725 State Street Corporation, 6.750% 7,435,709
231,200 Washington Mutual Inc., Unit 1 Trust, 5.375% 13,950,608
------------------------------------------------------------------------------------------------------------------------------------
BANKING - FOREIGN - 0.5%
273,600 National Australia Bank Limited, 7.875% 10,733,328
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING AND CABLE TV - 1.0%
374,000 Cablevision Systems Corporation, Trust I, 6.500% 9,937,180
137,000 Emmis Communications Corporation, Series A, 6.250% 6,987,000
97,500 Sinclair Broadcast Group Inc., Series D, 6.000% 4,801,875
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES - 0.9%
208,100 Cendant Corporation, 7.750% 10,411,243
138,775 Interpublic Group, Series A, 5.375% 8,361,194
------------------------------------------------------------------------------------------------------------------------------------
DISTILLERS/BREWERS - 0.1%
57,700 Constellation Brands Inc., 5.750% 1,818,127
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED METALS - 0.3%
37,820 Phelps Dodge Corporation, 6.750% 6,219,499
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS - 0.6%
182,200 Pioneer-Standard Financial Trust, 6.750% 9,269,425
167,000 Solectron Corporation, 7.250% 3,303,260
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.6%
105,000 Chesapeake Energy Corporation, Series 144A, 6.000% 7,599,375
125,000 Kerr McGee Corporation, 5.500% 6,063,750
------------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES - 0.1%
25,900 Allied Waste Industries Inc., 6.250% 1,960,112
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.6%
162,000 Affiliated Managers Group Inc., 6.000% 4,456,620
309,000 Gabelli Asset Management Inc., 6.950% 8,213,220
30
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS/PAPER - 0.4%
149,000 Temple Inland Inc., 7.500% $ 8,208,410
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.5%
377,300 Sempra Energy, 8.500% 10,756,823
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE DISTRIBUTORS AND SERVICES - 0.4%
86,500 Anthem Inc., 6.000% 8,378,390
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.4%
187,325 Newell Financial Trust I, 5.250% 8,991,600
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.4%
222,100 Teekay Shipping Corporation, 7.250% 8,644,132
------------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES - 0.4%
358,000 Electronic Data Systems Corporation, 7.625% 7,829,460
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 0.5%
167,000 Reinsurance Group of America Inc., 5.750% 10,015,825
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTIPLE LINE - 0.6%
194,100 Prudential Financial Capital Trust I, 6.750% 13,140,570
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - 0.5%
147,000 Chubb Corporation, 7.000% 4,285,050
208,650 PMI Group Inc., 5.875% 5,370,651
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - FOREIGN - 0.7%
249,000 PartnerRe Limited, 8.000% 14,230,350
------------------------------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS - 0.6%
244,000 Baxter International Inc., 7.000% 12,602,600
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 0.5%
225,250 Equity Office Properties Trust, Series B, 5.250% 11,285,025
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - OTHER - 0.4%
157,000 Host Marriott Financial Trust, 6.750% 8,536,875
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.5%
228,000 Toys R Us Inc., 6.250% 9,690,000
------------------------------------------------------------------------------------------------------------------------------------
SAVINGS AND LOAN - 0.1%
45,000 Capital One Financial Corporation, 6.250% 2,385,000
------------------------------------------------------------------------------------------------------------------------------------
STEEL - 0.4%
216,700 TXI Capital Trust I, 6.500% 9,513,130
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.8%
245,300 Alltel Corporation, 7.750% 12,387,650
400,000 Sprint Corporation, 7.125% 3,708,000
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 1.5%
9,200 Lucent Technologies Capital Trust I, 7.750% 12,466,000
200,100 Motorola Inc., 7.000% 9,570,783
75 Nortel Networks Corporation, 7.000% 10,244,825
31
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 2.1%
173,000 Cinergy Corporation, 9.500% $ 11,013,180
197,500 Dominion Resources Inc., 8.750% 11,129,125
154,500 FPL Group Inc., 8.000% 8,914,650
272,600 PPL Capital Funding Trust I, 7.750% 6,324,320
151,300 Public Service Enterprise Group, 10.250% 9,627,219
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Securities (cost $385,645,117) 438,653,959
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED - HYBRID SECURITIES - 1.4% (1.0% OF TOTAL INVESTMENTS)
TELECOM - 1.4%
24,080 Centaur Funding Corporation, Series B-144A, 9.080%, 4/21/20 30,814,887
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Hybrid Securities (cost $28,808,130) 30,814,887
--------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS - 26.2% (18.1% OF TOTAL INVESTMENTS)
ADVERTISING - 0.6%
3,840 Doubleclick Inc., Series 144A, 0.000%, 7/15/23 4,387,200
9,100 Interpublic Group Companies, Convertible Subordinated Notes, Series B, 1.870%, 6/01/06 8,440,250
------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE - 0.5%
10,125 AAR Corporation, Series 144A, 2.875%, 2/01/24 10,175,625
------------------------------------------------------------------------------------------------------------------------------------
AIRLINES - 1.2%
8,450 American Airlines Corporation, Series 144A, 4.250%, 9/23/23 10,435,750
8,050 Continental Airlines Inc., 4.500%, 2/01/07 7,204,750
3,200 Northwest Airlines Corporation, 6.625%, 5/15/23 3,656,000
3,100 Northwest Airlines Corporation, Convertible Notes, Series 144A, 6.625%, 5/15/23 3,541,750
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE - 0.6%
2,670 Fleetwood Enterprises Inc., Series 144A, 5.000%, 12/15/23 3,544,425
8,700 Sonic Automotive Inc., Convertible Senior Subordinated Notes, 5.250%, 5/07/09 8,428,125
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE PARTS - 0.2%
5,000 Tower Automotive Inc., 5.000%, 8/01/04 5,031,250
------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 0.7%
4,400 Echostar Communications Corporation, Convertible Subordinated Notes, 5.750%, 5/15/08 4,680,500
6,165 Fisher Scientific International Inc., Convertible Senior Notes, 2.500%, 10/01/23 7,266,994
3,500 Ivax Corporation, Convertible Senior Subordinated Notes, 4.500%, 5/15/08 3,570,000
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING AND CABLE TV - 3.4%
860,000 Comcast Corporation, 2.000%, 10/15/29 30,874,000
26,800 Liberty Media Corporation, Senior Debentures Exchangeable for PCS Common, 4.000%, 11/15/29 18,994,500
15,750 Liberty Media Corporation, Senior Debentures Exchangeable for Class B, 3.250%, 3/15/31 15,474,375
8,900 Mediacom Communications Corporation, Convertible Senior Notes, 5.250%, 7/01/06 8,799,875
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES - 1.1%
8,900 Bowne and Company Incorporated, Series 144A, 5.000%, 10/01/33 9,890,125
5,490 Lamar Advertising Company, Convertible Notes, Series 144A, 2.875%, 12/31/10 5,805,675
8,500 Quanta Services Incorporated, 4.000%, 7/01/07 8,043,125
32
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER - 1.8%
4,200 Computer Associates International Inc., 5.000%, 3/15/07 $ 5,239,500
7,000 Electronic Data Systems, Convertible Senior Notes, Series 144A, 3.875%, 7/15/23 7,437,500
16,500 Hewlett-Packard Company, 0.000%, 10/14/17 9,384,375
3,815 Maxtor Corporation, Convertible Senior Notes, Series 144A, 6.800%, 4/30/10 5,069,181
7,100 Mentor Graphics Corporation, Convertible Subordinate Notes, Series B, 6.875%, 6/15/07 7,792,250
2,650 Red Hat Inc., Convertible Bonds, 144A, 0.500%, 1/15/24 2,765,938
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED METALS - 0.3%
3,635 Freeport McMoran Inc., 7.000%, 2/11/11 5,634,250
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS - 1.1%
21,000 Anixter International Inc., 0.000%, 6/28/20 7,192,500
22,000 Arrow Electronics Inc., 0.000%, 2/21/21 12,072,500
60,775 General Cable Corporation, Series 144A, 5.750%, 11/24/13 3,638,903
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.7%
8,600 Kerr McGee Corporation, 5.250%, 2/15/10 9,266,500
4,170 McMoran Exploration Corporation, Notes, Series 144A, 6.000%, 7/02/08 5,952,675
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 0.2%
4,200 Lions Gate Entertainment Corporation, Convertible Bonds, Series 144A, 4.875%, 12/15/10 5,003,250
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.4%
8,000 Providian Financial Corporation, Convertible Senior Notes, 3.250%, 8/15/05 7,650,000
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 0.1%
2,650 JMH Finance Limited, 4.750%, 9/06/07 2,801,074
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE DISTRIBUTORS AND SERVICES - 0.7%
8,700 Lifepoint Hospitals Inc., Convertible Subordinate Notes, 4.500%, 6/01/09 9,319,875
5,400 Province Healthcare Inc., Convertible Subordinated Notes, 4.250%, 10/10/08 5,568,750
------------------------------------------------------------------------------------------------------------------------------------
HOTELS - 0.3%
5,425 Fairmont Hotels and Resorts Inc., Convertible Notes, Series 144A, 3.750%, 12/01/23 5,770,844
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.2%
4,900 EDO Corporation, Convertible Subordinate Notes, 5.250%, 4/15/07 5,304,250
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATE - 0.9%
7,000 Tyco International Group Limited, Convertible Notes, Series 144A, 3.125%, 1/15/23 9,651,250
7,200 Tyco International Group SA, 3.125%, 1/15/23 9,927,000
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - 0.6%
505,800 Travelers Property and Casualty Company, 4.500%, 4/15/32 12,999,060
------------------------------------------------------------------------------------------------------------------------------------
LEISURE FACILITIES - 1.0%
10,775 Carnival Corporation, 2.000%, 4/15/21 13,684,250
16,000 Royal Caribbean Cruises Limited, Senior Convertible Notes, 0.000%, 2/2/21 (LYONS) 8,580,000
------------------------------------------------------------------------------------------------------------------------------------
NETWORKING EQUIPMENT - 0.5%
3,700 Agere Systems Inc., 6.500%, 12/15/09 5,873,750
4,115 Brocade Communications Systems Inc., 2.000%, 1/01/07 3,837,238
------------------------------------------------------------------------------------------------------------------------------------
OFFICE ELECTRONICS - 0.4%
8,200 IOS Capital LLC, Convertible Subordinate Debentures, Series 144A, 5.000%, 5/01/07 8,927,750
33
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
PRINCIPAL
AMOUNT (000)/ MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
OIL - 0.5%
9,250 Schlumberger Limited, 2.125%, 6/01/23 $ 9,677,813
------------------------------------------------------------------------------------------------------------------------------------
OIL SERVICES - 0.4%
4,500 Maverick Tube Corporation, 4.000%, 6/15/33 4,612,500
4,000 Maverick Tube Corporation, 4.000%, 6/15/33 4,100,000
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 1.8%
1,755 Atherogenics Inc., Series 144A, 4.500%, 9/01/08 2,764,125
4,125 Indevus Pharmaceuticals Inc., Convertible Senior Debentures, Series 144A, 6.250%, 7/15/08 5,646,094
7,000 Ivax Corporation, Convertible Bonds, 5.500%, 5/15/07 7,253,750
8,000 Medarex Inc., Convertible Subordinated Notes, 4.500%, 7/01/06 7,740,000
8,900 Teva Pharmaceutical Finance, Series B, 0.250%, 2/01/24 9,222,625
Valeant Pharmaceuticals International, Series 144A:
4,350 3.000%, 8/16/10 4,649,062
2,545 4.000%, 11/15/13 2,758,144
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 0.8%
10,800 EOP Operating LP, Convertible Notes, 7.250%, 11/15/08 11,421,000
8,615 TrizecHahn Corporation, 3.000%, 1/29/21 6,159,725
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.5%
9,400 Best Buy Company Inc., 2.250%, 1/15/22 10,058,000
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIALTY - 0.9%
7,820 Charming Shoppes Inc., 4.750%, 6/01/12 7,771,125
1,165 K2 Corporation, Convertible Notes, Series 144A, 5.000%, 6/15/10 1,862,544
11,450 Lowes Companies Inc., 0.000%, 2/16/21 10,161,875
------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTOR - 0.6%
5,500 ASM Lithography Holding NV, 5.750%, 10/15/06 6,930,000
5,865 Triquint Semiconductor Inc., 4.000%, 3/01/07 5,784,356
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 1.2%
3,775 Lucent Technologies Inc., 2.750%, 6/15/23 6,044,719
10,000 Nextel Communications Inc., Convertible Senior Notes, Series 144A, 6.000%, 6/01/11 11,850,000
NII Holdings Inc., Series 144A:
2,975 3.500%, 9/15/33 4,276,563
2,990 2.880%, 2/01/34 2,975,050
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 1.2%
10,000 Ciena Corporation, 3.750%, 2/01/08 9,412,500
11,500 Liberty Media Corporation, Senior Debentures, Exchangeable for Motorola, 3.500%, 1/15/31 10,493,750
4,295 Skyworks Solutions Inc., 4.750%, 11/15/07 6,115,006
------------------------------------------------------------------------------------------------------------------------------------
TOY MANUFACTURER - 0.4%
7,000 Hasbro Inc., 2.750%, 12/01/21 8,006,250
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 0.4%
260,000 Centerpoint Energy Inc., 2.000%, 9/15/29 8,640,840
------------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (cost $510,552,397) 560,976,123
--------------------------------------------------------------------------------------------------------------------
34
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 16.0% (11.1% OF TOTAL INVESTMENTS)
AUTOMOBILE - 2.5%
$ 6,000 Asbury Automotive Group Inc., 9.000%, 6/15/12 $ 6,360,000
Ford Motor Company:
2,000 8.900%, 1/15/32 2,303,288
17,095 9.980%, 2/15/47 21,602,781
7,570 7.700%, 5/15/97 7,391,136
General Motors Corporation, Senior Debentures:
7,530 8.375%, 7/15/33 8,610,367
8,868 7.375%, 5/23/48 8,613,471
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE PARTS - 0.2%
4,000 Tenneco Automotive Inc., 10.250%, 7/15/13 4,660,000
------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY - 0.1%
1,500 Fisher Scientific International Inc., 8.000%, 9/01/13 1,650,000
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING AND CABLE TV - 1.3%
6,900 Allbritton Communications Company, Series B, 7.750%, 12/15/12 7,279,500
Cablevision Systems Corporation:
3,000 7.250%, 7/15/08 3,217,500
2,000 8.125%, 7/15/09 2,200,000
5,000 Cablevision Systems Corporation, Series B, 8.125%, 8/15/09 5,500,000
5,500 Young Broadcasting Inc., Senior Subordinate Notes, 10.000%, 3/01/11 6,022,500
Young Broadcasting Inc., Series 144A:
1,000 8.500%, 12/15/08 1,087,500
2,000 8.750%, 1/15/14 2,130,000
------------------------------------------------------------------------------------------------------------------------------------
CEMENT AND GYPSUM - 0.1%
2,000 Texas Industries Inc., 10.250%, 6/15/11 2,310,000
------------------------------------------------------------------------------------------------------------------------------------
CHEMICAL SPECIALTY - 0.3%
6,500 OM Group Inc., 9.250%, 12/15/11 6,890,000
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 0.3%
2,563 Chesapeake Energy Corporation, 9.000%, 8/15/12 2,947,450
1,000 Tesoro Petroleum Corporation: 8.000%, 4/15/08 1,087,500
Tesoro Petroleum Corporation, Senior Subordinate Notes, Series B,
1,000 9.000%, 7/01/08 1,045,000
1,000 9.625%, 11/01/08 1,107,500
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT - 2.5%
1,980 AMC Entertainment Inc., 9.875%, 2/01/12 2,232,450
1,850 AMC Entertainment Incorporated, 9.500%, 2/01/11 1,942,500
Argosy Gaming Company:
3,000 10.750%, 6/01/09 3,240,000
1,880 8.880%, 5/15/07 1,966,950
5,190 Aztar Corporation, 9.000%, 8/15/11 5,760,900
Boyd Gaming Corporation:
2,345 8.750%, 4/15/12 2,602,950
4,075 7.750%, 12/15/12 4,406,094
6,000 Cinemark USA Inc., 9.000%, 2/01/13 6,810,000
1,000 Cinemark USA Inc., Series B, 8.500%, 8/01/08 1,047,500
1,000 Isle of Capri Casinos Inc., Series B, 8.750%, 4/15/09 1,057,500
3,000 Las Vegas Sands Inc., Venetian Casino Resorts LLC, Mortgage Notes, 11.000%, 6/15/10 3,435,000
35
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT (continued)
$ 2,000 Mirage Inc., 6.750%, 8/01/07 $ 2,140,000
1,000 Park Place Entertainment, 9.375%, 2/15/07 1,135,000
1,000 Park Place Entertainment, Senior Subordinate Notes, 7.875%, 3/15/10 1,126,250
3,500 Park Place Entertainment, Unsecured Senior Subordinate Notes, 7.875%, 12/15/05 3,753,750
500 PennNational Gaming Inc., Series B, 11.125%, 3/01/08 567,500
2,000 PennNational Gaming Inc., Senior Subordinated Notes, 8.875%, 3/15/10 2,190,000
3,000 Pinnacle Entertainment Inc., 8.750%, 10/01/13 3,135,000
2,000 Pinnacle Entertainment Inc., Senior Subordinate Notes, Series B, 9.250%, 2/15/07 2,075,000
3,500 Station Casinos Incorporated, 9.875%, 7/01/10 3,902,500
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.5%
3,450 MDP Acquisitions plc, Senior Notes, 9.625%, 10/01/12 3,933,000
4,000 Universal City Development Partners, Series 144A, Senior Notes, 11.750%, 4/01/10 4,770,000
2,000 Williams Scotsman Inc., 10.000%, 8/15/08 2,220,000
------------------------------------------------------------------------------------------------------------------------------------
FOOD - 1.1%
7,610 Del Monte Corporation, 8.625%, 12/15/12 8,409,050
Dole Foods Company:
1,435 8.625%, 5/01/09 1,571,325
7,000 7.875%, 7/15/13 7,735,000
1,000 Seminis Vegetable Seeds Inc., Series 144A, 10.250%, 10/01/13 1,085,000
4,020 Stater Brothers Holdings Inc., 10.750%, 8/15/06 4,261,200
------------------------------------------------------------------------------------------------------------------------------------
GAS - 0.0%
1,000 Suburban Propane Partnership LP, 6.875%, 12/15/13 1,030,000
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE DISTRIBUTORS AND SERVICES - 0.1%
2,000 Service Corporation International, 7.700%, 4/15/09 2,140,000
------------------------------------------------------------------------------------------------------------------------------------
HOMEBUILDING - 0.5%
1,000 D.R. Horton Inc., Senior Notes, 10.500%, 4/01/05 1,082,500
5,000 KB Home, 8.625%, 12/15/08 5,650,000
3,000 William Lyon Homes Inc., Unsecured Senior Notes, 10.750%, 4/01/13 3,525,000
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 1.5%
Allied Waste North America:
114 7.875%, 1/01/09 119,130
6,235 10.000%, 8/01/09 6,749,388
2,000 Berry Plastics Corporation, 10.750%, 7/15/12 2,340,000
4,500 K. Hovnanian Enterprises Inc., Senior Subordinate Notes, 8.875%, 4/01/12 4,950,000
3,000 Laidlaw International Inc., Senior Notes, Series 144A, 10.750%, 6/15/11 3,498,750
3,000 Owens-Brockway Glass Containers, Guaranteed Senior Notes, 8.250%, 5/15/13 3,225,000
3,000 Owens-Illinois Inc., 7.500%, 5/15/10 3,105,000
Terex Corporation, Senior Subordinated Notes, Series 144A:
3,000 10.380%, 4/01/11 3,435,000
3,000 9.250%, 7/15/11 3,352,500
2,210 United States Can Corporation, Series B, 10.875%, 7/15/10 2,353,650
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 0.2%
4,000 Jacuzzi Brands Inc., Senior Secured Notes, Series 144A, 9.625%, 7/01/10 4,400,000
36
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
LEISURE FACILITIES - 0.4%
$ 4,100 Intrawest Corporation, 7.500%, 10/15/13 $ 4,284,500
3,500 Intrawest Corporation, Senior Notes, 10.500%, 2/01/10 3,880,625
------------------------------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS - 0.4%
Iasis Healthcare Corporation:
4,480 13.000%, 10/15/09 5,051,200
2,455 8.500%, 10/15/09 2,590,025
------------------------------------------------------------------------------------------------------------------------------------
NETWORKING EQUIPMENT - 0.3%
5,000 Avaya Inc., 11.125%, 4/01/09 5,887,500
------------------------------------------------------------------------------------------------------------------------------------
OIL SERVICES - 0.1%
2,000 Premcor Refining Group Inc., 7.500%, 6/15/15 2,190,000
------------------------------------------------------------------------------------------------------------------------------------
PAPER - 0.4%
2,000 Georgia Pacific Corporation, Debentures, 7.700%, 6/15/15 2,105,000
5,000 Georgia Pacific Corporation, Notes, 8.125%, 5/15/11 5,462,500
------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.1%
2,000 Quintiles Transnational Corporation, Series144A, 10.000%, 10/01/13 2,190,000
------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING AND PRINTING - 1.9%
2,345 American Media Operations Inc., 8.875%, 1/15/11 2,591,225
6,000 American Media Operations Inc., Series B, 10.250%, 5/01/09 6,405,000
Dex Media West/Finance, Series 144A:
1,000 8.500%, 8/15/10 1,105,000
2,250 9.875%, 8/15/13 2,570,625
3,855 Mail-Well I Corporation, Senior Unsecured Notes, Series 144A, 9.625%, 3/15/12 4,356,150
8,000 Primedia Inc., Senior Notes, 8.875%, 5/15/11 8,400,000
2,000 R H Donnelley Finance Corp 1, 10.875%, 12/15/12 2,395,000
2,000 Sum Media Corporation, 7.625%, 2/15/13 2,190,000
10,000 Vertis Inc., 9.750%, 4/01/09 10,925,000
------------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS - 0.3%
4,350 Dominos Inc., 8.250%, 7/01/11 4,676,250
2,000 Tricon Golbal Restaurants Incorporated, 8.875%, 4/15/11 2,445,000
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 0.4%
Saks Inc., Notes:
2,000 7.500%, 12/01/10 2,190,000
1,000 9.880%, 10/01/11 1,210,000
4,000 7.380%, 2/15/19 4,100,000
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIALTY - 0.4%
8,000 Warnaco Inc., Series 144A, Senior Notes, 8.875%, 6/15/13 8,560,000
------------------------------------------------------------------------------------------------------------------------------------
STEEL - 0.1%
2,000 United States Steel Corporation, 9.750%, 5/15/10 2,280,000
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $326,054,098) 343,523,430
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 26.3% (18.2% OF TOTAL INVESTMENTS)
BANKING - 10.5%
46,000 AgFirst Farm Credit Bank, 7.300%, 10/15/49 46,832,600
9,700 Bank One Capital III, 8.750%, 9/01/30 12,972,159
37
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BANKING (continued)
$ 1,974 BankAmerica Capital II, Series 2, 8.000%, 12/15/26 $ 2,288,545
2,600 BankAmerica Institutional Capital Trust, Series B, 7.700%, 12/31/26 2,957,001
5,000 BankAmerica Institutional Trust, 8.070%, 12/31/26 5,773,230
2,000 BankBoston Capital Trust I, Series B, 8.250%, 12/15/26 2,342,844
500 Barnett Capital I, 8.060%, 12/01/26 576,603
6,273 BT Capital Trust, Series B1, 7.900%, 1/15/27 7,160,604
15,000 BT Institutional Capital Trust A, Series 144A, 8.090%, 12/01/26 17,350,170
900 Chase Capital Trust I, Series A, 7.670%, 12/01/26 1,008,619
1,000 Citigroup Capital III, 7.625%, 12/01/36 1,193,092
3,000 Compass Trust I, Series A, 8.230%, 1/15/27 3,368,058
2,350 FBS Capital Trust I, 8.090%, 11/15/26 2,733,092
6,000 First Chicago NBD Institutional Capital, 7.950%, 12/01/26 6,819,900
4,315 First Chicago NBD Institutional Capital Trust, Series B, 7.750%, 12/01/26 4,848,558
3,750 First Empire Capital Trust I, 8.234%, 2/01/27 4,378,103
10,000 First Empire Capital Trust II, 8.277%, 6/01/27 11,759,960
3,000 First Midwest Bancorp Inc., Series 144A, 6.950%, 12/01/33 3,220,158
2,000 First Union Institutional Capital I, 8.040%, 12/01/26 2,327,752
3,500 First Union Capital Trust II, Series A, 7.950%, 11/15/29 4,354,165
500 First Union Institutional Capital II, 7.850%, 1/01/27 567,769
2,150 JPM Capital Trust I, 7.540%, 1/15/27 2,391,181
3,000 JPM Capital Trust II, 7.950%, 2/01/27 3,442,482
15,000 KeyCorp Institutional Capital Trust A, 7.826%, 12/01/26 16,891,905
18,060 Mellon Capital Trust I, Series A, 7.720%, 12/01/26 20,460,842
17,500 North Fork Capital Trust II, 8.000%, 12/15/27 19,745,915
500 PNC Institutional Capital Securities, 7.950%, 12/15/26 570,299
1,500 Reliance Capital Trust I, Series B, 8.170%, 5/01/28 1,706,037
1,002 Republic New York Capital II, Capital Securities, 7.530%, 12/04/26 1,112,905
9,000 State Street Institutional Capital Trust, Series 144A, 8.035%, 3/15/27 10,418,904
1,225 Union Planters Capital Trust A, 8.200%, 12/15/26 1,378,371
------------------------------------------------------------------------------------------------------------------------------------
BANKING - FOREIGN - 8.1%
20,000 Abbey National Capital Trust I, 8.963%, 6/30/20 27,018,900
29,075 Barclays Bank plc, Series 144A, 6.860%, 9/29/49 32,311,135
21,000 CBA Capital Trust I, Series 144A, 5.805%, 12/31/49 21,969,738
20,000 HSBC Capital Funding LP, Debt, 10.176%, 6/30/50 29,752,680
8,388 HSBC Capital Funding LP, Series 144A, 9.547%, 12/31/49 10,740,582
10,105 KBC Bank Fund Trust III, Series 144A, 9.860%, 11/29/49 12,835,179
6,508 Royal Bank of Scotland Group PLC, 7.648%, 8/31/49 7,911,079
23,490 Unicredito Italiano Capital Trust, Series 144A, 9.200%, 10/05/49 29,657,769
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 0.2%
500 Countrywide Capital Trust I, 8.000%, 12/15/26 554,402
4,000 Keycorp Capital III, 7.750%, 7/15/29 4,682,152
38
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - FOREIGN - 0.9%
$ 2,000 AB Svensk Exportkredit, 6.375%, 10/27/49 $ 2,065,512
10,000 ING Capital Funding Trust III, 8.439%, 12/29/49 12,160,090
4,472 St. George Funding Company LLC, 8.485%, 6/30/47 5,294,083
------------------------------------------------------------------------------------------------------------------------------------
GAS - 1.0%
18,855 KN Capital Trust III, 7.630%, 4/15/28 21,345,010
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - FINANCIAL - 0.0%
612 Berkeley Capital Trust, 8.197%, 12/20/45 663,246
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - 0.9%
10,000 American General Capital II, 8.500%, 7/01/30 13,415,200
4,750 American General Institutional Capital, 8.125%, 3/15/46 6,214,368
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - LIFE - FOREIGN - 0.7%
12,890 Sun Life Canada Capital Trust, Capital Securities, 8.526%, 5/06/47 15,323,838
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - MULTIPLE LINE - 2.1%
16,260 Safeco Capital Trust I, Capital Securities, 8.072%, 7/15/37 18,770,918
23,513 Zurich Capital Trust I, 8.376%, 6/01/37 26,869,998
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - OTHER - 1.4%
30,000 Mangrove Bay, Class 3, Series 144A, 6.102%, 7/15/33 30,345,000
------------------------------------------------------------------------------------------------------------------------------------
SAVINGS AND LOAN - 0.2%
3,365 Great Western Financial Trust II, Series A, 8.206%, 2/01/27 3,904,659
------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES GOVERNMENT AGENCY - 0.3%
5,000 Farm Credit Bank of Texas, 7.561%, 11/05/49 5,187,630
------------------------------------------------------------------------------------------------------------------------------------
UTILITY - 0.0%
750 ComEd Financing II, Series B, 8.500%, 1/15/27 890,618
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred Securities (cost $557,750,146) 562,835,609
--------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED EURO-MARKET LISTED SECURITIES - 7.9% (5.5% OF TOTAL INVESTMENTS)
BANKING - FOREIGN - 6.6%
15,750 BNP Paribas Capital Trust, 7.200%, 12/31/49 16,448,198
29,750 C.A. Preferred Funding Trust, 7.000%, 1/30/49 30,659,309
54,150 HBOS Capital Funding LP, Notes, 6.850%, 3/01/49 54,768,989
17,000 Lloyds TSB Bank PLC, Subordinate Notes, 6.900%, 11/22/49 17,606,915
21,250 RBS Capital Trust B, 6.800%, 12/31/49 21,548,133
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL - 1.3%
27,850 Old Mutual Capital Funding, Notes, 8.000%, 6/22/53 27,969,917
------------------------------------------------------------------------------------------------------------------------------------
Total Capital Preferred - Euro-Market Listed Securities (cost $170,002,496) 169,001,461
--------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 1.3% (0.9% OF TOTAL INVESTMENTS)
UNITED STATES GOVERNMENT AGENCY - 0.9%
20,000 Fannie Mae, 4.625%, 5/01/13 19,754,100
------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES TREASURY NOTES - 0.4%
7,700 United States of America Treasury Notes, 3.375%, 11/15/08 7,795,049
------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations (cost $28,218,070) 27,549,149
--------------------------------------------------------------------------------------------------------------------
39
Nuveen Preferred and Convertible Income Fund 2 (JQC) (continued)
Portfolio of INVESTMENTS January 31, 2004 (Unaudited)
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.6% (0.4% OF TOTAL INVESTMENTS)
$ 12,760 State Street Bank Repurchase Agreement, United States Government Securities $ 12,760,000
0.920%, date 1/30/04, due 2/02/04, repurchase price $12,760,978, collateralized by
U.S. Treasury Bonds
------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $12,760,000) 12,760,000
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,945,234,960) - 144.6% 3,097,286,367
--------------------------------------------------------------------------------------------------------------------
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS SOLD SHORT - (3.3)%
AEROSPACE AND DEFENSE - (0.3)%
(74,100) Northrop Gruman Corporation (7,166,211)
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOBILE - (0.2)%
(368,000) Ford Motor Company (5,350,720)
------------------------------------------------------------------------------------------------------------------------------------
BANKING - (0.0)%
(25,000) Provident Financial Group Inc. (852,250)
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING AND CABLE TV - (0.4)%
(330,545) Cablevision Systems Corporation (8,455,341)
------------------------------------------------------------------------------------------------------------------------------------
COMPUTER - (0.3)%
(292,800) Electronic Data Systems Corporation (7,015,488)
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED METALS - (0.1)%
(32,200) Phelps Dodge Corporation (2,436,574)
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT AND INSTRUMENTS - (0.1)%
(361,000) Solectron Corporation (2,563,100)
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - (0.3)%
(97,926) Devon Energy Corporation (5,528,902)
------------------------------------------------------------------------------------------------------------------------------------
FINANCE - (0.2)%
(37,000) Affiliated Managers Group Inc. (3,137,600)
(25,000) Capital One Financial Corporation (1,777,000)
------------------------------------------------------------------------------------------------------------------------------------
HOSPITAL SUPPLIES - (0.4)%
(263,000) Baxter International Inc. (7,666,450)
------------------------------------------------------------------------------------------------------------------------------------
HOTELS - (0.1)%
(83,000) Cendant Corporation (1,879,950)
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - PROPERTY AND CASUALTY - (0.3)%
(40,000) Chubb Corporation (2,859,600)
(65,300) PMI Group Inc. (2,521,886)
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - SPECIALTY - (0.1)%
(80,520) K2 Inc. (1,446,944)
40
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - (0.5)%
(1,500,000) Lucent Technologies Inc. $ (6,720,000)
(386,700) Sprint Corporation PCS Group (3,143,871)
------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks Sold Short (proceeds $60,091,699) (70,521,887)
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Other Liabilities - 3.8% 79,725,108
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value - (45.1)% (965,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100.0% $2,141,489,588
====================================================================================================================
(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 Receivable
Deduction.
(CBTCS) Corporate Backed Trust Certificates.
(CORTS) Corporate Backed Trust Securities.
(LYONS) Liquid Yield Option Notes.
(PCARS) Public Credit and Repackaged Securities.
(PPLUS) PreferredPlus Trust.
(SATURNS) Structured Asset Trust Unit Repackaging.
See accompanying notes to financial statements.
41
Statement of
ASSETS AND LIABILITIES January 31, 2004 (Unaudited)
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $2,126,522,368 and $2,945,234,960, respectively) $2,278,686,485 $3,097,286,367
Deposits with brokers for securities sold short 40,538,464 59,866,691
Interest rate swaps, at value 810,514 814,244
Receivables:
Dividends 4,150,860 5,323,523
Interest 11,834,578 19,056,012
Investments sold 6,920,833 13,748,828
Other assets 37,595 35,021
------------------------------------------------------------------------------------------------------------------------------------
Total assets 2,342,979,329 3,196,130,686
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Securities sold short, at value (proceeds $40,653,707 and $60,091,699, respectively) 52,055,870 70,521,887
Cash overdraft 749,641 1,504,008
Payable for investments purchased 11,810,432 15,579,971
Accrued expenses:
Management fees 1,027,025 1,365,121
Other 428,606 517,323
Dividends payable:
FundPreferred shares 90,125 115,988
Short sells 8,083 36,800
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 66,169,782 89,641,098
------------------------------------------------------------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 708,000,000 965,000,000
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $1,568,809,547 $2,141,489,588
====================================================================================================================================
Common shares outstanding 100,123,177 141,007,000
====================================================================================================================================
Net asset value per Common share outstanding (net assets applicable to
Common shares, divided by Common shares outstanding) $ 15.67 $ 15.19
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 1,001,232 $ 1,410,070
Paid-in surplus 1,416,988,005 1,997,029,771
Undistributed (Over-distribution of) net investment income (838,141) (2,940,635)
Accumulated net realized gain from investments 10,010,370 3,477,632
Net unrealized appreciation of investments and interest rate swaps transactions 141,648,081 142,512,750
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $1,568,809,547 $2,141,489,588
====================================================================================================================================
Authorized shares:
Common Unlimited Unlimited
FundPreferred shares Unlimited Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
42
Statement of
OPERATIONS Six Months Ended January 31, 2004 (Unaudited)
PREFERRED AND PREFERRED AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $26,831 and $50,456, respectively) $38,324,574 $ 41,383,659
Interest (net of foreign tax withheld of $10,573 and 12,444, respectively) 33,435,397 48,008,682
------------------------------------------------------------------------------------------------------------------------------------
Total investment income 71,759,971 89,392,341
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 9,433,282 12,362,055
Net interest expense on interest rate swap transactions 75,613 77,287
Dividend expense on securities sold short 165,214 240,968
FundPreferred shares - auction fees 892,274 1,123,630
FundPreferred shares - dividend disbursing agent fees 16,842 24,850
Shareholders' servicing agent fees and expenses 5,156 6,570
Custodian's fees and expenses 236,051 331,871
Trustees' fees and expenses 26,897 35,659
Professional fees 67,986 74,334
Shareholders' reports - printing and mailing expenses 176,290 212,678
Stock exchange listing fees 3,219 4,538
Investor relations expense 121,308 100,866
Other expenses 116,381 54,310
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 11,336,513 14,649,616
Custodian fee credit (8,096) (29,835)
Expense reimbursement (3,521,947) (4,693,660)
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 7,806,470 9,926,121
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 63,953,501 79,466,220
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain from investments 10,730,093 6,216,895
Change in net unrealized appreciation (depreciation) of investments 149,532,668 211,691,344
Change in net unrealized appreciation (depreciation) of interest rate swap transactions 886,127 891,531
------------------------------------------------------------------------------------------------------------------------------------
Net gain from investments 161,148,888 218,799,770
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (4,207,529) (5,363,465)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations $220,894,860 $292,902,525
====================================================================================================================================
See accompanying notes to financial statements.
43
Statement of
CHANGES IN NET ASSETS (Unaudited)
PREFERRED AND PREFERRED AND
CONVERTIBLE INCOME (JPC) CONVERTIBLE INCOME 2 (JQC)
----------------------------------- ----------------------------------
FOR THE FOR THE
PERIOD 3/26/03 PERIOD 6/25/03
(COMMENCEMENT (COMMENCEMENT
SIX MONTHS ENDED OF OPERATIONS) SIX MONTHS ENDED OF OPERATIONS)
1/31/04 THROUGH 7/31/03 1/31/04 THROUGH 7/31/03
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 63,953,501 $ 30,420,215 $ 79,466,220 $ 5,416,996
Net realized gain (loss) from investments 10,730,093 6,249,317 6,216,895 (2,710,553)
Change in net unrealized appreciation (depreciation)
of investments 149,532,668 (8,770,714) 211,691,344 (70,070,126)
Change in net unrealized appreciation (depreciation)
of interest rate swap transactions 886,127 -- 891,531 --
Distributions to FundPreferred shareholders from net
investment income (4,207,529) (1,781,038) (5,363,465) --
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable
to Common shares from operations 220,894,860 26,117,780 292,902,525 (67,363,683)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (60,349,679) (30,157,634) (82,489,096) --
From accumulated net realized gains from investments (5,685,017) -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (66,034,696) (30,157,634) (82,489,096) --
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares (188,221) 1,430,942,591 176,684 2,017,885,896
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 1,175,103 549,331 -- --
FundPreferred shares offering costs (20,355) (14,569,487) (19,723,013) --
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to
Common shares from capital share transactions 966,527 1,416,922,435 (19,546,329) 2,017,885,896
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares 155,826,691 1,412,882,581 190,867,100 1,950,522,213
Net assets applicable to Common shares at the beginning
of period 1,412,982,856 100,275 1,950,622,488 100,275
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $1,568,809,547 $1,412,982,856 $2,141,489,588 $1,950,622,488
====================================================================================================================================
Undistributed (Over-distribution of) net investment income
at the end of period $ (838,141) $ (234,434) $ (2,940,635) $ 5,445,706
====================================================================================================================================
See accompanying notes to financial statements.
44
Notes to
FINANCIAL STATEMENTS (Unaudited)
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
generally provided by an independent pricing service approved by the Funds'
Board of Trustees and based on the mean between the bid and asked prices. When
price quotes are not readily available for fixed-income securities, the pricing
service establishes fair market value using a wide range of market data
including yields or prices of securities of comparable quality, type of issue,
coupon, maturity and rating, indications of value from security dealers,
evaluations of anticipated cash flows or collateral, general market conditions
and other information and analysis, including the obligor's credit
characteristics considered relevant by the pricing service. 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 January 31, 2004,
there were no such outstanding purchase commitments in either of the Funds.
Investment Income
Dividend income and dividend expense on securities sold short are 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 (see Dividends and Distributions to Common
Shareholders for REIT income recognition policy).
Income Taxes
Each Fund intends 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.
The Funds make certain adjustments, at different points in time, to the
character of both (a) the distributions received by the Funds from REITs, and
(b) dividends to Fund shareholders to the extent that such dividends are
attributable to REIT distributions received by the Funds.
45
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Characterization of Receipts from REITs - Distributions from REITs are generally
comprised of investment income, long-term and short-term capital gains, and/or a
return of REIT capital. The actual character of the amounts received by a Fund
from REITs during the period is not known until after the fiscal year-end of the
Funds. For the six months ended January 31, 2004, each Fund applied percentage
estimates (of whether the receipts represented investment income, long-term and
short-term capital gains, or return of capital), based on historical experience,
to its receipts from the REITs and treated as income in the Statement of
Operations only the amount of investment income so calculated. Each Fund will
adjust that estimated breakdown of income type (and consequently its net
investment income) as necessary in the subsequent calendar year when the REITs
inform their shareholders of the actual breakdown of income type.
Characterization of Fund Distributions to Shareholders Derived from
Distributions from REITs - During the six months ended January 31, 2004, each
Fund treated each distribution to its shareholders, to the extent that such
distribution was attributable to receipts from portfolio REITs, as being
entirely from net investment income, because the character of such distributions
made during the period is not known until after the fiscal year-end of the
Funds. Each Fund recharacterizes those distributions as being from ordinary
income, long-term and short-term capital gains, and return of capital, if
necessary, in the subsequent calendar year, based upon the income type breakdown
information conveyed at that time by the REITs whose securities are held in the
Fund's portfolio. Consequently, the financial statements may reflect an
over-distribution of net investment income that is at least partly attributable
to the fact that, as of the date of the financial statements, some of the
amounts received by the Funds from the portfolio REITs, but none of the
dividends paid by the Funds to shareholders from the portfolio REITs during the
period, were treated as something other than ordinary income.
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.
FundPreferred Shares
The Funds have issued and outstanding $25,000 stated value FundPreferred shares.
Each 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
each Fund is as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Number of shares:
Series M 4,720 3,860
Series M2 -- 3,860
Series T 4,720 3,860
Series T2 -- 3,860
Series W 4,720 3,860
Series W2 -- 3,860
Series TH 4,720 3,860
Series TH2 -- 3,860
Series F 4,720 3,860
Series F2 4,720 3,860
--------------------------------------------------------------------------------
Total 28,320 38,600
================================================================================
Preferred and Convertible Income (JPC) issued the FundPreferred shares listed
above on May 16, 2003.
Preferred and Convertible Income 2 (JQC) issued the FundPreferred shares listed
above on August 15, 2003.
46
Interest Rate Swap Transactions
The Funds are authorized to enter into hedging transactions, including interest
rate swap transactions. The Funds 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. Interest rate swaps
involve each Fund's agreement with the swap counterparty to pay a fixed rate
payment in exchange for the counterparty paying the Fund a variable rate payment
that is intended to approximate each Fund's variable rate payment obligation on
FundPreferred shares or any variable rate borrowing. The payment obligation is
based on the notional amount of the swap. Interest rate swaps do not involve the
delivery of securities or other underlying assets or principal. Accordingly, the
risk of credit loss with respect to the swap counterparty on interest rate swaps
is limited to the net amount of interest payments that each Fund is to receive.
The Funds have instructed the custodian to segregate assets with a current value
at least equal to the amount of the net payment obligations under any interest
rate swap transactions. Interest rate swap positions are marked to market daily.
Although there are economic advantages of entering into interest rate swap
transactions, there are also additional risks. The Funds help manage the credit
risks associated with interest rate swap transactions by entering into
agreements only with counterparties the Adviser believes have the financial
resources to honor their obligations and by having the Adviser continually
monitor the financial stability of the swap counterparties.
At January 31, 2004, Preferred and Convertible Income (JPC) had open interest
rate swap agreements as follows:
UNREALIZED
NOTIONAL TERMINATION APPRECIATION
AMOUNT FIXED RATE FLOATING RATE* DATE (DEPRECIATION)
---------------------------------------------------------------------------------------------------------
$71,000,000 1.9735% 1.0980% 1/22/06 $164,168
71,000,000 2.5670 1.1000 1/22/07 218,294
71,000,000 2.9935 1.0980 1/22/08 325,286
71,000,000 3.4060 1.1000 1/22/09 178,379
---------------------------------------------------------------------------------------------------------
$886,127
=========================================================================================================
*Based on LIBOR (London Interbank Offered Rate)
At January 31, 2004, Preferred and Convertible Income 2 (JQC) had open interest
rate swap agreements as follows:
UNREALIZED
NOTIONAL TERMINATION APPRECIATION
AMOUNT FIXED RATE FLOATING RATE* DATE (DEPRECIATION)
---------------------------------------------------------------------------------------------------------
$97,000,000 1.3605% 1.0980% 1/23/05 $ 56,310
97,000,000 2.0250 1.1000 1/23/06 129,116
97,000,000 3.0480 1.1000 1/23/08 246,212
97,000,000 3.3595 1.0980 1/23/09 459,893
---------------------------------------------------------------------------------------------------------
$891,531
=========================================================================================================
*Based on LIBOR (London Interbank Offered Rate)
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.
47
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
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.
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 six months ended January 31, 2004.
Organization and Offering Costs
Nuveen Investments, LLC has agreed to reimburse all organization expenses
(approximately $11,500 per Fund) and 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 Common share offering costs ($1,745,630 and $1,762,420, respectively)
were recorded as a reduction of the proceeds from the sale of Common shares.
Costs incurred by Preferred and Convertible Income (JPC) and Preferred and
Convertible Income 2 (JQC) in connection with their offering of FundPreferred
shares ($14,589,842 and $19,723,013, respectively) were 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.
48
2. FUND SHARES
Transactions in Common and FundPreferred shares were as follows:
PREFERRED AND PREFERRED AND
CONVERTIBLE INCOME (JPC) CONVERTIBLE INCOME 2 (JQC)
---------------------------- ----------------------------
FOR THE FOR THE
PERIOD 3/26/03 PERIOD 6/25/03
SIX MONTHS (COMMENCEMENT SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS) ENDED OF OPERATIONS)
1/31/04 THROUGH 7/31/03 1/31/04 THROUGH 7/31/03
-------------------------------------------------------------------------------------------------------
Common shares:
Shares sold -- 100,000,000 -- 141,000,000
Shares issued to
shareholders due to
reinvestment of
distributions 79,185 36,992 -- --
-------------------------------------------------------------------------------------------------------
79,185 100,036,992 -- 141,000,000
=======================================================================================================
FundPreferred shares sold -- 28,320 38,600 --
=======================================================================================================
3. SECURITIES TRANSACTIONS
Purchases and sales of investments and U.S. Government and agency obligations
(including maturities and transactions in securities sold short but excluding
short-term investments) during the six months ended January 31, 2004, were as
follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Purchases:
Investment securities $327,340,591 $1,556,409,215
U.S. Government and agency obligations 8,554,453 117,118,078
Sales and maturities:
Investment securities 347,203,286 377,625,421
U.S. Government and agency obligations 8,682,109 261,270,883
================================================================================
49
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
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 January 31, 2004, the cost of investments were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Cost of investments $2,087,082,428 $2,887,947,175
================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments
at January 31, 2004, were as follows:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Gross unrealized:
Appreciation $161,324,436 $163,048,514
Depreciation (21,776,249) (24,231,209)
--------------------------------------------------------------------------------
Net unrealized appreciation of investments $139,548,187 $138,817,305
================================================================================
50
The tax components of undistributed net ordinary income and net realized gains
at July 31, 2003, the Funds' last fiscal year end, 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 period ended July 31,
2003, the Funds' last fiscal year end, 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.
Preferred and Convertible Income 2 (JQC) 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.
Preferred and Convertible Income 2 (JQC) had $1,550,040 of post-October losses
that are treated as having arisen on the first day of 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 certain of those
securities and made estimates about the tax characteristics of income received
from those securities, based on information currently available to the Funds.
The use of these assumptions and estimates will not affect the qualification of
the Funds as regulated investment companies under Subchapter M of the Internal
Revenue Code, nor is it expected that these assumptions and estimates will be
used in computing taxable income for purposes of preparing the federal and state
income and excise tax returns.
51
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
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, if any.
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. Spectrum also
receives compensation on certain portfolio transactions for providing brokerage
services to the Funds. 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 Adviser or its affiliates.
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.
52
6. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Funds declared Common share dividend distributions from their net investment
income which were paid March 1, 2004, to shareholders of record on February 15,
2004:
PREFERRED PREFERRED
AND AND
CONVERTIBLE CONVERTIBLE
INCOME INCOME 2
(JPC) (JQC)
--------------------------------------------------------------------------------
Dividend per share $.1005 $.0975
================================================================================
53
Financial
HIGHLIGHTS (Unaudited)
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:
2004(c) $14.12 $.64 $1.61 $(.04) $-- $2.21 $(.60) $(.06) $(.66)
2003(a) 14.33 .30 (.02) (.02) -- .26 (.30) -- (.30)
PREFERRED AND CONVERTIBLE
INCOME 2 (JQC)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004(c) 13.83 .56 1.57 (.04) -- 2.09 (.59) -- (.59)
2003(b) 14.33 .04 (.53) -- -- (.49) -- -- --
====================================================================================================================================
Total Returns
-------------------
Based
Offering on
Costs and Ending Common
FundPreferred Common Based Share
Share Share Ending on Net
Underwriting Net Asset Market Market Asset
Discounts Value Value Value** Value**
=============================================================================================
PREFERRED AND CONVERTIBLE
INCOME (JPC)
---------------------------------------------------------------------------------------------
Year Ended 7/31:
2004(c) $ -- $15.67 $15.49 11.11% 15.96%
2003(a) (.17) 14.12 14.57 (.89) .58
PREFERRED AND CONVERTIBLE
INCOME 2 (JQC)
---------------------------------------------------------------------------------------------
Year Ended 7/31:
2004(c) (.14) 15.19 14.89 5.56 14.34
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:
2004(c) $1,568,810 1.52%* 8.09%* 1.05%* 8.56%* 16%
2003(a) 1,412,983 1.29* 5.67* .87* 6.09* 21
PREFERRED AND CONVERTIBLE
INCOME 2 (JQC)
---------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004(c) 2,141,490 1.43* 7.32* .97* 7.78* 24
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:
2004(c) $708,000 $25,000 $80,396
2003(a) 708,000 25,000 74,893
PREFERRED AND CONVERTIBLE
INCOME 2 (JQC)
-----------------------------------------------------------------------
Year Ended 7/31:
2004(c) 965,000 25,000 80,479
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 at net asset value,
reinvested capital gains distributions at net asset value, 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. Each Ratio of Expenses to Average Net Assets
Applicable to Common Shares and each Ratio of Net Investment Income to
Average Net Assets Applicable to Common Shares includes the effect of the
interest expense paid on interest rate swap transactions and the dividend
expense on securities sold short as follows:
Ratio of
Ratio of Dividend
Net Interest Expense on
Expense Securities
to Average Sold Short to
Net Assets Average Net
Applicable to Assets Applicable
Common Shares to Common Shares
------------- -----------------
PREFERRED AND CONVERTIBLE
INCOME (JPC)
2004(c) .01%* .02%*
2003(a) -- --
PREFERRED AND CONVERTIBLE
INCOME 2 (JQC)
2004(c) .01* .02*
2003(b) -- --
(a) For the period March 26, 2003 (commencement of operations) through July 31,
2003.
(b) For the period June 25, 2003 (commencement of operations) through July 31,
2003.
(c) For the six months ended January 31, 2004.
See accompanying notes to financial statements.
54-55 spread
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 of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of 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.
56
Fund
INFORMATION
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
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available (i) without
charge, upon request, by calling Nuveen Investments at (800) 257-8787; and (ii)
on the Commission's website at http://www.sec.gov.
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 period ended January 31, 2004. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
57
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 $90 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
ESA-E-0104D
ITEM 2. CODE OF ETHICS.
Not applicable to this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable at this time.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable to this filing.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable at this time.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no material changes by which shareholders may recommend nominees to
the registrant's Board of Trustees implemented after the registrant last
provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of
Schedule 14A (17 CFR 240.14a-101) or this Item.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")(17 CFR
240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the 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 11. EXHIBITS.
File the exhibits listed below as part of this Form.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because posted on registrant's website at www.nuveen.com/etf.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons: Not applicable
at this time.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Preferred and Convertible Income Fund 2
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By (Signature and Title)* /s/ Jessica R. Droeger
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Jessica R. Droeger
Vice President and Secretary
Date: April 8, 2004
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
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Gifford R. Zimmerman
Chief Administrative Officer
(Principal Executive Officer)
Date: April 8, 2004
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By (Signature and Title)* /s/ Stephen D. Foy
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Stephen D. Foy
Vice President and Controller
(Principal Financial Officer)
Date: April 8, 2004
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* Print the name and title of each signing officer under his or her signature.