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                                                                    EXHIBIT 10.3



                        INVESTMENT SUB-ADVISORY AGREEMENT

       AGREEMENT made as of this 15th day of May 2003 by and between Nuveen
Institutional Advisory Corp., a Delaware corporation and a registered investment
adviser ("Manager"), and Froley, Revy Investment Co., Inc., a California
corporation and a federally registered investment adviser ("Sub-Adviser").

       WHEREAS, Manager serves as the investment manager for the Nuveen
Preferred and Convertible Income Fund 2 (the "Fund"), a closed-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act") pursuant to an Investment Management Agreement between
Manager and the Fund (as such agreement may be modified from time to time, the
"Management Agreement"); and

       WHEREAS, Manager desires to retain Sub-Adviser as its agent to furnish
investment advisory services for a certain designated portion of the Fund's
investment portfolio, upon the terms and conditions hereafter set forth;

       NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:

       1. Appointment. Manager hereby appoints Sub-Adviser to provide certain
sub-investment advisory services to the Fund for the period and on the terms set
forth in this Agreement. Sub-Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.

       2. Services to be Performed. Subject always to the supervision of Fund's
Board of Trustees and the Manager, Sub-Adviser will furnish an investment
program in respect of, make investment decisions for, and place all orders for
the purchase and sale of securities for the portion of the Fund's investment
portfolio allocated to the Sub-Adviser, all on behalf of the Fund and as
described in the investment policy section of the Fund's initial registration
statement on Form N-2 as declared effective by the Securities and Exchange
Commission, as such policies described therein may subsequently be changed by
the Fund's Board of Trustees and publicly described. In the performance of its
duties, Sub-Adviser will satisfy its fiduciary duties to the Fund, will monitor
the Fund's investments in convertible securities (and other assets in which the
Sub-Adviser is authorized to invest), and will comply with the provisions of the
Fund's Declaration of Trust and By-laws, as amended from time to time, and the
stated investment objectives, policies and restrictions of the Fund. Manager
will provide Sub-Adviser with current copies of the Fund's Declaration of Trust,
By-laws, prospectus and any amendments thereto, and any objectives, policies or
limitations not appearing therein as they may be relevant to Sub-Adviser's
performance under this Agreement. Sub-Adviser and Manager will each make its
officers and employees available to the other from time to time at reasonable
times to review investment policies of the Fund and to consult with each other
regarding the investment affairs of the Fund. Sub-Adviser will report to the
Board of Trustees and to Manager with respect to the implementation of such
program.

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       Sub-Adviser is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Fund, and is
directed to use its commercially reasonable efforts to obtain best execution,
which includes most favorable net results and execution of the Fund's orders,
taking into account all appropriate factors, including price, dealer spread or
commission, size and difficulty of the transaction and research or other
services provided. It is understood that the Sub-Adviser will not be deemed to
have acted unlawfully, or to have breached a fiduciary duty to the Fund, or be
in breach of any obligation owing to the Fund under this Agreement, or
otherwise, solely by reason of its having caused the Fund to pay a member of a
securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Sub-Adviser determined in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or the Sub-Adviser's
overall responsibilities with respect to its accounts, including the Fund, as to
which it exercises investment discretion. In addition, if in the judgment of the
Sub-Adviser, the Fund would be benefited by supplemental services, the
Sub-Adviser is authorized to pay spreads or commissions to brokers or dealers
furnishing such services in excess of spreads or commissions that another broker
or dealer may charge for the same transaction, provided that the Sub-Adviser
determined in good faith that the commission or spread paid was reasonable in
relation to the services provided. The Sub-Adviser will properly communicate to
the officers and trustees of the Fund such information relating to transactions
for the Fund as they may reasonably request. In no instance will portfolio
securities be purchased from or sold to the Manager, Sub-Adviser or any
affiliated person of either the Fund, Manager, or Sub-Adviser, except as may be
permitted under the 1940 Act;

       Sub-Adviser further agrees that it:

       (a)    will use the same degree of skill and care in providing such
              services as it uses in providing services to fiduciary accounts
              for which it has investment responsibilities;

       (b)    will conform to all applicable Rules and Regulations of the
              Securities and Exchange Commission in all material respects and in
              addition will conduct its activities under this Agreement in
              accordance with any applicable regulations of any governmental
              authority pertaining to its investment advisory activities;

       (c)    will report regularly to Manager and to the Board of Trustees of
              the Fund and will make appropriate persons available for the
              purpose of reviewing with representatives of Manager and the Board
              of Trustees on a regular basis at reasonable times the management
              of the Fund, including, without limitation, review of the general
              investment strategies of the Fund with respect to convertible
              securities (and other assets in which the Sub-Adviser is
              authorized to invest), the performance of the Fund's investment
              portfolio allocated to the Sub-Adviser in relation to relevant
              standard industry indices and general conditions affecting the
              marketplace and will provide various other reports from time to
              time as reasonably requested by Manager; and

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       (d)    will prepare such books and records with respect to the Fund's
              securities transactions for the Fund's investment portfolio
              allocated to the Sub-Adviser as requested by the Manager and will
              furnish Manager and Fund's Board of Trustees such periodic and
              special reports as the Board or Manager may reasonably request.

       3. Expenses. During the term of this Agreement, Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities (including brokerage commission, if any)
purchased for the Fund.

       4. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, Manager will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a portfolio
management fee equal to 40.0% of the investment management fee payable by the
Fund to the Manager with respect to the Sub-Adviser's allocation of Fund net
assets (including net assets attributable to FundPreferred Shares and the
principal amount of borrowings pursuant to the Management Agreement) up to the
first $500,000,000 of the average daily Fund net assets allocated to the
Sub-Adviser and 35.0% of the average daily Fund net assets over $500,000,000
allocated to the Sub-Adviser, as the net amount of such fee payable by the Fund
to the Manager is reduced by the obligation of Manager to reimburse certain fees
and expenses to the Fund pursuant to an Expense Reimbursement Agreement dated
May 15, 2003 by and between the Fund and the Manager, as such agreement may be
modified from time to time.

The portfolio management fee shall accrue on each calendar day, and shall be
payable monthly on the first business day of the next succeeding calendar month.
The daily fee accrual shall be computed by multiplying the fraction of one
divided by the number of days in the calendar year by the applicable annual rate
of fee, and multiplying this product by the net assets of the Fund allocated to
the Sub-Adviser, determined in the manner established by the Fund's Board of
Trustees, as of the close of business on the last preceding business day on
which the Fund's net asset value was determined.

For the month and year in which this Agreement becomes effective or terminates,
there shall be an appropriate proration on the basis of the number of days that
the Agreement is in effect during the month and year, respectively.

Manager shall not agree to amend the financial terms of the Expense
Reimbursement Agreement or the Management Agreement to the detriment of the
Sub-Adviser by operation of this Section 4 without the express written consent
of the Sub-Adviser.

       5. Services to Others. Manager understands, and has advised Fund's Board
of Trustees, that Sub-Adviser now acts, or may in the future act, as an
investment adviser to fiduciary and other managed accounts, and as investment
adviser or sub-investment adviser to one or more other investment companies that
are not a series of the Fund, provided that whenever the Fund and one or more
other investment advisory clients of Sub-Adviser have available funds for
investment, investments suitable and appropriate for each will be allocated in a
manner believed

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by Sub-Adviser to be equitable to each. Manager recognizes, and
has advised Fund's Board of Trustees, that in some cases this procedure may
adversely affect the size of the position that the Fund may obtain in a
particular security. It is further agreed that, on occasions when the
Sub-Adviser deems the purchase or sale of a security to be in the best interests
of the Fund as well as other accounts, it may, to the extent permitted by
applicable law, but will not be obligated to, aggregate the securities to be so
sold or purchased for the Fund with those to be sold or purchased for other
accounts in order to obtain favorable execution and lower brokerage commissions.
In addition, Manager understands, and has advised Fund's Board of Trustees, that
the persons employed by Sub-Adviser to assist in Sub-Adviser's duties under this
Agreement will not devote their full such efforts and service to the Fund. It is
also agreed that the Sub-Adviser may use any supplemental research obtained for
the benefit of the Fund in providing investment advice to its other investment
advisory accounts or for managing its own accounts.

       6. Limitation of Liability. The Sub-Adviser shall not be liable for, and
Manager will not take any action against the Sub-Adviser to hold Sub-Adviser
liable for, any error of judgment or mistake of law or for any loss suffered by
the Fund (including, without limitation, by reason of the purchase, sale or
retention of any security) in connection with the performance of the
Sub-Adviser's duties under this Agreement, except for a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the
Sub-Adviser in the performance of its duties under this Agreement, or by reason
of its reckless disregard of its obligations and duties under this Agreement.
The federal securities laws impose liabilities under certain circumstances on
persons who act in good faith, and therefore nothing in this Agreement shall
waive or limit any rights which the Fund may have under those laws.

       7. Term; Termination; Amendment. This Agreement shall become effective
with respect to the Fund on the same date as the Management Agreement between
the Fund and the Manager becomes effective, provided that it has been approved
by a vote of a majority of the outstanding voting securities of the Fund in
accordance with the requirements of the 1940 Act, and shall remain in full force
until August 1, 2004 unless sooner terminated as hereinafter provided. This
Agreement shall continue in force from year to year thereafter with respect to
the Fund, but only as long as such continuance is specifically approved for the
Fund at least annually in the manner required by the 1940 Act and the rules and
regulations thereunder; provided, however, that if the continuation of this
Agreement is not approved for the Fund, the Sub-Adviser may continue to serve in
such capacity for the Fund in the manner and to the extent permitted by the 1940
Act and the rules and regulations thereunder.

       This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Manager on no less than sixty (60) days' written notice to the
Sub-Adviser. This Agreement may be terminated by the Sub-Adviser after July 31,
2004 without payment of any penalty on no less than sixty (60) days' prior
written notice to the Manager. This Agreement may also be terminated by the Fund
with respect to the Fund by action of the Board of Trustees or by a vote of a
majority of the outstanding voting securities of such Fund on no less than sixty
(60) days' written notice to the Sub-Adviser by the Fund.

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       This Agreement may be terminated with respect to the Fund at any time
without the payment of any penalty by the Manager, the Board of Trustees or by
vote of a majority of the outstanding voting securities of the Fund in the event
that it shall have been established by a court of competent jurisdiction that
the Sub-Adviser or any officer or director of the Sub-Adviser has taken any
action that results in a breach of the covenants of the Sub-Adviser set forth
herein.

       The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act and the rules and
regulations thereunder.

       Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Section 4 earned prior to such termination. This Agreement shall
automatically terminate in the event the Management Agreement between the
Manager and the Fund is terminated, assigned or not renewed.

       8. Notice. Any notice under this Agreement shall be in writing, addressed
and delivered or mailed, postage prepaid, to the other party

       If to the Manager:                      If to the Sub-Adviser:

       Nuveen Institutional Advisory Corp.     Froley, Revy Investment Co., Inc.
       333 West Wacker Drive                   10900 Wilshire Boulevard
       Chicago, Illinois 60606                 Los Angeles, California  90024
       Attention: John P. Amboian              Attention:  Andrea Revy O'Connell

       With a copy to:                         With a copy to:

       Nuveen Investments, Inc.
       333 West Wacker Drive
       Chicago, Illinois 60606
       Attention: General Counsel

or such address as such party may designate for the receipt of such notice.

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       9. Limitations on Liability. All parties hereto are expressly put on
notice of the Fund's Agreement and Declaration of Trust and all amendments
thereto, a copy of which is on file with the Secretary of the Commonwealth of
Massachusetts, and the limitation of shareholder and trustee liability contained
therein. The obligations of the Fund entered in the name or on behalf thereof by
any of the Trustees, representatives or agents are made not individually but
only in such capacities and are not binding upon any of the Trustees, officers,
or shareholders of the Fund individually but are binding upon only the assets
and property of the Fund, and persons dealing with the Fund must look solely to
the assets of the Fund and those assets belonging to the subject Fund, for the
enforcement of any claims.

       10. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and their respective successors.

       11. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 9 hereof which shall be
construed in accordance with the laws of Massachusetts) the laws of the State of
Illinois.

       IN WITNESS WHEREOF, the Manager and the Sub-Adviser have caused this
Agreement to be executed as of the day and year first above written.

NUVEEN INSTITUTIONAL ADVISORY CORP.,          FROLEY, REVY INVESTMENT CO., INC.,
a Delaware corporation                        a California corporation

By: /s/ Gifford R. Zimmerman                  By: /s/ Andrea Revy O'Connell
    ------------------------                      -------------------------
Title: Managing Director                      Title: Chief Executive Officer &
                                                     President

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