April 1, 2004
EDGAR
United States Securities and
Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form N-CSR
John Hancock Preferred Income Fund II (the "Registrant")
File No. 811-21202
Ladies and Gentlemen:
Enclosed herewith for filing pursuant to the Investment Company Act of 1940 and
the Securities Exchange Act of 1934 is the Registrant's Form N-CSR filing for
the period ending January 31, 2004.
If you have any questions or comments regarding this filing, please contact the
undersigned at (617) 375-1513.
Sincerely,
/s/Alfred P. Ouellette
Alfred P. Ouellette
Senior Attorney and Assistant Secretary
ITEM 1. REPORT TO STOCKHOLDERS.
JOHN HANCOCK
Preferred Income Fund II
1.31.2004
Semiannual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen Ford Goldfarb, Chairman and Chief Executive Officer,
flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
Fund's investments
page 6
Financial statements
page 12
For your information
page 25
Dear Fellow Shareholders,
The stock market continued its advance in the first month of 2004,
prolonging last year's strong rebound after three down years. The same
factors that produced double-digit returns in a broad-based rally in 2003
were still at work in the first month of the new year: a rebounding
economy, fueled by historically low interest rates, and improving corporate
earnings. As a result, the market, as measured by the Standard & Poor's 500
Index, was up 1.84% in the month of January 2004. With technology leading
the way, the tech-heavy Nasdaq Composite Index rose 3.15%, while the Dow
Jones Industrial Average was up 0.51%. Bonds, which had their fourth
straight year of gains in 2003, albeit on a more modest scale, also started
2004 on the right foot, producing positive total returns.
In other news, we are pleased to inform you that on September 28, 2003, the
Boards of Directors of Canada-based Manulife Financial Corporation and
Boston-based John Hancock Financial Services, Inc., the parent company of
John Hancock Funds, unanimously voted to merge the two companies.
Please be assured that the completion of the merger -- anticipated to occur
in the first half of 2004 -- will have no effect on your investment in our
John Hancock mutual funds. Your fund's adviser and board of trustees will
remain the same, as will your relationship with your financial advisor.
The merger is subject to customary closing conditions, including receipt of
required regulatory approvals and approval by John Hancock stockholders.
Additional information on this transaction is available on our Web site:
www.jhfunds.com. If you have questions about the merger, you may also call
800-732-5543. Separately, for information about your investments in John
Hancock funds, please contact your financial advisor or our Customer
Service representatives at 800-225-5291.
Sincerely,
/S/ MAUREEN FORD GOLDFARB
Maureen Ford Goldfarb,
Chairman and Chief Executive Officer
This commentary reflects the chairman's views as of January 31, 2004. They
are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks to
provide a high
level of current
income, consistent
with preservation
of capital, by
investing in a
diversified portfo-
lio of securities
that, in the opin-
ion of the Adviser,
may be underval-
ued relative to
similar securities
in the marketplace.
Under normal
market conditions,
the Fund invests
at least 80% of
its assets in pre-
ferred stocks and
other preferred
securities.
Over the last six months
* A dividend tax cut helped buoy demand for preferred stocks.
* The Fund benefited from advantageous security selection
among preferred stocks.
* Utility common stock holdings also aided performance.
[Bar chart with heading "John Hancock Preferred Income Fund II." Under
the heading is a note that reads "Fund performance for the six months
ended January 31, 2004." The chart is scaled in increments of 5% with 0%
at the bottom and 10% at the top. The bar represents the 8.79% total
return for John Hancock Preferred Income Fund II. A note below the chart
reads "The total return for the Fund is at net asset value with all
distributions reinvested."]
Top 10 issuers
2.8% Interstate Power & Light Co.
2.8% General Motors Corp.
2.6% DPL, Inc.
2.5% ING Groep N.V.
2.4% PSEG Funding Trust II
2.3% Nexen, Inc.
2.3% Public Storage, Inc.
2.2% Bear Stearns Cos., Inc.
2.2% Baltimore Gas & Electric Co.
2.2% KeySpan Corp.
As a percentage of net assets plus the value of preferred shares on
January 31, 2004.
1
BY GREGORY K. PHELPS AND MARK T. MALONEY FOR THE PORTFOLIO MANAGEMENT TEAM
MANAGERS'
REPORT
JOHN HANCOCK
Preferred Income Fund II
Preferred stocks -- which are the primary emphasis of John Hancock
Preferred Income Fund II -- posted solid returns during the six-month
period ended January 31, 2004, fueled in large part by favorable supply
and demand conditions. An increasing number of companies that issued
preferred stocks in years when interest rates were higher redeemed those
older preferred stocks to take advantage of the lower interest rates that
prevailed during much of the period. Those redemptions resulted in a
reduced net supply of preferred stocks. At the same time, demand burgeoned
as individual and institutional investors increasingly sought out
higher-yielding alternatives to most fixed-income securities and common
stocks. Demand got an added boost from the passage of President Bush's
dividend tax-cut package, which greatly reduced the taxes individuals pay
on most stock dividends. A dramatic rise in interest rates and bond yields
in the summer months briefly tempered an otherwise favorable backdrop for
fixed-income investments, including preferreds. But they quickly regained
their footing in the final months of the period when inflation concerns
cooled, the Fed rushed to reassure investors that it wasn't poised to
raise interest rates any time soon and favorable supply and demand
conditions trumped macroeconomic concerns.
"Preferred stocks...posted
solid returns during the
six-month period ended
January 31, 2004..."
PERFORMANCE
For the six months ended January 31, 2004, John Hancock Preferred Income
Fund II returned 8.79% at net asset value. By comparison, the average
income and preferred stock closed-end fund returned 13.18%, according to
Lipper, Inc. The Fund's lag stemmed primarily from our focus on
high-quality investments. Lower-quality "junk" names soared during the
year in response to stronger demand from bargain hunters,
better-than-expected corporate earnings, fewer corporate defaults and a
reduction in the rate of corporate credit downgrades. Despite the strong
2
recent showing of low-quality investments, we felt that much of the
rebound had been played out, and so we continued our emphasis on
lower-risk, higher-rated securities. In the same six-month period, the Dow
Jones Utility Average -- which tracks the performance of 15 electric and
natural gas utilities -- returned 17.55%, and the broader stock market, as
measured by the Standard & Poor's 500 Index, returned 15.22%.
[Photos of Greg Phelps and Mark Maloney flush right next to first
paragraph.]
LEADERS AND LAGGARDS
Some of our best-performing holdings were those issued by financial
services companies. For example, our holdings in Royal Bank of Scotland,
which we bought at what we believed were bargain prices last summer when
the Treasury and preferred markets came under pressure, performed quite
well as investors realized the value of this high-quality company. Another
winner was FleetBoston Financial, which benefited from the announced
purchase of the company by Bank of America, which is expected to result in
higher overall credit for Fleet's outstanding preferred stock. Merrill
Lynch also performed well, thanks to its strong credit rating compared with
its brokerage services group peers and enhanced earnings consistency,
resulting from what the company termed "a diversity of revenues from
multiple asset classes, client segments and geographic regions."
Many of our preferred stocks issued by utility companies also posted strong
returns during the period. Throughout the period, utility stocks were
powered by investors' renewed optimism about the group, as many utilities
took significant steps to reduce debt, improve their financing and shed
money-losing unregulated subsidiaries. One standout among our preferred
stock utility holdings was Interstate Power & Light, which was boosted by
investors' recognition of the company's recovery efforts and better
earnings. Improving fundamentals at Interstate also helped our common stock
holdings in its parent company Alliant Energy Corp. Our preferred stock
holding in utility Cinergy posted good gains, as the company's
back-to-basics approach boosted its financial performance.
"Some of our best-
performing holdings were
those issued by financial
services companies."
3
We also enjoyed our share of common stock winners in the utility sector.
One was NiSource, which profited from its repositioning efforts and the
better financial results that emanated from that realignment. Scottish
Power turned in a good performance thanks to a growing recognition of the
value of its ownership of Pacific Corp., which has a large U.S. electric
transmission system.
[Table at top left-hand side of page entitled "Top five industry
groups 1." The first listing is Utilities 52%, the second is Banks--United
States 10%, the third is Broker services 7%, the fourth is Oil and gas
4%, and the fifth is REITs 4%.]
Preferred stocks issued by oil and natural gas companies also turned in
good gains as the price of those commodities remained high. Those high
energy prices, in turn, helped boost the fortunes of holdings such as
energy company Nexen.
A disappointment during the period was TECO Energy, which came under
pressure due to concerns about the company's problems from its foray into
merchant gas-fired energy. Despite these problems, we continued to hold
onto our stake in TECO because the company has very well-run electric and
gas utility operations in Florida, and because we believe it will
eventually distance itself from its merchant energy business.
[Pie chart in middle of page with heading "Portfolio diversification 1"
The chart is divided into five sections (from top to left): Preferred
stocks 80%, Capital preferred securities 11%, Common stocks 5%, U.S.
government agency bonds 3%, and Corporate bonds 1%.]
OUTLOOK
In our view, the first half of 2004 likely will continue to favor preferred
and utility stocks. First off, we believe that both sectors will keep on
benefiting from the favorable supply and demand conditions that boosted
their prospects over the past six months. Our interest-rate forecast --
which calls for continued low interest rates -- should also help preferreds
because they pay dividends at a fixed rate like the interest on a bond and,
as such, tend to perform best when rates decline or stabilize at relatively
low levels, just as bonds do. Although the economy has heated
4
up, we don't think that the Federal Reserve Board will raise interest
rates until the current recovery deepens and sustains itself for a longer
period of time. Granted, longer-term bond yields could rise as investors
worry about the prospects of future inflation, but the expected lack of an
interest-rate hike would keep short-term interest rates low, thereby
making preferred stocks an attractive alternative to shorter-term,
lower-yielding money market and Treasury securities. Furthermore, we
believe investors' appetite for preferred stocks and utility common stocks
- -- many of which benefit from the new lower federal tax on dividends --
could remain strong. In addition to robust demand, utility common stocks
appear to have other factors working in their favor. Chief among them are
the potential for more stable credit ratings and continued attractive
valuations -- albeit higher than at the beginning of 2003 -- relative to
the stock market overall. Recent acquisitions of utility companies by
deep-pocketed private equity investors may signal that more acquisition
activity is in the offing in 2004, a trend that could help boost
utilities.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
FleetBoston Financial followed by an up arrow with the phrase "Pending
takeover expected to raise credit rating" The second listing is
Interstate Power & Light followed by an up arrow with the phrase
"Back-to-basics approach powers improving fundamentals." The third
listing is TECO Energy followed by a down arrow with the phrase
"Problems with merchant gas-fired energy endeavor."]
"In our view, the first half
of 2004 likely will continue
to favor preferred and
utility stocks."
This commentary reflects the views of the portfolio management team through
the end of the Fund's period discussed in this report. The team's
statements reflect their own opinions. As such, they are in no way
guarantees of future events, and are not intended to be used as investment
advice or a recommendation regarding any specific security. They are also
subject to change at any time as market and other conditions warrant.
The Fund normally will invest at least 25% of its managed assets in
securities of companies in the utilities industry. Such an investment
concentration makes the Fund more susceptible than a broader diversified
fund to factors adversely affecting the utilities industry. Sector
investing is subject to greater risks than the market as a whole.
1 As a percentage of the Fund's portfolio on January 31, 2004.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
January 31, 2004
(unaudited)
This schedule is divided into five main categories: common stocks,
preferred stocks, capital preferred securities, corporate bonds and
short-term investments. Common stocks, preferred stocks, capital preferred
securities and corporate bonds are further broken down by industry group.
Short-term investments, which represent the Fund's cash position, are
listed last.
ISSUER, DESCRIPTION SHARES VALUE
COMMON STOCKS 6.74% $37,025,890
(Cost $31,776,035)
Utilities 6.74% 37,025,890
Alliant Energy Corp. 220,000 5,695,800
CH Energy Group, Inc. 42,000 1,941,240
NiSource, Inc. 550,000 11,550,000
NSTAR 55,000 2,692,250
Peoples Energy Corp. 30,000 1,273,800
Progress Energy, Inc. 180,000 8,060,400
Scottish Power Plc, American Depositary Receipt
(ADR) (United Kingdom) 220,000 5,812,400
CREDIT
ISSUER, DESCRIPTION RATING* SHARES VALUE
PREFERRED STOCKS 116.59% $640,159,547
(Cost $603,238,609)
Agricultural Operations 2.10% 11,550,000
Ocean Spray Cranberries, Inc., 6.25%, Ser A (R) BBB 150,000 11,550,000
Automobiles/Trucks 4.29% 23,542,159
Ford Motor Co., 7.50% BBB- 50,000 1,310,000
General Motors Corp., 7.25%, Ser 4-15-41 BBB 87,900 2,289,795
General Motors Corp., 7.25%, Ser 7-15-41 BBB 233,500 6,059,325
General Motors Corp., 7.25%, Ser 2-15-52 BBB 447,300 11,504,556
General Motors Corp., 7.375% BBB 91,025 2,378,483
Banks -- Foreign 3.83% 21,033,605
Abbey National Plc, 7.25% (United Kingdom) A 255,620 6,784,155
Abbey National Plc, 7.375% (United Kingdom) A 100,000 2,750,000
Royal Bank of Scotland Group Plc, 5.75%, Ser B
(United Kingdom) A- 465,000 11,499,450
See notes to
financial statements.
6
FINANCIAL STATEMENTS
CREDIT
ISSUER, DESCRIPTION RATING* SHARES VALUE
Banks -- United States 10.63% $58,392,095
ABN AMRO Capital Funding Trust V, 5.90% A 201,400 4,984,650
BAC Capital Trust IV, 5.875% A- 46,150 1,175,440
BNY Capital V, 5.95%, Ser F A- 40,000 1,018,800
Comerica Capital Trust I, 7.60% BBB+ 140,400 3,806,244
Fleet Capital Trust VII, 7.20% BBB+ 459,900 12,306,924
Fleet Capital Trust VIII, 7.20% BBB+ 310,000 8,320,400
J.P. Morgan Chase Capital IX, 7.50% A- 73,800 1,974,150
J.P. Morgan Chase Capital X, 7.00%, Ser J A- 259,000 6,985,230
J.P. Morgan Chase Capital XI, 5.875% A- 30,000 742,500
National Commerce Capital Trust II, 7.70% BBB 25,675 696,049
Republic New York Corp., 6.25%, Ser HSBC A 50,000 1,262,500
USB Capital III, 7.75% A- 134,300 3,665,047
USB Capital IV, 7.35% A- 152,800 4,102,680
USB Capital V, 7.25% A- 252,000 6,816,600
Wells Fargo Capital Trust VII, 5.85% A 21,050 534,881
Broker Services 9.61% 52,750,604
Bear Stearns Cos., Inc. (The), 5.49%,
Depositary Shares, Ser G BBB 27,400 1,431,102
Bear Stearns Cos., Inc. (The), 5.72%, Ser F BBB 64,400 3,413,200
Bear Stearns Cos., Inc. (The), 6.15%,
Depositary Shares, Ser E BBB 248,600 13,126,080
Lehman Brothers Holdings Capital Trust I, 8.00%, Ser I BBB+ 40,000 1,016,400
Lehman Brothers Holdings Capital Trust III, 6.375%, Ser K BBB+ 170,000 4,399,600
Lehman Brothers Holdings, Inc., 5.94%,
Depositary Shares, Ser C BBB+ 145,200 7,492,320
Merrill Lynch Preferred Capital Trust III, 7.00% A- 360,400 9,763,236
Merrill Lynch Preferred Capital Trust IV, 7.12% A- 167,400 4,568,346
Merrill Lynch Preferred Capital Trust V, 7.28% A- 273,200 7,540,320
Chemicals 0.46% 2,532,000
NOVA Chemicals Corp., 9.04% (Canada) BB- 100,000 2,532,000
Diversified Operations 0.58% 3,202,944
Grand Metropolitan Delaware, L.P., 9.42%, Gtd Ser A BBB+ 121,600 3,202,944
Finance 4.61% 25,303,656
Citigroup Capital IX, 6.00% A 140,000 3,602,200
Ford Motor Credit Co., 7.375% BBB-- 30,000 778,500
Ford Motor Credit Co., 7.60% BBB+ 100,000 2,643,000
General Electric Capital Corp., 6.10% AAA 22,350 584,452
Household Finance Corp., 6.00% A 25,000 634,750
Household Finance Corp., 6.875% A 83,500 2,219,430
Morgan Stanley Capital Trust III, 6.25% A- 215,000 5,536,250
Morgan Stanley Capital Trust IV, 6.25% A- 47,000 1,202,730
Morgan Stanley Capital Trust V, 5.75% A1 329,900 8,102,344
See notes to
financial statements.
7
FINANCIAL STATEMENTS
CREDIT
ISSUER, DESCRIPTION RATING* SHARES VALUE
Insurance 5.50% $30,187,081
Great-West Life & Annuity Insurance Capital I, 7.25%, Ser A A- 42,400 1,089,256
ING Groep N.V., 7.05% (Netherlands) A- 737,200 20,191,908
PLC Capital Trust IV, 7.25% BBB+ 331,075 8,905,917
Leisure 0.44% 2,428,200
Hilton Hotels Corp., 8.00% BBB- 90,000 2,428,200
Media 2.31% 12,656,512
Newscorp Overseas Ltd., 8.625%, Ser A (Cayman Islands) BB 104,000 2,683,200
Shaw Communications, Inc., 8.45%, Ser A (Canada) B+ 172,000 4,346,440
Shaw Communications, Inc., 8.50% (Canada) B+ 223,200 5,626,872
Oil & Gas 5.60% 30,745,347
Anadarko Petroleum Corp., 5.46%, Depositary Shares, Ser B BBB- 62,000 6,277,500
Apache Corp., 5.68%, Depositary Shares, Ser B BBB 25,000 2,540,625
Devon Energy Corp., 6.49%, Ser A B 32,355 3,348,742
Nexen, Inc., 7.35% (Canada) BBB- 702,400 18,578,480
Real Estate Investment Trusts 5.53% 30,340,478
Duke Realty Corp., 6.625%, Ser J BBB 414,400 10,699,808
Duke Realty Corp., 7.99%, Ser B BBB 10,650 568,444
Kimco Realty Co., 6.65%, Depositary Shares, Ser F BBB+ 37,030 961,299
Public Storage, Inc., 6.45%, Depositary Shares, Ser X BBB+ 30,000 756,300
Public Storage, Inc., 7.50%, Depositary Shares, Ser V BBB+ 307,100 8,350,049
Public Storage, Inc., 8.00%, Depositary Shares, Ser R BBB+ 304,500 8,273,265
Public Storage, Inc., 8.60% BBB+ 26,700 731,313
Telecommunications 3.14% 17,257,370
Telephone & Data Systems, Inc., 7.60%, Ser A A- 604,300 16,255,670
Verizon New England, Inc., 7.00%, Ser B A+ 37,800 1,001,700
Utilities 57.96% 318,237,496
AGL Capital Trust II, 8.00% BBB 41,000 1,119,710
Ameren Corp., 9.75%, Conv BBB+ 193,000 5,635,600
American Electric Power Co., Inc., 9.25%, Conv BBB 105,000 5,093,550
Baltimore Gas & Electric Co., 6.99%, Ser 1995 Baa1 39,870 4,325,895
BGE Capital Trust II, 6.20% BBB 525,000 13,529,250
Boston Edison Co., 4.78% BBB+ 15,143 1,336,370
Cinergy Corp., 9.50%, Conv Baa2 110,000 7,002,600
Cleveland Electric Financing Trust I, 9.00% BB+ 210,000 5,922,000
Consumers Energy Co. Financing I, 8.36% B 92,000 2,359,800
Consumers Energy Co. Financing II, 8.20% B 212,500 5,420,875
Consumers Energy Co. Financing III, 9.25% B 265,100 6,876,694
Consumers Energy Co. Financing IV, 9.00% Ba2 217,000 5,859,000
CPL Capital I, 8.00%, Ser A BB+ 182,300 4,639,535
Detroit Edison Co., 7.375% BBB- 50,000 1,265,000
Detroit Edison Co., 7.54% BBB- 25,900 663,040
Detroit Edison Co., 7.625% BBB- 30,600 792,540
See notes to
financial statements.
8
FINANCIAL STATEMENTS
CREDIT
ISSUER, DESCRIPTION RATING* SHARES VALUE
Utilities (continued)
Dominion CNG Capital Trust I, 7.80% BBB- 150,000 $4,060,500
Dominion Resources, Inc., 9.50%, Conv BBB+ 120,000 6,860,400
DTE Energy Co., 8.75%, Conv BBB 224,200 5,719,342
DTE Energy Trust I, 7.80% BBB- 253,000 6,823,410
Duke Capital Financing Trust III, 8.375% BBB- 37,000 969,770
Duke Energy Capital Trust I, 7.20%, Ser Q BBB- 499,600 12,649,872
Duke Energy Capital Trust II, 7.20% BBB- 79,600 2,018,656
Energy East Capital Trust I, 8.25% BBB- 424,800 11,439,864
Entergy Mississippi, Inc., 7.25% BBB+ 50,500 1,373,600
Enterprise Capital Trust I, 7.44%, Ser A BB+ 25,000 628,750
FPC Capital I, 7.10%, Ser A BB+ 479,703 12,232,426
FPL Group, Inc., 8.00%, Conv A- 140,000 8,078,000
Georgia Power Capital Trust IV, 6.85% BBB+ 57,000 1,436,400
Georgia Power Capital Trust V, 7.125% BBB+ 156,000 4,213,560
Georgia Power Capital Trust VII, 5.875% BBB+ 116,500 2,897,937
HECO Capital Trust II, 7.30%, Ser 1998 BBB- 54,400 1,368,160
Indiana Michigan Power Co., 6.875% BB+ 27,330 2,746,665
Interstate Power & Light Co., 8.375%, Ser B BBB- 700,000 22,750,000
KCPL Financing I, 8.30% BB+ 75,100 1,923,311
KeySpan Corp., 8.75%, Conv A 325,000 17,550,000
Met-Ed Capital Trust, 7.35% BB 173,805 4,405,957
Monongahela Power Co., 4.50%, Ser C CCC+ 24,100 1,653,260
Monongahela Power Co., $7.73, Ser L CCC+ 55,500 5,133,750
Northern States Power Co., 8.00% BBB- 175,800 4,878,450
OGE Energy Capital Trust I, 8.375% BBB- 81,800 2,143,160
ONEOK, Inc., 8.50%, Conv A- 470,000 14,598,200
Penelec Capital Trust, 7.34% BB 99,600 2,534,820
PSEG Funding Trust II, 8.75% BB+ 680,000 19,352,800
PSO Capital I, 8.00%, Ser A BB+ 122,800 3,106,840
Public Service Electric & Gas Co., 4.18%, Ser B BB+ 7,900 633,975
Public Service Enterprise Group, Inc., 10.25%, Conv BBB- 75,450 4,800,884
Puget Sound Energy Capital Trust II, 8.40% BB 232,060 6,298,108
SEMCO Capital Trust I, 10.25% B- 203,800 5,502,600
South Carolina Electric & Gas Co., 6.52% Baa1 15,000 1,620,000
Southern Co. Capital Trust VI, 7.125% BBB+ 30,000 825,000
Southern Union Co., 5.75%, Conv Baa3 12,000 691,500
Southwest Gas Capital II, 7.70% BB 116,400 3,142,800
TECO Capital Trust I, 8.50% Ba3 490,434 12,908,223
TXU Corp., 8.125%, Conv Ba1 20,000 700,400
Vectren Utility Holdings, Inc., 7.25% A- 44,000 1,158,960
Virginia Power Capital Trust, 7.375% BBB 304,519 8,231,149
WEC Capital Trust I, 6.85% BBB- 529,800 13,382,748
Western Resources Capital I, 7.875%, Ser A B+ 37,400 951,830
See notes to
financial statements.
9
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION CREDIT PAR VALUE
MATURITY DATE RATING* (000S OMITTED) VALUE
CAPITAL PREFERRED SECURITIES 16.02% $87,965,785
(Cost $81,894,327)
Banks -- Foreign 0.75% 4,140,040
Lloyds TSB Bank Plc (United Kingdom),
6.90% 11-29-49 A+ 4,000 4,140,040
Banks -- United States 4.09% 22,437,882
BNY Capital I, 7.97% 12-31-26, Ser B A- 4,700 5,360,322
J.P. Morgan Capital Trust I, 7.54% 01-15-27 A- 12,000 13,300,416
Summit Capital Trust I, 8.40% 03-15-07, Ser B BBB+ 3,300 3,777,144
Telecommunications 2.02% 11,091,600
TCI Communications Financing Trust III,
9.65% 03-31-27 BB+ 9,243 11,091,600
Utilities 9.16% 50,296,263
Dominion Resources Capital Trust I, 7.83% 12-01-27 BBB- 3,450 3,802,676
Dominion Resources Capital Trust III, 8.40% 01-15-31 BBB- 5,000 6,115,295
DPL, Inc., 8.125% 09-01-31 B+ 22,150 20,944,376
KN Capital Trust I, 8.56% 04-15-27, Ser B BB+ 10,000 11,820,430
KN Capital Trust III, 7.63% 04-15-28 BB+ 6,749 7,613,486
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000S OMITTED) VALUE
CORPORATE BONDS 2.02% $11,100,358
(Cost $11,093,298)
Utilities 1.81% 9,932,425
Black Hills Corp.,
Note 05-15-13 6.500% BBB- 5,000 5,110,095
Entergy Gulf States, Inc.,
1st Mtg Bond 07-01-33 (R) 6.200 BBB- 5,000 4,822,330
Government -- U.S. Agencies 0.21% 1,167,933
Federal National Mortgage Assn.,
Bond 02-15-05 7.125 AAA 1,103 1,167,933
See notes to
financial statements.
10
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000S OMITTED) VALUE
SHORT-TERM INVESTMENTS 3.77% $20,700,000
(Cost $20,699,512)
Government -- U.S. Agencies 3.77% 20,700,000
Federal Home Loan Bank,
Discount Note 02-02-04 Zero Aaa $20,700 20,700,000
TOTAL INVESTMENTS 145.14% $796,951,580
OTHER ASSETS AND LIABILITIES, NET (45.14%) ($247,861,402)
TOTAL NET ASSETS 100.00% $549,090,178
* Credit ratings are unaudited and are rated by Moody's Investors Service
or Standard & Poor's.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $16,372,330 or 2.98% of the Fund's net
assets as of January 31, 2004.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, the security is U.S.
dollar-denominated.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
11
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
January 31, 2004
(unaudited)
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes.
You'll also find
the net asset
value for each
common share.
ASSETS
Investments at value (cost $748,701,781) $796,951,580
Cash 71,218
Cash segregated for futures contracts 260,000
Dividend and interest receivable 4,027,353
Unrealized appreciation of swap contracts 2,020,086
Other assets 69,955
Total assets 803,400,192
LIABILITIES
Payable for futures variation margin 87,500
Payable for swap contracts 122,580
Payable to affiliates
Management fee 24,121
Other 20,352
Other payables and accrued expenses 35,739
Total liabilities 290,292
Auction Preferred Shares (APS), at value, unlimited
number of shares of beneficial interest authorized
with no par value, 10,160 shares issued, liquidation
preference of $25,000 per share 254,019,722
NET ASSETS
Capital paid-in 498,757,866
Accumulated net realized loss on investments and
financial futures contracts (2,775,192)
Net unrealized appreciation of investments,
financial futures contracts and swap contracts 50,310,673
Accumulated net investment income 2,796,831
Net assets applicable to common shares $549,090,178
NET ASSET VALUE PER COMMON SHARE
Based on 21,054,743 shares of beneficial interest
outstanding -- unlimited number of shares authorized
with no par value $26.08
See notes to
financial statements.
12
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
January 31, 2004
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in oper-
ating the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $46,786) $23,801,823
Interest income 3,272,576
Total investment income 27,074,399
EXPENSES
Investment management fee 2,978,203
APS auction fee 252,412
Accounting and legal services fee 119,128
Custodian fee 60,246
Registration and filing fee 55,764
Auditing fee 33,053
Printing 25,425
Trustees' fee 21,217
Transfer agent fee 13,394
Legal fee 5,632
Interest 816
Total expenses 3,565,290
Less expense reductions (794,187)
Net expenses 2,771,103
Net investment income 24,303,296
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
Investments (198,826)
Financial futures contracts 2,039,349
Change in net unrealized appreciation (depreciation) of
Investments 24,516,703
Financial futures contracts (2,124,473)
Swap contracts (1,550,825)
Net realized and unrealized gain 22,681,928
Distributions to APS (1,495,657)
Increase in net assets from operations $45,489,567
1 Semiannual period from 8-1-03 through 1-31-04.
See notes to
financial statements.
13
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in
Net Assets show
how the value
of the Fund's
net assets has
changed during
the last two
periods. The dif-
ference reflects
earnings less
expenses, any
investment gains
and losses,
distributions, if
any, paid to
shareholders and
any increase or
decrease due
to the sale of
common shares.
PERIOD PERIOD
ENDED ENDED
7-31-03 1 1-31-04 2
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $26,768,306 $24,303,296
Net realized gain 3,689,250 1,840,523
Change in net unrealized
appreciation (depreciation) 29,469,268 20,841,405
Distributions to APS (1,655,754) (1,495,657)
Increase in net assets
resulting from operations 58,271,070 45,489,567
Distributions to common shareholders
From net investment income (26,506,137) (22,729,630)
From net realized gain -- (4,579,007)
(26,506,137) (27,308,637)
From Fund share transactions 498,871,570 272,745
NET ASSETS
Beginning of period -- 530,636,503
End of period 3 $530,636,503 $549,090,178
1 Inception period from 11-29-02 through 7-31-03.
2 Semiannual period from 8-1-03 through 1-31-04. Unaudited.
3 Includes accumulated net investment income of $2,718,822 and $2,796,831,
respectively.
See notes to
financial statements.
14
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
COMMON SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 7-31-03 1 1-31-04 2
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $23.88 3 $25.22
Net investment income 4 1.30 1.15
Net realized and unrealized gain on investments 1.55 1.08
Distributions to APS (0.08) (0.07)
Total from investment operations 2.77 2.16
Less distributions to common shareholders
From net investment income (1.26) (1.08)
From net realized gain -- (0.22)
-- (1.30)
Capital charges
Offering costs related to common shares (0.03) --
Offering costs and underwriting discounts related to APS (0.14) --
(0.17) --
Net asset value, end of period $25.22 $26.08
Per share market value, end of period $24.51 $25.93
Total return at market value 5,6 (%) 1.78 7,8 11.30 7
RATIOS AND SUPPLEMENTAL DATA
Net assets applicable to common shares, end of period (in millions) $531 $549
Ratio of expenses to average net assets 9 (%) 1.01 10 1.03 10
Ratio of adjusted expenses to average net assets 11 (%) 1.28 10 1.32 10
Ratio of net investment income to average net assets 12 (%) 7.84 10 9.03 10
Portfolio turnover (%) 147 7
SENIOR SECURITIES
Total value of APS outstanding (in millions) $254 $254
Involuntary liquidation preference per unit (in thousands) $25 $25
Average market value per unit (in thousands) $25 $25
Asset coverage per unit 13 $78,821 $77,897
See notes to
financial statements.
15
Notes to Financial Highlights
1 Inception period from 11-29-02 through 7-31-03.
2 Semiannual period from 8-1-03 through 1-31-04. Unaudited.
3 Reflects the deduction of a $1.125 per share sales load.
4 Based on the average of the shares outstanding.
5 Assumes dividend reinvestment.
6 Total returns would have been lower had certain expenses not been reduced
during the periods shown.
7 Not annualized.
8 Assumes a purchase at the offering price of $25.00 per share on the
inception date and a sale at the current market price on the last day of
the period.
9 Ratios calculated on the basis of expenses applicable to common shares
relative to the average net assets of common shares. Without the exclusion
of preferred shares, the annualized ratios of expenses would have been
0.74% and 0.70%.
10 Annualized.
11 Ratios calculated on the basis of expenses applicable to common shares
relative to the average net assets of common shares and does not take into
consideration expense reductions during the periods shown. Without the
exclusion of preferred shares, the annualized adjusted ratios of expenses
would have been 0.94% and 0.90%.
12 Ratios calculated on the basis of net investment income relative to the
average net assets of common shares. Without the exclusion of preferred
shares, the annualized ratios of net investment income would have been
5.71% and 6.12%.
13 Calculated by subtracting the Fund's total liabilities from the Fund's
total assets and dividing that amount by the number of APS outstanding as
of the applicable 1940 Act Evaluation Date, which may differ from the
financial reporting date.
16
NOTES TO
STATEMENTS
Unaudited
NOTE A
Accounting policies
John Hancock Preferred Income Fund II (the "Fund") is a diversified
closed-end management investment company registered under the Investment
Company Act of 1940.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at fair
value, as determined in good faith, in accordance with procedures approved
by the Trustees. Short-term debt investments maturing within 60 days are
valued at amortized cost, which approximates market value. The Fund
determines the net asset value of the common shares each business day.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis.
Discount and premium on securities
The Fund accretes discount and amortizes premium from par value on
securities from either the date of issue or the date of purchase over the
life of the security.
Expenses
The majority of expenses are directly identifiable to an individual fund.
Expenses that are not readily identifiable to a specific fund are allocated
in such a manner as deemed equitable, taking into consideration, among
other things, the nature and type of expense and the relative sizes of the
funds.
Financial futures contracts
The Fund may buy and sell financial futures contracts. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund's instruments. At the time the Fund enters into a
financial futures contract, it is required to deposit with its custodian a
specified amount of cash or U.S. government securities, known as "initial
margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at
the official settlement price of the board of trade or U.S. commodities
exchange on which it trades. Subsequent payments to and from the broker,
known as "variation margin," are made on a daily basis as the market price
of the financial futures contract fluctuates. Daily variation margin
adjustments arising from this "mark to market" are recorded by the Fund as
unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into financial futures contracts include the possibility that
there may be an illiquid market and/or that a
17
change in the value of the contracts may not correlate with changes in the
value of the underlying securities. In addition, the Fund could be
prevented from opening or realizing the benefits of closing out financial
futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of financial futures
contracts. On January 31, 2004, the Fund had deposited $260,000 in a
segregated account to cover margin requirements on open financial futures
contracts.
The Fund had the following open financial futures contracts on
January 31, 2004:
NUMBER OF
OPEN CONTRACTS CONTRACTS POSITION EXPIRATION APPRECIATION
- ----------------------------------------------------------------------------
U.S. 10-Yr Note 200 Short MAR 04 $40,788
Swap contracts
The Fund may enter into swap transactions in order to hedge the value of
the Fund's portfolio against interest rate fluctuations or to enhance the
Fund's income. Interest rate swaps represent an agreement between two
counterparties to exchange cash flows based on the difference in the two
interest rates, applied to the notional principal amount for a specified
period. The payment flows are usually netted against each other, with the
difference being paid by one party to the other.
Accrued interest receivable or payable on the swap contracts is recorded
daily as interest income or as an offset to interest income. The Fund
settles accrued net receivable or payable under the swap contracts on a
periodic basis. The Fund records changes in the value of the swaps as
unrealized gains or losses on swap contracts and records realized gains or
losses at the time the swap contracts are closed out.
Swap contracts are subject to risks related to the counterparty's ability
to perform under the contract, and may decline in value if the
counterparty's creditworthiness deteriorates. The risks may arise from
unanticipated movement in interest rates. The Fund may also suffer losses
if it is unable to terminate outstanding swap contracts or reduce its
exposure through offsetting transactions.
The Fund had the following interest rate swap contracts open on January 31,
2004:
RATE TYPE
-----------------------------
PAYMENTS
NOTIONAL PAYMENTS MADE RECEIVED TERMINATION
AMOUNT BY FUND BY FUND DATE APPRECIATION
- ----------------------------------------------------------------------------
$63,500,000 2.56% (a) 3-month LIBOR JUN 08 $2,020,086
(a) Fixed rate
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
18
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to common and preferred shareholders from
net investment income and net realized gains on the ex-dividend date.
Such distributions, on a tax basis, are determined in conformity with
income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. Distributions in excess
of tax basis earnings and profits, if any, are reported in the Fund's
financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of America,
incorporates estimates made by management in determining the reported
amount of assets, liabilities, revenues and expenses of the Fund. Actual
results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with John Hancock Advisers
(the "Adviser"), a wholly owned subsidiary of the Berkeley Financial Group,
LLC. Under the investment management contract, the Fund pays a daily
management fee to the Adviser at an annual rate of 0.75% of the Fund's
average daily net asset value and the value attributable to the Auction
Preferred Shares ("managed assets").
The Adviser has contractually agreed to limit the Fund's management fee to
the following: 0.55% of the Fund's average daily managed assets until the
fifth anniversary of the commencement of the Fund's operations, 0.60% of
such assets in the sixth year, 0.65% of such assets in the seventh year and
0.70% of average daily managed assets in the eighth year. Accordingly, the
reduction in the management fee amounted to $794,187 for the period ended
January 31, 2004. After the eighth year the Adviser will no longer waive a
portion of the management fee.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the period
was at an annual rate of approximately 0.03% of the average daily managed
assets of the Fund. The Fund also paid the Adviser the amount of $1,017 for
certain publishing services, included in the printing fees.
Ms. Maureen Ford Goldfarb and Mr. John M. DeCiccio are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of the
Fund. The compensation of unaffiliated Trustees is borne by the Fund. The
unaffiliated Trustees may elect to defer, for tax purposes, their receipt
of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock
funds, as applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability are
recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to
market on a periodic basis to reflect any income earned by the investments
as well as any unrealized gains or losses. The Deferred Compensation Plan
investments had no impact on the operations of the Fund.
19
NOTE C
Fund share
transactions
Common shares
This listing illustrates the Fund's common shares sold, offering costs and
underwriting discount charged to capital paid-in, reclassification of the
Fund's capital accounts, distributions reinvested and number of common
shares outstanding during the last two periods along with the corresponding
dollar value.
PERIOD ENDED 7-31-03 1 PERIOD ENDED 1-31-04 2
SHARES AMOUNT SHARES AMOUNT
Beginning of period -- -- 21,044,196 $498,485,121
Shares sold 21,023,602 $501,938,498 3 -- --
Offering cost related to
common shares -- (698,787) -- --
Offering costs and underwriting
discount related to Auction
Preferred Shares -- (2,864,856) -- --
Reclassification of
capital accounts -- (386,449) -- --
Distributions reinvested 20,594 496,715 10,547 272,745
Net increase 21,044,196 $498,485,121 21,054,743 $498,757,866
1 Inception period from 11-29-02 through 7-31-03.
2 Semiannual period from 8-1-03 through 1-31-04. Unaudited.
3 Net of $1.125 per share sales load of the initial offering price of
$25.00 per share.
Auction preferred shares
The Fund issued a total of 10,160 Auction Preferred Shares (2,032 shares of
Series M, 2,032 shares of Series T, 2,032 shares of Series W, 2,032 shares
of Series TH and 2,032 shares of Series F) (collectively, the "APS") on
January 29, 2003, in a public offering. The underwriting discount of
$2,540,000 has been charged to capital paid-in of common shares during the
period ended July 31, 2003.
Offering costs of $698,787 related to common shares and offering costs of
$324,856 incurred in connection with the preferred shares were charged to
the Fund's capital paid-in during the period ended July 31, 2003.
Dividends on the APS, which accrue daily, are cumulative at a rate that was
established at the offering of the APS and has been reset every 7 days
thereafter by an auction (except for the Series W shares, which reset its
rate on January 29, 2004, at which time the Fund elected a Special Dividend
Payment of 182 days for the subsequent distributions). Dividend rates on
the APS ranged from 0.95% to 1.59% during the period ended January 31,
2004. Accrued dividends on the APS are included in the value of the APS on
the Fund's Statement of Assets and Liabilities.
The APS are redeemable at the option of the Fund, at a redemption price
equal to $25,000 per share, plus accumulated and unpaid dividends on any
dividend payment date. The APS are also subject to mandatory redemption at
a redemption price equal to $25,000 per share, plus accumulated and unpaid
dividends, if the Fund is in default on its asset coverage requirements
with respect to the APS as defined in the Fund's by-laws. If the dividends
on the APS shall remain unpaid in
20
an amount equal to two full years' dividends, the holders of the APS, as a
class, have the right to elect a majority of the Board of Trustees. In
general, the holders of the APS and the common shareholders have equal
voting rights of one vote per share, except that the holders of the APS,
as a class, vote to elect two members of the Board of Trustees, and
separate class votes are required on certain matters that affect the
respective interests of the APS and common shares.
NOTE D
Investment transactions
Purchases and proceeds from sales or maturities of securities other than
short-term securities and obligations of the U.S. government, during the
period ended January 31, 2004, aggregated $77,842,482 and $52,357,562,
respectively.
The cost of investments owned on January 31, 2004, including short-term
investments, for federal income tax purposes, was $748,815,281. Gross
unrealized appreciation and depreciation of investments aggregated
$50,228,742 and $2,092,443, respectively, resulting in net unrealized
appreciation of $48,136,299. The unrealized appreciation of swap contracts,
for federal income tax purposes, was $2,020,086. The difference between
book basis and tax basis net unrealized appreciation of investments is
attributable primarily to the tax deferral of losses on certain sales of
securities.
21
INVESTMENT
OBJECTIVE
AND POLICY
The Fund's primary objective is to provide a high level of current income,
consistent with preservation of capital. The Fund's secondary objective is
to provide growth of capital to the extent consistent with its primary
objective. The Fund seeks to achieve its objectives by investing in a
diversified portfolio of securities that, in the opinion of the Adviser,
may be undervalued relative to similar securities in the marketplace.
Under normal market conditions, the Fund invests at least: (a) 80% of its
assets in preferred stocks and other preferred securities, including
convertible preferred securities, (b) 25% of its total assets in the
industries comprising the utilities sector and (c) 80% of its total assets
in preferred securities or other fixed income securities which are rated
investment grade or higher by Moody's or Standard & Poor's at the time of
investment. "Assets" are defined as net assets including the liquidation
preference of APS plus borrowing for investment purposes.
Effective December 16, 2003, the Trustees approved additional changes to
the Fund's by-laws. The changes included updating the leveraged rating
agency requirements in keeping with recent changes to the agency's basic
maintenance reporting requirements for leveraged closed-end funds. In
addition, changes were made to reflect recent updates that Moody's made to
some of their eligible asset and discount factors. These revisions bring
the Fund's by-laws in line with current rating agency requirements.
DIVIDEND REINVESTMENT PLAN
The Fund offers its shareholders a Dividend Reinvestment Plan (the "Plan"),
which offers the opportunity to earn compounded yields. Each holder of
common shares will automatically have all distributions of dividends and
capital gains reinvested by Mellon Investor Services, as Plan Agent for the
common shareholders (the "Plan Agent"), unless an election is made to
receive cash. Holders of common shares who elect not to participate in the
Plan will receive all distributions in cash, paid by check mailed directly
to the shareholder of record or, if the common shares are held in street or
other nominee name, then to the nominee) by the Plan Agent, as dividend
disbursing agent. Shareholders whose shares are held in the name of a
broker or a nominee should contact the broker or nominee to determine
whether and how they may participate in the Plan.
If the Fund declares a dividend payable either in common shares or in cash,
non-participants will receive cash and participants in the Plan will
receive the equivalent in common shares. If the market price of the common
shares on the payment date of the dividend is equal to, or exceeds, their
net asset value as determined on the payment date, participants will be
issued common shares (out of authorized but unissued shares) at a value
equal to the higher of net asset value or 95% of the market price. If the
net asset value exceeds the market price of the common shares at such time,
or if the Board of Trustees declares a dividend payable only in cash, the
Plan Agent will, as agent for Plan participants, buy shares in the open
market, on the New York Stock Exchange or elsewhere, for the participant's
accounts. Such purchases will be made promptly after the payable date for
such dividend and, in any event, prior to the next ex-dividend date after
such date, except where necessary to comply with federal securities laws.
If, before the Plan Agent has completed its purchases, the market price
exceeds the net asset value of the common shares, the average per share
purchase price paid by the Plan Agent may exceed the net asset value of the
common shares, resulting in the acquisition of
22
fewer shares than if the dividend had been paid in shares issued by the Fund.
Each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends and distributions. The cost
per share of the shares purchased for each participant's account will be
the average cost, including brokerage commissions, of any shares purchased
on the open market plus the cost of any shares issued by the Fund. There
will be no brokerage charges with respect to common shares issued directly
by the Fund. There are no other charges to participants for reinvesting
dividends or capital gain distributions.
Participants in the Plan may withdraw from the Plan at any time by
contacting the Plan Agent by telephone, in writing or by visiting the Plan
Agent's Web site at www.melloninvestor.com. Such withdrawal will be
effective immediately if received not less than ten days prior to a
dividend record date; otherwise, it will be effective for all subsequent
dividend record dates. When a participant withdraws from the Plan or upon
termination of the Plan, as provided below, certificates for whole common
shares credited to his or her account under the Plan will be issued and a
cash payment will be made for any fraction of a share credited to such
account.
The Plan Agent maintains each shareholder's account in the Plan and
furnishes monthly written confirmations of all transactions in the
accounts, including information needed by the shareholders for personal and
tax records. The Plan Agent will hold common shares in the account of each
Plan participant in non-certificated form in the name of the participant.
Proxy material relating to the shareholders' meetings of the Fund will
include those shares purchased, as well as shares held pursuant to the
Plan.
The reinvestment of dividends and distributions will not relieve
participants of any federal income tax that may be payable or required to
be withheld on such dividends or distributions. Participants under the Plan
will receive tax information annually. The amount of dividend to be
reported on 1099-DIV should be: (1) in the case of shares issued by the
Fund, the fair market value of such shares on the dividend payment date and
(2) in the case of shares purchased by the Plan Agent in the open market,
the amount of cash used by the Plan Agent to purchase shares in the open
market, including the amount of cash allocated to brokerage commissions
paid on such purchases.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice
of the change sent to all shareholders of the Fund at least 90 days before
the record date for the dividend or distribution. The Plan may be amended
or terminated by the Plan Agent after at least 90 days' written notice to
all shareholders of the Fund. All correspondence or additional information
concerning the Plan should be directed to the Plan Agent, Mellon Bank,
N.A., c/o Mellon Investor Services, P.O. Box 3338, South Hackensack, NJ
07606-1938 (telephone 1-800-852-0218).
23
SHAREHOLDER
COMMUNICATION
AND ASSISTANCE
If you have any questions concerning the Fund, we will be pleased to
assist you. If you hold shares in your own name and not with a brokerage
firm, please address all notices, correspondence, questions or other
communications regarding the Fund to the transfer agent at:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Telephone 1-800-852-0218
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
24
FOR YOUR
INFORMATION
TRUSTEES
James F. Carlin
William H. Cunningham
John M. DeCiccio
Ronald R. Dion
Maureen Ford Goldfarb
Charles L. Ladner*
Patti McGill Peterson*
Dr. John A. Moore*
Steven R. Pruchansky
Lt. Gen. Norman H. Smith, USMC (Ret.)
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Maureen Ford Goldfarb
Chairman, President and Chief Executive Officer
Richard A. Brown
Senior Vice President and Chief Financial Officer
Susan S. Newton
Senior Vice President and Secretary
William H. King
Vice President and Treasurer
Thomas H. Connors
Vice President and Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSER
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
TRANSFER AGENT
FOR APS
Deutsche Bank Trust Company Americas
280 Park Avenue
New York, New York 10017
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
STOCK SYMBOL
Listed New York Stock Exchange: HPF
For shareholder assistance refer to page 24
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Customer service
representatives 1-800-852-0218
Portfolio commentary 1-800-344-7054
24-hour automated information 1-800-843-0090
TDD Line 1-800-231-5469
The Fund's voting policies and procedures are available without
charge, upon request:
By phone 1-800-225-5291
On the Fund's Web site www.jhfunds.com/proxy
On the SEC's Web site www.sec.gov
25
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-852-0218
1-843-0090 EASI-Line
1-800-231-5469 (TDD)
www.jhfunds.com
- ---------------
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
- ---------------
P11SA 1/04
3/04
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's principal executive officer and principal financial officer
have concluded that those disclosure controls and procedures provide reasonable
assurance that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
have materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Separate certifications for the registrant's principal executive officer
and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive officer
and principal financial officer, as required by 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule
30a-2(b) under the Investment Company Act of 1940, are attached. The
certifications furnished pursuant to this paragraph are not deemed to be "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise
subject to the liability of that section. Such certifications are not deemed to
be incorporated by reference into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent that the Registrant
specifically incorporates them by reference.
(c)(1) Contact person at the registrant.
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.
By:
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Maureen Ford Goldfarb
Chairman, President and Chief Executive Officer
Date: March 30, 2004
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:
- -------------------------------
Maureen Ford Goldfarb
Chairman, President and Chief Executive Officer
Date: March 30, 2004
By:
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Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: March 30, 2004