-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BecffA+J+WiNcPGLGJb++H1La7/saeY9Tm89xRTRmzR8vrMCqNgrViKsUD5n5HIY VfdLt1IPSxaIXTRAjOr0vg== 0000928816-05-001295.txt : 20050930 0000928816-05-001295.hdr.sgml : 20050930 20050930150223 ACCESSION NUMBER: 0000928816-05-001295 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050731 FILED AS OF DATE: 20050930 DATE AS OF CHANGE: 20050930 EFFECTIVENESS DATE: 20050930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHN HANCOCK PREFERRED INCOME FUND II CENTRAL INDEX KEY: 0001189740 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-21202 FILM NUMBER: 051113925 BUSINESS ADDRESS: STREET 1: C/O JOHN HANCOCK FUNDS STREET 2: 601 CONGRESS STREET CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 617-663-3000 MAIL ADDRESS: STREET 1: C/O JOHN HANCOCK FUNDS STREET 2: 601 CONGRESS STREET CITY: BOSTON STATE: MA ZIP: 02210 N-CSR 1 pift1.txt JOHN HANCOCK PREFERRED INCOME FUND II 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 811-21202 John Hancock Preferred Income Fund II (Exact name of registrant as specified in charter) 601 Congress Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip code) Alfred P. Ouellette Senior Attorney and Assistant Secretary 601 Congress Street Boston, Massachusetts 02110 (Name and address of agent for service) Registrant's telephone number, including area code: 617-663-4324 Date of fiscal year end: July 31 Date of reporting period: July 31, 2005 ITEM 1. REPORT TO SHAREHOLDERS. JOHN HANCOCK Preferred Income Fund II 7.31.2005 Annual 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 Keith F. Hartstein, President and Chief Executive Officer of John Hancock Funds, LLC, flush left next to first paragraph.] CEO CORNER Table of contents Your fund at a glance page 1 Managers' report page 2 Fund's investments page 6 Financial statements page 12 Trustees & officers page 30 For more information page 33 To Our Shareholders, I am pleased to be writing to you as the new President and Chief Executive Officer of John Hancock Funds, LLC, following the departure of James A. Shepherdson to pursue other opportunities. In addition, on July 25, 2005, your fund's Board of Trustees appointed me to the roles of President and Chief Executive Officer of your fund. As a means of introduction, I have been involved in the mutual fund industry since 1985. I have been with John Hancock Funds for the last 15 years, most recently as executive vice president of retail sales and marketing and a member of the company's executive and investment committees. In my former capacity, I was responsible for all aspects of the distribution and marketing of John Hancock Funds' open-end and closed-end mutual funds. Outside of John Hancock, I have served as Chairman of the Investment Company Institute (ICI) Sales Force Marketing Committee since September 2003. It is an exciting time to be at John Hancock Funds, and I am grateful for the opportunity to lead and shape its future growth. With the acquisition of John Hancock by Manulife Financial Corporation in April 2004, we are receiving broad support toward the goal of providing our shareholders with excellent investment opportunities and a more complete lineup of choices for the discerning investor. As you may have read, John Hancock recently entered into an agreement with GMO, a Boston-based institutional money manager, to acquire eight of their mutual funds. In addition, we are in the process of adding five "Lifestyle Portfolio" funds-of-funds that blend multiple fund offerings from internal and external money managers to create a broadly diversified asset allocation portfolio. Look for more information about these exciting additions to the John Hancock family of funds in your fourth quarter shareholder newsletter. Although there has been a change in executive-level management, rest assured that the one thing that never wavers is John Hancock Funds' commitment to placing the needs of shareholders above all else. We are all dedicated to the task of working with you and your financial advisors to help you reach your long-term financial goals. Sincerely, /S/ Keith F. Hartstein Keith F. Hartstein, President and Chief Executive Officer This commentary reflects the CEO's views as of July 31, 2005. 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 port- folio of securities that, in the opinion of the Adviser, may be undervalued rela- tive to similar securities in the mar- ketplace. Under normal market con- ditions, the Fund invests at least 80% of its assets in preferred stocks and other preferred securities. Over the last twelve months * Preferred stocks posted strong gains, overcoming scattered bouts of weakness during the year. * Convertible-preferred-stock holdings aided performance. * An influx of supply of newly issued preferred stocks presented opportunities. [Bar chart with heading "John Hancock Preferred Income Fund II." Under the heading is a note that reads "Fund performance for the year ended July 31, 2005." The chart is scaled in increments of 4% with 0% at the bottom and 16% at the top. The first bar represents the Fund's 13.74% net asset value. The second bar represents the Fund's 5.55% market value. The third bar represents the Fund's 7.86% yield on closing market price. The first note below the chart reads "The total returns for the Fund include all distributions reinvested. The performance data contained within this material represents past performance, which does not guarantee future results." The second note below the chart reads "The yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price."] Top 10 issuers 3.5% DPL Capital Trust II 3.3% Nexen, Inc. 3.0% Interstate Power & Light Co. 2.5% MetLife, Inc. 2.5% ING Groep N.V. 2.5% ONEOK, Inc. 2.4% Telephone & Data Systems, Inc. 2.3% PSEG Funding Trust II 2.3% PFGI Capital Corp. 2.2% Duke Realty Corp. As a percentage of net assets plus the value of preferred shares on July 31, 2005. 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 strong gains for the 12-month period ended July 31, 2005, overcoming scattered bouts of weakness during the year. They began the period just after the Federal Reserve Board started to raise short-term interest rates, which triggered an early summer Treasury market sell-off that put pressure on preferred-stock prices. Because preferreds make fixed payments in the form of dividends, their prices tend to follow those of U.S. Treasury securities. Despite evidence of a strengthening economy and additional short-term interest rate hikes by the Federal Reserve Board, preferred-stock prices generally moved higher throughout the remainder of 2004, mirroring a somewhat positive tone in the U.S. Treasury market. That rally was based on investors' confidence that even though the Fed might continue to raise rates, those rate hikes would be small and measured, given the potential for record-high oil prices and higher interest rates themselves to dampen economic growth. Preferred stocks were further boosted by the combination of constrained supply and strong demand. Supply was muted throughout most of the period, as fewer companies issued new preferred securities, while others bought back their outstanding shares. That said, supply ticked higher in the final months of the period, putting some pressure on the preferred-stock marketplace. Demand, meanwhile, remained strong throughout the year, fueled by investors' appetite for yield, particularly in light of the fact that changes in the tax code in 2003 helped to make ownership of certain dividend-yielding stocks more attractive. "Preferred stocks...posted strong gains for the 12-month period ended July 31, 2005..." Performance For the 12 months ended July 31, 2005, John Hancock Preferred Income Fund II returned 13.74% at net asset value and 5.55% at market value. The difference in the Fund's net asset value (NAV) 2 performance and its market performance stems from the fact that the market share price is subject to the dynamics of secondary market trading, which could cause it to trade at a discount or premium to the Fund's NAV share price at any time. By comparison, the average income and preferred-stock closed-end fund returned 16.94% at net asset value, according to Lipper, Inc. In the same 12-month period, the Dow Jones Utility Average -- which tracks the performance of 15 electric and natural gas utilities -- returned 46.29%, and the broader stock market, as measured by the Standard & Poor's 500 Index, gained 14.05%. [Photos of Greg Phelps and Mark Maloney flush right next to first paragraph.] Leaders and laggards Among our best-performing holdings during the year were some convertible-preferred stocks, which will be converted into common stocks at a set date. For example, ONEOK, a diversified energy company involved in oil and gas production, natural gas processing, gathering, storage and transmission in the mid-continent areas of the United States, performed very well. It continued to reap the benefits of a well-executed business strategy and its ability to pass on price increases in the wake of higher commodities prices. Other winners among convertibles included Public Service Enterprise Group, which was boosted largely by the fact that it will be acquired by Exelon Corp., and Great Plains Energy, a solid Midwest utility company that was lifted by the nearly year-long rally of utility stocks and by a growing appetite for preferred stocks with high coupons. "Among our best performing hold ings during the year were some convertible-preferred stocks..." Among non-convertible preferred stocks, we enjoyed strong performance from our holdings in cable company Comcast, which benefited from an upgrade in its credit rating to investment grade. Our holdings in DPL Capital Trust II also worked out well. They were boosted by the company's making a tender offer for the specific security we owned. On the flip side, our holdings in the preferred stock of General Motors proved disappointing throughout the period as the company struggled amid flagging demand for its cars and a credit-rating downgrade to below-investment-grade. Despite its recent travails, we continue to maintain our stake in GM because 3 we like its attractive yields and we believe the company is taking some positive steps toward addressing its problems, such as cutting costs and reducing production. [Table at top left-hand side of page entitled "Industry distribution1." The first listing is Electric utilities 22%, the second is Multi-utilities & unregulated power 17%, the third is Diversified banks 8%, the fourth is Investment banking & brokerage 8%, the fifth is Diversified financial services 6%, the sixth is Gas utilities 6%, the seventh is Oil & gas exploration & production 5%, the eighth is Real estate investment trusts 4%, the ninth is Life & Health insurance 4%, the tenth is Integrated telecommunication services 4%, the eleventh is Multi-line insurance 3%, the twelfth is Regional banks 3%, the thirteenth is Automobile manufacturers 2%, the fourteenth is Consumer finance 2% and the fifteenth is All others 5%.] Supply glut = opportunity In the final months of the period, there was a glut of newly issued preferred stocks as companies rushed to lock in low interest rates. That influx of supply temporarily weighed on preferred-stock prices and afforded us the opportunity to buy some attractively valued, tax-advantaged issues with relatively high coupons. Among our purchases was insurance giant MetLife, which carried a coupon of 6.50%, and performed quite well from the point at which we bought it through the end of the period. It was buoyed by strong demand from investors seeking high-yielding, tax-advantaged securities issued by high-quality companies. [Pie chart at middle of page with heading "Portfolio diversification1." The chart is divided into five sections (from top to right): Preferred stocks 83%, Capital preferred securities 13%, Common stocks 2%, Bonds 1% and Short-term investments 1%.] Outlook In our view, the Fed probably hasn't yet reached the end of its campaign to raise short-term interest rates to cool economic growth and potential inflationary pressures. This could pose periodic short-term challenges for dividend-producing securities. Over the longer term, however, we're more upbeat, especially given the fact that we believe a good portion, if not all, of future interest rate hikes have already been factored into preferred-stock prices. Furthermore, there are already some tangible signs that economic growth has cooled as rates have moved higher. Record-high oil prices will also probably act as a drag on economic growth, most likely by reducing consumers' disposable income and raising corporate America's cost 4 of doing business. Economic weakness in Japan and Europe could also act as a drag on the U.S. economy by limiting U.S. companies' ability to export goods and services to those regions. We believe that a slower-growth, low-inflationary environment will provide a favorable backdrop for preferred stocks. Given that high-quality, high-coupon preferred issues have come to market recently and in anticipation of similar issuance in the near future, it will be easier to find attractive replacements for our holdings that are redeemed or called by the issuer. Finally, we believe that as the Baby Boomers age, their long-term demand for income-producing investments such as preferred stocks will continue to rise, providing a favorable underpinning for the group. [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 ONEOK followed by an up arrow with the phrase "Well-executed business strategy and price increases boost price." The second listing is MetLife followed by an up arrow with the phrase "Strong demand for high-yielding, tax-advantaged securities." The third listing is General Motors followed by a down arrow with the phrase "Credit quality downgrade."] "We believe that a slower-growth, low-inflationary environment will provide a favorable backdrop for preferred stocks." This commentary reflects the views of the portfolio management team through the end of the Fund's period discussed in this report. The teams' statements reflect its 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 more broadly 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 July 31, 2005. 5 FINANCIAL STATEMENTS FUND'S INVESTMENTS Securities owned by the Fund on July 31, 2005 This schedule is divided into five main categories: bonds, capital preferred securities, common stocks, preferred securities and short-term investments. Bonds, capital preferred securities, common stocks and preferred securities are further broken down by industry group. Short-term investments, which represent the Fund's cash position, are listed last.
Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Bonds 1.88% $10,294,930 (Cost $9,972,722) Electric Utilities 1.88% 10,294,930 Black Hills Corp., Note 6.500% 05-15-13 BBB- $5,000 5,237,430 Entergy Gulf States, Inc., 1st Mtg Bond 6.200 07-01-33 BBB+ 5,000 5,057,500 Credit Par value Issuer, description, maturity date rating (A) (000) Value Capital preferred securities 18.66% $102,303,513 (Cost $91,594,145) Asset Management & Custody Banks 0.92% 5,067,601 BNY Capital, 7.97%, Ser B, 12-31-26 A- $4,700 5,067,601 Diversified Banks 0.76% 4,140,268 Lloyds TSB Bank Plc, 6.90%, 11-29-49 (United Kingdom) A+ 4,000 4,140,268 Diversified Financial Services 2.34% 12,843,828 JPM Capital Trust I, 7.54%, 01-15-27 A- 12,000 12,843,828 Electric Utilities 5.07% 27,798,250 DPL Capital Trust II, 8.125%, 09-01-31 B+ 22,150 27,798,250 Gas Utilities 4.22% 23,144,091 KN Capital Trust I, 8.56%, Ser B, 04-15-27 BB+ 10,000 10,875,670 KN Capital Trust III, 7.63%, 04-15-28 BB+ 10,673 12,268,421 Integrated Telecommunication Services 1.87% 10,221,621 TCI Communications Financing Trust III, 9.65%, 03-31-27 BB+ 9,243 10,221,621 See notes to financial statements. 6 FINANCIAL STATEMENTS Credit Par value Issuer, description, maturity date rating (A) (000) Value Multi-Utilities & Unregulated Power 2.83% $15,509,383 Dominion Resources Capital Trust I, 7.83%, 12-01-27 BBB- $8,450 9,279,368 Dominion Resources Capital Trust III, 8.40%, 01-15-31 BBB- 5,000 6,230,015 Regional Banks 0.65% 3,578,471 Summit Capital Trust I, 8.40%, Ser B, 03-15-27 A 3,300 3,578,471 Issuer Shares Value Common stocks 3.20% $17,527,222 (Cost $13,035,721) Electric Utilities 2.11% 11,548,600 Alliant Energy Corp. 220,000 6,402,000 CH Energy Group, Inc. 40,000 1,966,000 Scottish Power Plc, American Depositary Receipt (ADR) (United Kingdom) 90,000 3,180,600 Gas Utilities 1.09% 5,978,622 KeySpan Corp. 146,931 5,978,622 Credit Issuer, description rating (A) Shares Value Preferred securities 120.69% $661,451,015 (Cost $636,750,911) Agricultural Products 2.50% 13,710,000 Ocean Spray Cranberries, Inc., 6.25%, Ser A (S) BB+ 160,000 13,710,000 Asset Management & Custody Banks 0.18% 995,600 BNY Capital V, 5.95%, Ser F A- 40,000 995,600 Automobile Manufacturers 3.49% 19,101,202 Ford Motor Co., 7.50% BB+ 50,000 1,085,000 General Motors Corp., 7.25%, Ser 02-15-52 BB 447,300 9,245,691 General Motors Corp., 7.25%, Ser 04-15-41 BB 87,900 1,845,900 General Motors Corp., 7.25%, Ser 07-15-41 BB 233,500 4,917,510 General Motors Corp., 7.375%, Ser 10-01-51 BB 91,025 2,007,101 Broadcasting & Cable TV 1.03% 5,671,512 Shaw Communications, Inc., 8.50% (Canada) B+ 223,200 5,671,512 Consumer Finance 3.16% 17,319,565 CIT Group, Inc., 6.35%, Ser A BBB+ 60,000 1,494,378 Ford Motor Credit Co., 7.375% BBB- 30,000 669,600 See notes to financial statements. 7 FINANCIAL STATEMENTS Credit Issuer, description rating (A) Shares Value Consumer Finance (continued) Ford Motor Credit Co., 7.60% A3 100,000 $2,295,000 Household Finance Corp., 6.00% A 72,200 1,817,274 Household Finance Corp., 6.875% A 349,100 9,087,073 HSBC Finance Corp., 6.36%, Depositary Shares, Ser B BBB+ 76,000 1,956,240 Diversified Banks 11.30% 61,933,095 BAC Capital Trust IV, 5.875% A 46,150 1,149,135 Comerica Capital Trust I, 7.60% BBB+ 120,400 3,095,484 Fleet Capital Trust VII, 7.20% A 459,900 11,883,816 Fleet Capital Trust VIII, 7.20% A 310,000 8,103,400 Republic New York Corp., 6.25%, Ser HSBC A 50,000 1,257,815 Royal Bank of Scotland Group Plc, 5.75%, Ser L Santander Finance Preferred S.A., Unipersonal, 6.41%, Ser 1 (Spain) BBB+ 225,000 5,906,250 USB Capital III, 7.75% A- 134,300 3,438,080 USB Capital IV, 7.35% A- 152,800 3,940,712 USB Capital V, 7.25% A- 252,000 6,526,800 Wells Fargo Capital Trust IV, 7.00% A 140,800 3,634,048 Wells Fargo Capital Trust VI, 6.95% A- 50,000 1,295,500 Diversified Financial Services 6.62% 36,266,470 ABN AMRO Capital Funding Trust V, 5.90% A 312,400 7,722,528 ABN AMRO Capital Funding Trust VII, 6.08% A 265,000 6,704,500 Citigroup Capital VII, 7.125% A 61,700 1,599,264 Citigroup Capital VIII, 6.95% A 339,000 8,712,300 Citigroup Capital IX, 6.00% A 90,000 2,284,200 General Electric Capital Corp., 6.10% AAA 22,863 590,780 JPMorgan Chase Capital IX, 7.50%, Ser I A- 73,800 1,882,638 JPMorgan Chase Capital X, 7.00%, Ser J A1 259,000 6,770,260 Electric Utilities 22.12% 121,248,202 American Electric Power Co., Inc., 9.25%, Conv BBB 135,000 6,467,850 Boston Edison Co., 4.78% BBB+ 15,143 1,383,313 Cleveland Electric Financing Trust I, 9.00% BB 210,000 5,628,000 Entergy Mississippi, Inc., 7.25% A- 66,000 1,733,160 FPC Capital I, 7.10%, Ser A BB+ 559,503 14,183,401 FPL Group Capital Trust I, 5.875% BBB+ 436,800 10,928,736 FPL Group, Inc., 8.00%, Conv A- 140,000 9,146,200 Georgia Power Capital Trust V, 7.125% BBB+ 207,300 5,391,873 Georgia Power Capital Trust VII, 5.875% BBB+ 116,500 2,910,170 See notes to financial statements. 8 FINANCIAL STATEMENTS Credit Issuer, description rating (A) Shares Value Electric Utilities (continued) Great Plains Energy, Inc., 8.00%, Conv BBB- 544,100 $14,758,712 HECO Capital Trust III, 6.50% BBB- 120,000 3,132,000 Interstate Power & Light Co., 8.375%, Ser B BBB- 700,000 23,800,000 Monongahela Power Co., $7.73, Ser L B 55,500 5,550,000 Northern States Power Co., 8.00% BBB- 175,800 4,686,828 NVP Capital III, 7.75% CCC+ 108,500 2,755,900 Southern Co. Capital Trust VI, 7.125% BBB+ 30,000 789,300 Virginia Power Capital Trust, 7.375% BBB- 304,519 8,002,759 Gas Utilities 3.36% 18,399,645 AGL Capital Trust II, 8.00% BBB 41,000 1,051,650 SEMCO Capital Trust I, 10.25% B- 152,847 3,974,022 Southern Union Co., 7.55% BB+ 197,200 5,373,700 Southwest Gas Capital II, 7.70% BB 248,900 6,551,048 Vectren Utility Holdings, Inc., 7.25% A- 56,500 1,449,225 Hotels, Resorts & Cruise Lines 0.60% 3,283,750 Hilton Hotels Corp., 8.00% BBB- 125,000 3,283,750 Integrated Telecommunication Services 4.27% 23,393,744 Telephone & Data Systems, Inc., 6.625% A- 150,000 3,765,000 Telephone & Data Systems, Inc., 7.60%, Ser A A- 605,967 15,724,844 Verizon New England, Inc., 7.00%, Ser B A2 150,150 3,903,900 Investment Banking & Brokerage 11.35% 62,178,579 Bear Stearns Cos., Inc. (The), 6.15%, Depositary Shares, Ser E BBB 248,600 12,678,600 Lehman Brothers Holdings Capital Trust III, 6.375%, Ser K BBB+ 170,000 4,328,200 Lehman Brothers Holdings Capital Trust V, 6.00%, Ser M BBB+ 40,000 990,400 Lehman Brothers Holdings, Inc., 5.94%, Depositary Shares, Ser C BBB+ 145,200 7,296,300 Merrill Lynch Preferred Capital Trust III, 7.00% A- 360,400 9,428,064 Merrill Lynch Preferred Capital Trust IV, 7.12% A- 167,400 4,397,598 Merrill Lynch Preferred Capital Trust V, 7.28% A- 273,200 7,275,316 Morgan Stanley Capital Trust III, 6.25% A- 248,779 6,326,450 Morgan Stanley Capital Trust IV, 6.25% A- 57,000 1,444,380 Morgan Stanley Capital Trust V, 5.75% A1 329,900 8,013,271 Life & Health Insurance 5.44% 29,811,845 MetLife, Inc., 6.375%, Ser B, Conv BBB+ 8,390 232,151 MetLife, Inc., 6.50%, Ser B BBB 799,550 20,196,633 PLC Capital Trust IV, 7.25% BBB+ 331,075 8,637,747 Prudential Plc, 6.50% (United Kingdom) A 30,000 745,314 See notes to financial statements. 9 FINANCIAL STATEMENTS Credit Issuer, description rating (A) Shares Value Multi-Line Insurance 4.17% $22,849,646 AEGON N.V., 6.375% (Netherlands) A- 100,000 2,568,000 ING Groep N.V., 7.05% (Netherlands) A- 774,700 20,281,646 Multi-Utilities & Unregulated Power 21.23% 116,356,712 Baltimore Gas & Electric Co., 6.99%, Ser 1995 Baa1 39,870 4,168,907 BGE Capital Trust II, 6.20% BBB- 525,000 13,471,500 Consumers Energy Co. Financing IV, 9.00% Ba2 217,000 5,611,620 Dominion CNG Capital Trust I, 7.80% BBB- 150,000 3,864,000 DTE Energy Co., 8.75%, Conv BBB- 224,200 5,685,712 DTE Energy Trust I, 7.80% BB+ 253,000 6,583,060 Energy East Capital Trust I, 8.25% BBB- 424,800 10,947,096 Enterprise Capital Trust I, 7.44%, Ser A BB+ 35,400 895,266 ONEOK, Inc., 8.50%, Conv BBB+ 470,000 19,942,100 PSEG Funding Trust II, 8.75% BB+ 680,000 18,434,800 Public Service Electric & Gas Co., 4.18%, Ser B BB+ 7,900 647,800 Public Service Enterprise Group, Inc., 10.25%, Conv BBB- 75,450 6,116,731 Puget Sound Energy Capital Trust II, 8.40% BB 232,060 5,998,751 South Carolina Electric & Gas Co., 6.52% Baa1 15,000 1,532,345 TECO Capital Trust I, 8.50% B 490,434 12,457,024 Oil & Gas Exploration & Production 7.06% 38,716,369 Anadarko Petroleum Corp., 5.46%, Depositary Shares, Ser B BBB- 62,000 6,085,691 Apache Corp., 5.68%, Depositary Shares, Ser B BBB 25,000 2,537,500 Devon Energy Corp., 6.49%, Ser A BB+ 32,355 3,359,866 Nexen, Inc., 7.35% (Canada) BB+ 1,018,800 26,733,312 Real Estate Investment Trusts 6.52% 35,757,307 Duke Realty Corp., 6.50%, Depositary Shares, Ser K BBB 110,000 2,776,400 Duke Realty Corp., 6.60%, Depositary Shares, Ser L BBB 109,840 2,759,181 Duke Realty Corp., 6.625%, Depositary, Shares, Ser J BBB 449,400 11,401,278 Duke Realty Corp., 7.99%, Depositary Shares, Ser B BBB 10,650 549,474 Kimco Realty Co., 6.65%, Depositary Shares, Ser F BBB+ 37,030 945,376 Public Storage, Inc., 6.45%, Depositary Shares, Ser X BBB+ 30,000 756,000 Public Storage, Inc., 7.50%, Depositary Shares, Ser V BBB+ 307,100 7,993,813 Public Storage, Inc., 8.00%, Depositary Shares, Ser R BBB+ 304,500 7,889,595 Public Storage, Inc., 8.60%, Depositary Shares, Ser Q BBB+ 26,700 686,190 Regional Banks 3.36% 18,393,375 PFGI Capital Corp., 7.75% A3 686,000 18,393,375 Reinsurance 0.17% 930,000 RenaissanceRe Holdings Ltd., 6.08%, Ser C (Bermuda) BBB+ 40,000 930,000 See notes to financial statements. 10 FINANCIAL STATEMENTS Credit Issuer, description rating (A) Shares Value Thrifts & Mortgage Finance 1.96% $10,741,086 Abbey National Plc, 7.25% (United Kingdom) A- 275,620 7,033,822 Abbey National Plc, 7.375% (United Kingdom) A- 140,800 3,707,264 Wireless Telecommunication Services 0.80% 4,393,311 United States Cellular, 7.50% A- 165,100 4,393,311 Interest Maturity Credit Par value Issuer, description rate date rating (A) (000) Value Short-term investments 0.90% $4,900,000 (Cost $4,900,000) Government U.S. Agency 0.90% 4,900,000 Federal Home Loan Bank, Disc Note Zero 08-01-05 AAA $4,900 4,900,000 Total investments 145.33% $796,476,680 Other assets and liabilities, net 1.03% $5,661,279 Fund preferred shares and accrued dividends (46.36%) ($254,084,069) Total net assets 100.00% $548,053,890
(A) Credit ratings are unaudited and are rated by Moody's Investors Service where Standard & Poor's ratings are not available. (S) This security is 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 $13,710,000 or 2.50% of the Fund's net assets as of July 31, 2005. Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer; however, 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 July 31, 2005 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 $756,253,499) $796,476,680 Cash 62,398 Cash segregated for futures contracts 600,000 Receivable for investments sold 406,406 Dividends and interest receivable 4,995,444 Receivable for swap contracts 82,744 Unrealized appreciation of swap contracts 3,188,479 Receivable for futures variation margin 525,000 Other assets 47,131 Total assets 806,384,282 Liabilities Payable for investments purchased 3,933,503 Payable to affiliates Management fees 36,284 Other 16,978 Other payables and accrued expenses 259,558 Total liabilities 4,246,323 Auction Preferred Shares (APS) including accrued dividends, unlimited number of shares of beneficial interest authorized with no par value, 10,160 shares issued, liquidation preference of $25,000 per share 254,084,069 Net assets Common shares capital paid-in 498,932,024 Accumulated net realized gain on investments, financial futures contracts and swap contracts 4,352,502 Net unrealized appreciation of investments, financial futures contracts and swap contracts 43,887,192 Accumulated net investment income 882,172 Net assets applicable to common shares $548,053,890 Net asset value per common share Based on 21,059,736 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value $26.02 See notes to financial statements. 12 FINANCIAL STATEMENTS OPERATIONS For the year ended July 31, 2005 This Statement of Operations summarizes the Fund's investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated. Investment income Dividends $46,808,399 Interest 8,192,636 Total investment income 55,001,035 Expenses Investment management fees 5,962,695 APS auction fees 731,887 Miscellaneous 204,742 Accounting and legal services fees 186,277 Custodian fees 130,432 Printing fees 92,356 Professional fees 54,880 Trustees' fees 52,137 Transfer agent fees 36,319 Registration and filing fees 23,767 Total expenses 7,475,492 Less expense reductions (1,590,052) Net expenses 5,885,440 Net investment income 49,115,595 Realized and unrealized gain (loss) Net realized gain (loss) on Investments 6,698,125 Financial futures contracts (4,216,122) Swap contracts (50,972) Change in net unrealized appreciation (depreciation) of Investments 19,208,029 Financial futures contracts 2,384,379 Swap contracts 272,799 Net realized and unrealized gain 24,296,238 Distributions to APS (6,222,877) Increase in net assets from operations $67,188,956 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 difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions. Year Year ended ended 7-31-04 7-31-05 Increase (decrease) in net assets From operations Net investment income $48,547,423 $49,115,595 Net realized gain 4,156,898 2,431,031 Change in net unrealized appreciation (depreciation) (7,447,283) 21,865,207 Distributions to APS (3,051,495) (6,222,877) Increase in net assets resulting from operations 42,205,543 67,188,956 Distributions to common shareholders From net investment income (45,472,348) (42,330,069) From net realized gain (4,579,007) -- (50,051,355) (42,330,069) From Fund share transactions 404,312 -- Net assets Beginning of period 530,636,503 523,195,003 End of period 1 $523,195,003 $548,053,890 1 Includes accumulated net investment income of $326,300 and $882,172, 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 7-31-04 7-31-05 Per share operating performance Net asset value, beginning of period $23.88 2 $25.22 $24.84 Net investment income 3 1.30 2.31 2.33 Net realized and unrealized gain (loss) on investments 1.55 (0.17) 1.16 Distributions to APS (0.08) (0.14) (0.30) Total from investment operations 2.77 2.00 3.19 Less distributions to common shareholders From net investment income (1.26) (2.16) (2.01) From net realized gain -- (0.22) -- (1.26) (2.38) (2.01) 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 $24.84 $26.02 Per share market value, end of period $24.51 $24.35 $23.67 Total return at market value 4,5 (%) 1.78 6,7 9.17 5.55 Ratios and supplemental data Net assets applicable to common shares, end of period (in millions) $531 $523 $548 Ratio of expenses to average net assets 8 (%) 1.01 9 1.07 1.09 Ratio of adjusted expenses to average net assets 10 (%) 1.28 9 1.37 1.38 Ratio of net investment income to average net assets 11 (%) 7.84 9 9.11 9.08 Portfolio turnover (%) 147 14 15 Senior securities Total value of APS outstanding (in millions) $254 $254 $254 Involuntary liquidation preference per unit (in thousands) $25 $25 $25 Average market value per unit (in thousands) $25 $25 $25 Asset coverage per unit 12 $78,821 $75,218 $78,290
See notes to financial statements. 15 Notes to Financial Highlights 1 Inception period from 11-29-02 through 7-31-03. 2 Reflects the deduction of a $1.125 per share sales load. 3 Based on the average of the shares outstanding. 4 Assumes dividend reinvestment. 5 Total returns would have been lower had certain expenses not been reduced during the periods shown. 6 Not annualized. 7 Assumes dividend reinvestment and 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. 8 Ratios calculated on the basis of expenses 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%, 0.73% and 0.74%, respectively. 9 Annualized. 10 Ratios calculated on the basis of expenses relative to the average net assets of common shares that do 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%, 0.93% and 0.94%, respectively. 11 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%, 6.17% and 6.18%, respectively. 12 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. See notes to financial statements. 16 NOTES TO STATEMENTS 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 which have a remaining maturity of 60 days or less may be 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 the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be 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. 17 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 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 July 31, 2005, the Fund had deposited $600,000 in a segregated account to cover margin requirements on open financial futures contracts. The Fund had the following financial futures contracts open on July 31, 2005: NUMBER OF OPEN CONTRACTS CONTRACTS POSITION EXPIRATION APPRECIATION - ------------------------------------------------------------------------------ U.S. 10-year Treasury Note 239 Short Sep 05 $69,085 U.S. 10-year Treasury Note 240 Short Sep 05 77,069 U.S. 10-year Treasury Note 241 Short Sep 05 88,688 U.S. 10-year Treasury Note 80 Short Sep 05 240,690 $475,532 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. 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. Accrued interest receivable or payable on the swap contracts is recorded as realized gain (loss). 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 July 31, 2005: RATE TYPE ----------------------------- PAYMENTS NOTIONAL PAYMENTS MADE RECEIVED TERMINATION AMOUNT BY FUND BY FUND DATE APPRECIATION - ------------------------------------------------------------------------------ $63,500,000 2.56% (a) 3-month LIBOR June 08 $3,188,479 (a) Fixed rate 18 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 iden tifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. The Fund records distributions to shareholders from net investment income and net realized gain on the ex-dividend date. During the year ended July 31, 2004, the tax character of distributions paid was as follows: ordinary income $52,089,473 and long-term capital gains $1,013,377. During the year ended July 31, 2005, the tax character of distributions paid was as follows: ordinary income $48,552,946. As of July 31, 2005, the components of distributable earnings on a tax basis included $1,597,877 of undistributed ordinary income and $4,235,205 of undistributed long-term gain. Such distributions and distributable earnings, 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, LLC (the "Adviser"), a wholly owned subsidiary of the John Hancock Financial Services, Inc. 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 (collectively "managed assets"). The Adviser has contractually agreed to limit the Fund's management fee, on an annual basis, 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 expense reductions related to the reduction in manage ment fees amounted to $1,590,052 for the year ended July 31, 2005. 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 year amounted to $186,277. The Fund also paid the Adviser the amount of $7 for certain publishing services, included in the printing fees and the amount of $11,982 for certain compliance costs, included in the miscellaneous expenses. 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 19 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. The Fund is listed for trading on the New York Stock Exchange ("NYSE") and has filed with the NYSE its chief executive officer certification regarding compliance with the NYSE's listing standards. The Fund also files with the Securities and Exchange Commission the certification of its chief executive officer and chief accounting officer required by Section 302 of the Sarbanes-Oxley Act. Note C Fund share transactions Common shares This listing illustrates the Fund's distributions reinvested, reclassification of the Fund's capital accounts and the number of common shares outstanding at the beginning and end of the last two periods, along with the corresponding dollar value.
Year ended 7-31-04 Year ended 7-31-05 Shares Amount Shares Amount Beginning of period 21,044,196 $498,485,121 21,059,736 $498,945,163 Distributions reinvested 15,540 404,312 -- -- Reclassification of capital accounts -- 55,730 -- (13,139) End of period 21,059,736 $498,945,163 21,059,736 $498,932,024
Auction preferred shares The Fund issued 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, 2032 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 $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 Series W, which reset its rate on July 28, 2005, at which time the Fund elected a Special Dividend Payment of 182 days for the subsequent distributions). During the year ended July 31, 2005, dividend rates on APS ranged as follows: Series M ranged from 1.20% to 3.25%, Series T from 1.50% to 3.50%, Series W from 2.05% to 3.90%, Series TH from 1.25% to 3.40% and Series F from 1.55% to 3.45%. Accrued dividends on APS are included in the value of 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 20 respect to the APS as defined in the Fund's by-laws. If the dividends on the APS shall remain unpaid in 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 shareholders. 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 year ended July 31, 2005, aggregated $148,267,070 and $118,197,626, respectively. The cost of investments owned on July 31, 2005, including short-term investments, for federal income tax purposes was $756,430,482. Gross unrealized appreciation and depreciation of investments aggregated $50,530,125 and $10,483,927, respectively, resulting in net unrealized appreciation of $40,046,198. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to the tax deferral of losses on amortization of premiums on debt securities and financial future contracts. Note E Reclassification of accounts During the year ended July 31, 2005, the Fund reclassified amounts to reflect an increase in accumulated net realized gain on investments of $19,916, a decrease in accumulated net investment income of $6,777 and a decrease in capital paid-in of $13,139. This represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of July 31, 2005. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to certain differences in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America, book and tax differences in accounting for deferred compensation, non-deductible organizational costs, amortization of premium and swap contracts. The calculation of net investment income per share in the Fund's Financial Highlights excludes these adjustments. Change in Independent Auditor (unaudited) Based on the recommendation of the Audit Committee of the Fund, the Board of Trustees has determined not to retain Deloitte & Touche LLP as the Fund's Independent Registered Public Accounting Firm and voted to appoint PricewaterhouseCoopers LLP for the fiscal year ending July 31, 2006. During the two most recent fiscal years, Deloitte & Touche LLP's audit reports contained no adverse opinion or disclaimer of opinion; nor were their reports qualified as to uncertainty, audit scope or accounting principles. Further, there were no disagreements between the Fund and Deloitte & Touche LLP on accounting principles, financial statements disclosures or audit scope, which, if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused them to make reference to the disagreement in their reports. 21 AUDITORS' REPORT Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm To the Board of Trustees and Shareholders of John Hancock Preferred Income Fund II, We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of John Hancock Preferred Income Fund II (the "Fund"), including the schedule of investments as of July 31, 2005, and the related statement of operations for the year then ended, and the statements of changes in net assets for the years ended July 31, 2004 and 2005 and the the financial highlights for each of the years in the two-year period ended July 31, 2005 and from the period from November 29, 2002 through July 31, 2003. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned at July 31, 2005, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of July 31, 2005, and the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Boston, Massachusetts September 12, 2005 22 TAX INFORMATION Unaudited For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended July 31, 2005. With respect to the long-term dividends paid by the Fund for the fiscal year ended July 31, 2005, 35.44% of the dividends qualify for the corporate dividends-received deduction. The Fund hereby designates the maximum amount allowable of its net taxable income as qualified dividend income as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003. This amount will be reflected on Form 1099-DIV for the calendar year 2005. Shareholders will be mailed a 2005 U.S. Treasury Department Form 1099-DIV in January 2006. This will reflect the total of all distributions that are taxable for calendar year 2005. 23 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. By-laws On December 16, 2003, the Trustees approved the following change to the Fund's by-laws. The auction preferred shares section of the Fund's by-laws was changed to update the rating agency requirements in keeping with recent changes to the agencies' basic maintenance reporting requirements for leveraged closed-end funds. By-laws now require an independent accountant's confirmation only once per year, at the Fund's fiscal year end, and changes to the agencies' basic maintenance reporting requirements that include modifications to the eligible assets and their respective discount factors. These revisions bring the Fund's by-laws in line with current rating agency requirements. On September 14, 2004, the Trustees approved an amendment to the Fund's by-laws increasing the maximum ap plicable dividend rate ceiling on the preferred shares to con form with the modern calculation methodology used by the industry and other John Hancock funds. Dividends and distributions During the year ended July 31, 2005, dividends from net investment income totaling $2.010 per share were paid to shareholders. The dates of payments and the amounts per share are as follows: INCOME PAYMENT DATE DIVIDEND - --------------------------------- September 1, 2004 $0.180 October 1, 2004 0.180 November 1, 2004 0.180 December 1, 2004 0.180 December 31, 2004 0.180 February 1, 2005 0.180 March 1, 2005 0.155 April 1, 2005 0.155 May 2, 2005 0.155 June 1, 2005 0.155 June 30, 2005 0.155 July 29, 2005 0.155 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. 24 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 participants' 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 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 25 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). 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. Shareholder meeting (unaudited) On March 7, 2005, the Annual Meeting of the Fund was held to elect five Trustees and to ratify the actions of the Trustees in selecting independent auditors for the Fund. Proxies covering 20,554,644 shares of beneficial interest were voted at the meeting. The common shareholders elected the following Trustees to serve until their respective successors are duly elected and qualified, with the votes for each Trustee tabulated as follows: WITHHELD FOR AUTHORITY - --------------------------------------------------------- James F. Carlin 20,376,783 168,058 William H. Cunningham 20,377,228 167,613 Richard P. Chapman, Jr. 20,372,754 172,087 James A. Shepherdson* 20,381,471 163,370 * Mr. James A. Shepherdson resigned effective July 15, 2005. The preferred shareholders elected Patti McGill Peterson to serve as the Fund's Trustee until her successor is duly elected and qualified, with the votes tabulated as follows: 9,780 FOR, 0 AGAINST, 23 ABSTAINING. The common and preferred shareholders ratified the Trustees' selection of Deloitte & Touche LLP as the Fund's independent auditor for the fiscal year ending July 31, 2005, with the votes tabulated as follows: 20,361,952 FOR, 81,414 AGAINST and 111,278 ABSTAINING. 26 Board Consideration of and Continuation of Investment Advisory Agreement: John Hancock Preferred Income Fund II Section 15(c) of the Investment Company Act of 1940 (the "1940 Act") requires the Board of Trustees (the "Board") of John Hancock Preferred Income Fund II (the "Fund"), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not "interested persons" of the Fund, as defined in the 1940 Act (the "Independent Trustees"), annually to review and consider the continuation of the investment advisory agreement (the "Advisory Agreement") with John Hancock Advisers, LLC (the "Adviser") for the Fund. At meetings held on May 19-20 and June 6-7, 2005, the Board, including the Independent Trustees, considered the factors and reached the conclusions described below relating to the selection of the Adviser and the continuation of the Advisory Agreement. During such meetings, the Board's Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel. In evaluating the Advisory Agreement, the Board, including the Contracts/Operations Committee and the Independent Trustees, reviewed a broad range of information requested for this purpose by the Independent Trustees, including but not limited to the following: (i) the investment performance of the Fund and a broader universe of relevant funds (the "Universe") selected by Lipper Inc. ("Lipper"), an independent provider of investment company data, for a range of periods, (ii) advisory and other fees incurred by, and the expense ratios of, the Fund and a peer group of comparable funds selected by Lipper (the "Peer Group"), (iii) the advisory fees of comparable portfolios of other clients of the Adviser, (iv) the Adviser's financial results and condition, including its and certain of its affiliates' profitability from services performed for the Fund, (v) breakpoints in the Fund's and the Peer Group's fees and a study undertaken at the direction of the Independent Trustees as to the allocation of the benefits of economies of scale between the Fund and the Adviser, (vi) the Adviser's record of compliance with applicable laws and regulations, with the Fund's investment policies and restrictions, and with the Fund's Code of Ethics and the structure and responsibilities of the Adviser's compliance department, (vii) the background and experience of senior management and investment professionals, and (viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates. Nature, Extent and Quality of Services The Board considered the ability of the Adviser, based on its resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board further considered the compliance programs and compliance records of the Adviser. In addition, the Board took into account the administrative services provided to the Fund by the Adviser and its affiliates. Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser were sufficient to support renewal of the Advisory Agreement. Fund Performance The Board noted that the Fund had less than three full years of operational history, and considered the performance results for the Fund reported by Lipper through December 31, 2004. The 27 Board also considered these results in comparison to the performance of the Universe, as well as the Fund's benchmark indices. Lipper determined the Universe for the Fund. The Board reviewed with a repre sentative of Lipper the methodology used by Lipper to select the funds in the Universe and the Peer Group. The Board noted that the performance of the Fund was not appreciably below the median and average performance of its Universe for the time period under review. The Board also noted that the Fund performed lower than its benchmark index, the Lipper Closed-End Income and Preferred Funds Index, as did the Universe. The Board recognized the relatively short operational history of the Fund and indicated its intent to continue to monitor the Fund's performance trends. Investment Advisory Fee Rates and Expenses The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the "Advisory Agreement Rate"). In addition, the Board reviewed and considered the existing fee waiver/limit arrangements applicable to the Advisory Agreement Rate and considered the Advisory Agreement Rate after taking the waivers/limits into account (the "Net Advisory Rate"). The Board received and considered information comparing the Advisory Agreement Rate and the Net Advisory Rate with fees for the Peer Group. The Board noted that the Advisory Agreement Rate was near the mid-range of other funds in the Peer Group, but noted that the Peer Group included very few funds. The Board also noted that the Net Advisory Rate was lower than the median rate of the Peer Group. The Board concluded that the Advisory Agreement Rate and the Net Advisory Rate were reasonable in relation to the services provided. The Board received and considered information regarding the Fund's total operating expense ratio and its various components, including contractual advisory fees, actual advisory fees, non-management fees, transfer agent fees and custodian fees, including and excluding investment-related expenses. The Board also considered comparisons of these expenses to the Peer Group and the Universe. The Board noted that the total operating expense ratio of the Fund was lower than the Peer Group's and Universe's median total operating expense ratio. The Adviser also discussed the Lipper data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund's overall expense results and performance supported the re-approval of the Advisory Agreement. Profitability The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable. Economies of Scale The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund's ability to appropriately benefit from economies of scale under the Fund's fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board's understanding that most of the Adviser's costs are not specific to individual Funds, but rather are incurred across a variety of products and services. The Board observed that the Advisory Agreement did not offer breakpoints. However, the Board considered the 28 limited relevance of economies of scale in the context of a closed-end fund that, unlike an open-end fund, does not continuously offer its shares, and concluded that the fees were fair and equitable based on relevant factors, including the Fund's total expenses ranking relative to its Peer Group. Information About Services to Other Clients The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser to its other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate was not unreasonable, taking into account fee rates offered to others by the Adviser and giving effect to differences in services covered by such fee rates. Other Benefits to the Adviser The Board received information regarding potential "fall-out" or ancillary benefits received by the Adviser and its affiliates as a result of the Adviser's relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser with the Fund and benefits potentially derived from an increase in the business of the Adviser as a result of its relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates). The Board also considered the effectiveness of the Adviser's and the Fund's policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation. Other Factors and Broader Review As discussed above, the Board reviewed detailed materials received from the Adviser as part of the annual re-approval process under Section 15(c) of the 1940 Act. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, a detailed portfolio review, detailed fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year. After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreement for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreement. 29 TRUSTEES & OFFICERS This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees.
Independent Trustees Name, age Number of Position(s) held with Fund Trustee John Hancock Principal occupation(s) and other of Fund funds overseen directorships during past 5 years since 1 by Trustee Charles L. Ladner, 2 Born: 1938 2002 51 Independent Chairman (since 2004); Chairman and Trustee, Dunwoody Village, Inc. (retirement services) (until 2003); Senior Vice President and Chief Financial Officer, UGI Corporation (public utility holding company) (retired 1998); Vice President and Director for AmeriGas, Inc. (retired 1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution); Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association (since 2001). James F. Carlin, Born: 1940 2002 51 Director and Treasurer, Alpha Analytical Inc. (analytical laboratory) (since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc. (since 1996); Director and Treasurer, Rizzo Associates (engineering) (until 2000); Chairman and CEO, Carlin Consolidated, Inc. (management/investments) (since 1987); Director and Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee, Massachusetts Health and Education Tax Exempt Trust (since 1993); Director of the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance) (until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until 1999), Carlin Insurance Agency, Inc. (until 1999); Chairman, Massachusetts Board of Higher Education (until 1999). Richard P. Chapman, Jr., 2 Born: 1935 2005 51 President and Chief Executive Officer, Brookline Bancorp Inc. (lending) (since 1972); Director, Lumber Insurance Co. (insurance) (until 2000); Chairman and Director, Northeast Retirement Services, Inc. (retirement administration) (since 1998). William H. Cunningham, Born: 1944 2002 51 Former Chancellor, University of Texas System and former President of the University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies (until 2001); Director of the following: The University of Texas Investment Management Company (until 2000), Hire.com (until 2004), STC Broadcasting, Inc. and Sunrise Television Corp. (electronic manufacturing) (until 2001), Symtx, Inc. (electronic manufacturing) (since 2001), Adorno/Rogers Technology, Inc. (until 2004), Pinnacle Foods Corporation (until 2003), rateGenius (Internet 30 Independent Trustees (continued) Name, age Number of Position(s) held with Fund Trustee John Hancock Principal occupation(s) and other of Fund funds overseen directorships during past 5 years since 1 by Trustee William H. Cunningham, Born: 1944 (continued) 2002 51 service) (until 2003), Jefferson-Pilot Corporation (diversified life insurance company) (since 1985), New Century Equity Holdings (formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures (until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc. (until 2000), Metamor Worldwide (until 2000), AskRed.com (until 2001), Southwest Airlines (since 2000) and Introgen (since 2000); Advisory Director, Q Investments (until 2003); Advisory Director, Chase Bank (formerly Texas Commerce Bank -- Austin) (since 1988), LIN Television (since 2002), WilTel Communications (until 2003) and Hayes Lemmerz International, Inc. (diversified automotive parts supply company) (since 2003). Ronald R. Dion, Born: 1946 2002 51 Chairman and Chief Executive Officer, R.M. Bradley & Co., Inc.; Director, The New England Council and Massachusetts Roundtable; Trustee, North Shore Medical Center; Director, Boston Stock Exchange; Director, BJ's Wholesale Club, Inc. and a corporator of the Eastern Bank; Trustee, Emmanuel College; Director, Boston Municipal Research Bureau; Member of the Advisory Board, Carroll Graduate School of Management at Boston College. John A. Moore, 2 Born: 1939 2002 51 President and Chief Executive Officer, Institute for Evaluating Health Risks, (nonprofit institution) (until 2001); Chief Scientist, Sciences International (health research) (until 2003); Principal, Hollyhouse (consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002). Patti McGill Peterson, 2 Born: 1943 2002 51 Executive Director, Council for International Exchange of Scholars and Vice President, Institute of International Education (since 1998); Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until 1998); Former President of Wells College and St. Lawrence University; Director, Niagara Mohawk Power Corporation (until 2003); Director, Ford Foundation, International Fellowships Program (since 2002); Director, Lois Roth Endowment (since 2002); Director, Council for International Educational Exchange (since 2003). Steven R. Pruchansky, Born: 1944 2002 51 Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, Inc. (since 2000); Director and President, Greenscapes of Southwest Florida, Inc. (until 2000); Managing Director, JonJames, LLC (real estate) (since 2001); Director, First Signature Bank & Trust Company (until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). 31 Principal officers who are not Trustees Name, age Position(s) held with Fund Officer Principal occupation(s) and of Fund directorships during past 5 years since Keith F. Hartstein, Born: 1956 2005 President and Chief Executive Officer Senior Vice President, Manulife Financial Corporation (since 2004); Director, President and Chief Executive Officer, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group") (holding company); Director, President and Chief Executive Officer, John Hancock Funds, LLC. ("John Hancock Funds"); Director, President and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, John Hancock Signature Services, Inc.; President, John Hancock Trust; Chairman and President, NM Capital Management, Inc. (NM Capital) (since 2005); Chairman, Investment Company Institute Sales Force Marketing Committee (since 2003); Executive Vice President, John Hancock Funds, LLC (until 2005). William H. King, Born: 1952 2002 Vice President and Treasurer Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). Francis V. Knox, Jr., Born: 1947 2005 Vice President and Chief Compliance Officer Vice President and Chief Compliance Officer for John Hancock Investment Company, John Hancock Life Insurance Company (U.S.A.), John Hancock Life Insurance Company and John Hancock Funds (since 2005); Fidelity Investments -- Vice President and Assistant Treasurer, Fidelity Group of Funds (until 2004); Fidelity Investments -- Vice President and Ethics & Compliance Officer (until 2001).
The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805. The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291. 1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit Committee. 32 For more information The Fund's proxy voting policies, procedures and records are available without charge, upon request: By phone On the Fund's Web site On the SEC's Web site 1-800-225-5291 www.jhfunds.com/proxy www.sec.gov Investment adviser John Hancock Advisers, LLC 601 Congress Street Boston, MA 02210-2805 Custodian The Bank of New York One Wall Street New York, NY 10286 Transfer agent and dividend disburser Mellon Investor Services 85 Challenger Road Overpeck Centre Ridgefield Park, NJ 07660 Transfer agent for APS Deutsche Bank Trust Company Americas 280 Park Avenue New York, NY 10017 Legal counsel Wilmer Cutler Pickering Hale and Dorr LLP 60 State Street Boston, MA 02109-1803 Independent registered public accounting firm Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116-5022 Stock symbol Listed New York Stock Exchange: HPF For shareholder assistance refer to page 26 How to contact us Internet www.jhfunds.com Mail Regular mail: Mellon Investor Services 85 Challenger Road Overpeck Centre Ridgefield Park, NJ 07660 Phone 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 A listing of month-end portfolio holdings is available on our Web site, www.jhfunds.com. A more detailed portfolio holdings summary is available on a quarterly basis 60 days after the fiscal quarter on our Web site or upon request by calling 1-800-225-5291, or on the Securities and Exchange Commission's Web site, www.sec.gov. 33 [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 1-800-843-0090 EASI-Line 1-800-231-5469 (TDD) www.jhfunds.com PRESORTED STANDARD U. S. POSTAGE PAID MIS P110A 7/05 9/05 ITEM 2. CODE OF ETHICS. As of the end of the period, July 31, 2005, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief Executive Officer, Chief Financial Officer and Treasurer (respectively, the principal executive officer, the principal financial officer and the principal accounting officer, the "Senior Financial Officers"). A copy of the code of ethics is filed as an exhibit to this Form N-CSR. The code of ethics was amended effective February 1, 2005 to address new Rule 204A-1 under the Investment Advisers Act of 1940 and to make other related changes. The most significant amendments were: (a) Broadening of the General Principles of the code to cover compliance with all federal securities laws. (b) Eliminating the interim requirements (since the first quarter of 2004) for access persons to preclear their personal trades of John Hancock mutual funds. This was replaced by post-trade reporting and a 30 day hold requirement for all employees. (c) A new requirement for "heightened preclearance" with investment supervisors by any access person trading in a personal position worth $100,000 or more. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Charles L. Ladner is the audit committee financial expert and is "independent", pursuant to general instructions on Form N-CSR Item 3. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees The aggregate fees billed for professional services rendered by the principal accountant(s) for the audit of the registrant's annual financial statements or services that are normally provided by the accountant(s) in connection with statutory and regulatory filings or engagements amounted to $32,850 for the fiscal year ended July 31, 2004 and $34,500 for the fiscal year ended July 31, 2005. These fees were billed to the registrant and were approved by the registrant's audit committee. (b) Audit-Related Services There were no audit-related fees during the fiscal year ended July 31, 2004 and fiscal year ended July 31, 2005 billed to the registrant or to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant ("control affiliates"). (c) Tax Fees The aggregate fees billed for professional services rendered by the principal accountant(s) for the tax compliance, tax advice and tax planning ("tax fees") amounted to $2,250 for the fiscal year ended July 31, 2004 and $2,400 for the fiscal year ended July 31, 2005. The nature of the services comprising the tax fees was the review of the registrant's income tax returns and tax distribution requirements. These fees were billed to the registrant and were approved by the registrant's audit committee. There were no tax fees billed to the control affiliates. (d) All Other Fees The all other fees billed to the registrant for products and services provided by the principal accountant were $4,000 for the fiscal year ended July 31, 2004 and $4,000 for the fiscal year ended July 31, 2005. There were no other fees during the fiscal year ended July 31, 2004 and July 31, 2005 billed to control affiliates for products and services provided by the principal accountant. The nature of the services comprising the all other fees was related to the principal accountant's report on the registrant's Eligible Asset Coverage. These fees were approved by the registrant's audit committee. (e)(1) See attachment "Approval of Audit, Audit-related, Tax and Other Services", with the audit committee pre-approval policies and procedures. (e)(2) There were no fees that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended July 31, 2004 and July 31, 2005 on behalf of the registrant or on behalf of the control affiliates that relate directly to the operations and financial reporting of the registrant. (f) According to the registrant's principal accountant, for the fiscal year ended July 31, 2005, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who were not full-time, permanent employees of principal accountant was less than 50%. (g) The aggregate non-audit fees billed by the registrant's accountant(s) for services rendered to the registrant and rendered to the registrant's control affiliates for each of the last two fiscal years of the registrant were $24,550.00 for the fiscal year ended July 31, 2004, and $71,400 for the fiscal year ended July 31, 2005. (h) The audit committee of the registrant has considered the non-audit services provided by the registrant's principal accountant(s) to the control affiliates and has determined that the services that were not pre-approved are compatible with maintaining the principal accountant(s)' independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. The registrant has a separately-designated standing audit committee comprised of independent trustees. The members of the audit committee are as follows: Charles L. Ladner - Chairman Richard P. Chapman, Jr. Dr. John A. Moore Patti McGill Peterson ITEM 6. SCHEDULE OF INVESTMENTS. Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. See attached Exhibit "Proxy Voting Policies and Procedures". ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The registrant has adopted procedures by which shareholders may recommend nominees to the registrant's Board of Trustees. A copy of the procedures is filed as an exhibit to this Form N-CSR. See attached "John Hancock Funds - Administration Committee Charter". ITEM 11. 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 12. EXHIBITS. (a)(1) Code of Ethics for Senior Financial Officers is attached. (a)(2) 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) Proxy Voting Policies and Procedures are attached. (c)(2) Submission of Matters to a Vote of Security Holders is attached. See attached "John Hancock Funds - Administration Committee Charter". (c)(3) Approval of Audit, Audit-related, Tax and Other Services is attached. (c)(4) 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. John Hancock Preferred Income Fund II By: /s/ Keith F. Hartstein ------------------------------------- Keith F. Hartstein President and Chief Executive Officer Date: September 30, 2005 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: /s/ Keith F. Hartstein ------------------------------------- Keith F. Hartstein President and Chief Executive Officer Date: September 30, 2005 By: /s/ John G. Vrysen ------------------------------------- John G. Vrysen Executive Vice President and Chief Financial Officer Date: September 30, 2005 EX-99.CERT 2 exnncert2.txt CERTIFICATION CERTIFICATION I, Keith F. Hartstein, certify that: 1. I have reviewed this report on Form N-CSR of the John Hancock Preferred Income Fund II (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change 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 has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 30, 2005 /s/ Keith F. Hartstein - ------------------------------------- Keith F. Hartstein President and Chief Executive Officer CERTIFICATION I, John G. Vrysen, certify that: 1. I have reviewed this report on Form N-CSR of the John Hancock Preferred Income Fund II (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change 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 has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 30, 2005 /s/ John G. Vrysen - ------------------------------------- John G. Vrysen Executive Vice President and Chief Financial Officer EX-99.906 CERT 3 exnnos3.txt CERTIFICATION 906 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the attached Report of John Hancock Preferred Income Fund II (the "registrant") on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the registrant does hereby certify that, to the best of such officer's knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. /s/ Keith F. Hartstein - ------------------------------ Keith F. Hartstein President and Chief Executive Officer Dated: September 30, 2005 /s/ John G. Vrysen - ------------------------------ John G. Vrysen Executive Vice President and Chief Financial Officer Dated: September 30, 2005 A signed original of this written statement, required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.CODE ETH 4 exnncodeth4.txt CODE OF ETHICS Owner: Frank Knox Administrator: Frank Knox Last Revision Date: 04/05 Next Revision Date: 05/06 May 1, 2005 This is the code of ethics of: o John Hancock Advisers, LLC o Sovereign Asset Management Co. o each open-end and closed-end fund advised by John Hancock Advisers, LLC o John Hancock Funds, LLC (together, called "John Hancock Funds") 1. General Principles Each person within the John Hancock Funds organization is responsible for maintaining the very highest ethical standards when conducting our business. This means that: o You have a fiduciary duty at all times to place the interests of our clients and fund investors first. o All of your personal securities transactions must be conducted consistent with the provisions of this code of ethics that apply to you and in such a manner as to avoid any actual or potential conflict of interest or other abuse of your position of trust and responsibility. o You should not take inappropriate advantage of your position or engage in any fraudulent or manipulative practice (such as front-running or manipulative market timing) with respect to our clients' accounts or fund investors. o You must treat as confidential any information concerning the identity of security holdings and financial circumstances of clients or fund investors. o You must comply with all applicable federal securities laws. o You must promptly report any violation of this code of ethics that comes to your attention to the Chief Compliance Officer of your company. The General Principles discussed above govern all conduct, whether or not the conduct is also covered by more specific standards and procedures in this code of ethics. As described below under the heading "Interpretation and Enforcement", failure to comply with the code of ethics may result in disciplinary action, including termination of employment. 2. To Whom Does This Code Apply? This code of ethics applies to you if you are a trustee/director, officer or employee of John Hancock Advisers, LLC, Sovereign Asset Management Co., John Hancock Funds, LLC or a "John Hancock fund" (any fund advised by John Hancock Advisers, LLC or Sovereign Asset Management Co.). It also applies to you if you are an employee of John Hancock Life Insurance Co. or its subsidiaries who participates in making recommendations for, or receives information about, portfolio trades or holdings of the John Hancock funds or accounts. In some cases only a limited number of provisions will apply to you, based on your access category. For example, only a limited number of provisions apply to independent trustees/directors of the John Hancock mutual funds and closed-end funds-see Appendix C for more information. Please note that if a policy described below applies to you, it also applies all accounts over which you have a beneficial interest. Normally, you will be deemed to have a beneficial interest in your personal accounts, those of a spouse, "significant other," minor children or family members sharing a household, as well as all accounts over which you have discretion or give advice or information. "Significant others" are defined for these purposes as two people who (1) share the same primary residence; (2) share living expenses; and (3) are in a committed relationship and intend to remain in the relationship indefinitely. There are three main categories for persons covered by this code of ethics, taking into account their positions, duties and access to information regarding fund portfolio trades. You have been notified about which of these categories applies to you, based on the Investment Compliance Department's understanding of your current role. If you have a level of investment access beyond your assigned category, or if you are promoted or change duties and as a result should more appropriately be included in a different category, it is your responsibility to notify the Chief Compliance Officer of your company. The basic definitions of the three main categories, with examples, are provided below. The more detailed definitions of each category are attached as Appendix A. - --------------------------------------- -------------------------------------- -------------------------------------- "Investment Access" person "Regular Access" person "Non-Access" person A person who regularly participates A person who regularly has A person who does not regularly in a fund's investment process or access to (1) fund portfolio participate in a fund's investment makes securities recommendations trades or (2) non-public process or obtain information to clients. information regarding holdings or regarding fund portfolio trades. or securities recommendations to clients. examples: examples: examples: - --------- --------- --------- o portfolio managers o personnel in Investment o wholesalers o analysts Operations or Compliance o inside wholesalers who o traders o most FFM personnel don't attend investment o Technology personnel with "morning meetings" access to investment systems o certain administrative o attorneys and some legal personnel administration personnel o investment admin. personnel - --------------------------------------- -------------------------------------- --------------------------------------
3. Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions? If this code of ethics describes "Personal Trading Requirements" (i.e. John Hancock Mutual Fund reporting requirement and holding period, the preclearance requirement, the ban on short-term profits, the ban on IPOs, the disclosure of private placement conflicts and the reporting requirements) that apply to your access category as described above, then the requirements apply to trades for any account over which you have a beneficial interest. Normally, this includes your personal accounts, those of a spouse, "significant other," minor children or family members sharing your household, as well as all accounts over which you have discretion or give advice or information. This includes all brokerage accounts that contain securities (including brokerage accounts that only contain securities exempt from reporting). Accounts over which you have no direct or indirect influence or control are exempt. To prevent potential violations of this code of ethics, you are strongly encouraged to request clarification for any accounts that are in question. These personal trading requirements do not apply to the following securities: o Direct obligations of the U.S. government (e.g., treasury securities); o Bankers' acceptances, bank certificates of deposit, commercial paper, and high quality short-term debt obligations, including repurchase agreements; o Shares of open-end mutual funds that are not advised or sub-advised by John Hancock Advisers or by John Hancock or Manulife entities; o Shares issued by money market funds; and o Securities in accounts over which you have no direct or indirect influence or control. Except as noted above, the Personal Trading Requirements apply to all securities, including: o stocks or bonds; o government securities that are not direct obligations of the U.S. government, such as Fannie Mae or municipal securities; o Shares of all closed-end funds; o Options on securities, on indexes, and on currencies; o All kinds of limited partnerships; o Foreign unit trusts and foreign mutual funds; o Private investment funds and hedge funds; and o Futures, investment contracts or any other instrument that is considered a "security" under the Investment Advisers Act. Different requirements apply to shares of open-end mutual funds that are advised or sub-advised by John Hancock Advisers or by John Hancock or Manulife entities-see the section below titled "John Hancock Mutual Funds Reporting Requirement and Holding Period". 4. Overview of Policies - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Investment Regular Access Non-Access Access Person Person Person - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- General principles yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Policies outside the code - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Conflict of interest policy yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Inside information policy yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Policy regarding dissemination of mutual fund portfolio information yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Policies in the code - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Restriction on gifts yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- John Hancock mutual funds reporting requirement and holding period yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Pre-clearance requirement yes yes Limited - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Heightened preclearance of securities transactions for "Significant Personal Positions" yes yes no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Ban on short-term profits yes no no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Ban on IPOs yes no no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Disclosure of private placement conflicts yes no no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Seven day blackout period yes no no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Reports and other disclosures outside the code - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Broker letter/duplicate confirms yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Reports and other disclosures in the code - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Annual recertification form yes yes yes - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Initial/annual holdings reports yes yes no - ------------------------------------------------------ ---------------------- ---------------------- ---------------------- Quarterly transaction reports yes yes no - ------------------------------------------------------ ---------------------- ---------------------- ----------------------
5. Policies Outside the Code of Ethics John Hancock Funds has certain policies that are not part of the code of ethics, but are equally important. The two most important of these policies are (1) the Company Conflict and Business Practice Policy; and (2) the Inside Information Policy. >> Company Conflict & Business Practice Policy - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- A conflict of interest occurs when your private interests interfere or could potentially interfere with your responsibilities at work. You must not place yourself or the company in a position of actual or potential conflict. This Policy for officers and employees covers a number of important issues. For example, you cannot serve as a director of any company without first obtaining the required written executive approval. This Policy includes significant requirements to be followed if your personal securities holdings overlap with John Hancock Funds investment activity. For example, if you or a member of your family own: o a 5% or greater interest in a company, John Hancock Funds and its affiliates may not make any investment in that company; o a 1% or greater interest in a company, you cannot participate in any decision by John Hancock Funds and its affiliates to buy or sell that company's securities; o ANY interest in a company, you cannot recommend or participate in a decision by John Hancock Funds and its affiliates to buy or sell that company's securities unless your personal interest is fully disclosed at all stages of the investment decision. (This is just a summary of these requirements -- please read Section IV of the Company Conflict and Business Practices Policy for more detailed information.) Other important issues in this Policy include: o personal investments or business relationships o misuse of inside information o receiving or giving of gifts, entertainment or favors o misuse or misrepresentation of your corporate position o disclosure of confidential or proprietary information o antitrust activities o political campaign contributions and expenditures on public officials >> Inside Information Policy and Procedures - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- The antifraud provisions of the federal securities laws generally prohibit persons with material non-public information from trading on or communicating the information to others. Sanctions for violations can include civil injunctions, permanent bars from the securities industry, civil penalties up to three times the profits made or losses avoided, criminal fines and jail sentences. While Investment Access persons are most likely to come in contact with material non-public information, the rules (and sanctions) in this area apply to all John Hancock Funds personnel and extend to activities both related and unrelated to your job duties. The Inside Information Policy and Procedures covers a number of important issues, such as: o The misuse of material non-public information o The information barrier procedure o The "restricted list" and the "watch list" o broker letters and duplicate confirmation statements (see section 7 of this code of ethics) >> Policy Regarding Dissemination of Mutual Fund Portfolio Information - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- Information about securities held in a mutual fund cannot be disclosed except in accordance with this Policy, which generally requires time delays of approximately one month and public posting of the information to ensure that it uniformly enters the public domain. 6. Policies in the Code of Ethics >> Restriction on Gifts - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- You and your family cannot accept preferential treatment or favors (for example, gifts) from securities brokers or dealers or other organizations with which John Hancock Funds might transact business, except in accordance with the Company Conflict and Business Practice Policy. For the protection of both you and John Hancock Funds, the appearance of a possible conflict of interest must be avoided. You should exercise caution in any instance in which business travel and lodging are paid for by someone other than John Hancock Funds. The purpose of this policy is to minimize the basis for any charge that you used your John Hancock Funds position to obtain for yourself opportunities which otherwise would not be offered to you. Please see the Company Conflict and Business Practice Policy's "Compensation and Gifts" section for additional details regarding restrictions on gifts and exceptions for "nominal value" gifts. >> John Hancock Mutual Funds Reporting Requirement and Holding Period - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- You must follow the reporting requirement and the holding period requirement specified below if you purchase either: o a "John Hancock Mutual Fund" (i.e. a mutual fund that is advised by John Hancock Advisers or by John Hancock or Manulife entity); or o a "John Hancock Variable Product" (i.e. contacts funded by insurance company separate accounts that use one or more portfolios of Manufacturers Investment Trust or John Hancock Variable Series Trust). The John Hancock mutual funds reporting requirement and the holding period requirement are excluded for the money market funds and any dividend reinvestment, payroll deduction, systematic investment/withdrawal and other program trades. Reporting Requirement: You must report your holdings and your trades in a John Hancock Mutual Fund or a John Hancock Variable Product. This is not a preclearance requirement-you can report your holdings after you trade by submitting duplicate confirmation statements to the Investment Compliance Department. If you are an Investment Access Person or a Regular Access Person, you must also make sure that your holdings in a John Hancock Mutual Fund are included in your Initial Holdings Report (upon hire) and Annual Holdings Report (each year end). If you purchase a John Hancock Variable Product, you must notify the Investment Compliance Department. The Investment Compliance Department will then obtain directly from the contract administrators the personal trade and holdings information regarding the portfolios underlying the Manulife or John Hancock variable insurance contracts. The Investment Compliance Department will obtain personal securities trade and holdings information in the 401(k) plans for John Hancock Funds or John Hancock employees directly from the plan administrators. Holding Requirement: You cannot profit from the purchase and sale of a John Hancock Mutual Fund within 30 calendar days. The purpose of this policy is to address the risk, real or perceived, of manipulative market timing or other abusive practices involving short-term personal trading in the John Hancock Mutual Funds. Any profits realized on short-term trades must be surrendered by check payable to John Hancock Advisers, LLC and will be contributed by John Hancock Advisers, LLC to a charity, upon determination by the Compliance and Business Practices Committee. If you give away a security, it is considered a sale. You may request an exemption from this policy for involuntary sales due to unforeseen corporate activity (such as a merger), or for sales due to hardship reasons (such as unexpected medical expenses) by sending an e-mail to the Chief Compliance Officer of your company. >> Preclearance of Securities Transactions - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Also, for a limited category of trades: -------------------------- Non-Access Persons - ---------------------------------------- Limited Category of Trades for Non-Access Persons: If you are a Non-Access person, you must preclear transactions in securities of any closed-end funds advised by John Hancock Advisers, LLC. A Non-Access person is not required to preclear other trades. However, please keep in mind that a Non-Access person is required to report securities transactions after every trade (even those that are not required to be precleared) by requiring your broker to submit duplicate confirmation statements, as described in section 7 of this code of ethics. Investment Access persons and Regular Access persons: If you are an Investment Access person or Regular Access person, you must "preclear" (i.e.: receive advance approval of) any personal securities transactions in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". Due to this preclearance requirement, participation in investment clubs is prohibited. Preclearance of private placements requires some special considerations-the decision will take into account whether, for example: (1) the investment opportunity should be reserved for John Hancock Funds clients; and (2) it is being offered to you because of your position with John Hancock Funds. How to preclear: You preclear a trade by following the steps outlined in the preclearance procedures, which are attached as Appendix B. Please note that: o You may not trade until clearance is received. o Clearance approval is valid only for the date granted (i.e. the preclearance date and the trade date should be the same). o A separate procedure should be followed for requesting preclearance of a private placement or a derivative, as detailed in Appendix B. The Investment Compliance Department must maintain a five-year record of all clearances of private placement purchases by Investment Access persons, and the reasons supporting the clearances. The preclearance policy is designed to proactively identify possible "problem trades" that raise front-running, manipulative market timing or other conflict of interest concerns (example: when an Investment Access person trades a security on the same day as a John Hancock fund). >> Heightened Preclearance of Securities Transactions for "Significant Personal Positions" - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons - ---------------------------------------- If you are an Investment Access person or Regular Access person with a personal securities position that is worth $100,000 or more, this is deemed to be a "Significant Personal Position". This applies to any personal securities positions in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". Before you make personal trades to establish, increase or decrease a Significant Personal Position, you must notify either the Chief Fixed Income Officer or the Chief Equity Officer that (1) you intend to trade in a Significant Personal Position and (2) confirm that you are not aware of any clients for whom related trades should be completed first. You must receive their pre-approval to proceed--their approval will be based on their conclusion that your personal trade in a Significant Personal Position will not "front-run" any action that John Hancock Funds should take for a client. This Heightened Preclearance requirement is in addition to, not in place of, the regular preclearance requirement described above-you must also receive the regular preclearance before you trade. >> Ban on Short-Term Profits - ---------------------------------------- Applies to: Investment Access Persons - ---------------------------------------- If you are an Investment Access person, you cannot profit from the purchase and sale (or sale and purchase) of the same (or equivalent) securities within 60 calendar days. This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". You may invest in derivatives or sell short provided the transaction period exceeds the 60-day holding period. If you give away a security, it is considered a sale. The purpose of this policy is to address the risk, real or perceived, of front-running, manipulative market timing or other abusive practices involving short-term personal trading. Any profits realized on short-term trades must be surrendered by check payable to John Hancock Advisers, LLC and will be contributed by John Hancock Advisers, LLC to a charity, upon determination by the Compliance and Business Practices Committee. You may request an exemption from this policy for involuntary sales due to unforeseen corporate activity (such as a merger), or for sales due to hardship reasons (such as unexpected medical expenses) by sending an e-mail to the Chief Compliance Officer of your company. >> Ban on IPOs - ---------------------------------------- Applies to: Investment Access Persons - ---------------------------------------- If you are an Investment Access person, you may not acquire securities in an initial public offering (IPO). You may not purchase any newly-issued securities until the next business (trading) day after the offering date. This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". There are two main reasons for this prohibition: (1) these purchases may suggest that persons have taken inappropriate advantage of their positions for personal profit; and (2) these purchases may create at least the appearance that an investment opportunity that should have been available to the John Hancock funds was diverted to the personal benefit of an individual employee. You may request an exemption for certain investments that do not create a potential conflict of interest, such as: (1) securities of a mutual bank or mutual insurance company received as compensation in a demutualization and other similar non-voluntary stock acquisitions; (2) fixed rights offerings; or (3) a family member's participation as a form of employment compensation in their employer's IPO. >> Disclosure of Private Placement Conflicts - ---------------------------------------- Applies to: Investment Access Persons - ---------------------------------------- If you are an Investment Access person and you own securities purchased in a private placement, you must disclose that holding when you participate in a decision to purchase or sell that same issuer's securities for a John Hancock fund. This applies to any private placement holdings in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". Private placements are securities exempt from SEC registration under section 4(2), section 4(6) or rules 504 -506 of the Securities Act of 1933. The investment decision must be subject to an independent review by investment personnel with no personal interest in the issuer. The purpose of this policy is to provide appropriate scrutiny in situations in which there is a potential conflict of interest. >> Seven Day Blackout Period - ---------------------------------------- Applies to: Investment Access Persons - ---------------------------------------- If you are a portfolio manager (or were identified to the Investment Compliance Department as part of a portfolio management team) you are prohibited from buying or selling a security within seven calendar days before and after that security is traded for a fund that you manage unless no conflict of interest exists in relation to that security (as determined by the Compliance and Ethics Committee). In addition, all investment access persons are prohibited from knowingly buying or selling a security within seven calendar days before and after that security is traded for a John Hancock fund unless no conflict of interest exists in relation to that security. This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions". If a John Hancock fund trades in a security within seven calendar days before or after you trade in that security, you may be required to demonstrate that you did not know that the trade was being considered for that John Hancock fund. You will be required to sell any security purchased in violation of this policy unless it is determined that no conflict of interest exists in relation to that security (as determined by the Compliance and Ethics Committee). Any profits realized on trades determined by the Compliance and Ethics Committee to be in violation of this policy must be surrendered by check payable to John Hancock Advisers, LLC and will be contributed by John Hancock Advisers, LLC to a charity. 7. Reports and Other Disclosures Outside the Code of Ethics >> Broker Letter/Duplicate Confirm Statements - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- As required by the Inside Information Policy, you must inform your stockbroker that you are employed by an investment adviser or broker. Your broker is subject to certain rules designed to prevent favoritism toward your accounts. You may not accept negotiated commission rates that you believe may be more favorable than the broker grants to accounts with similar characteristics. When a brokerage account is opened for which you have a beneficial interest, before any trades are made, you must: o Notify the broker-dealer with which you are opening an account that you are a registered associate of JHF; o Ask the firm in writing to have duplicate written confirmations of any trade, as well as statements or other information concerning the account, sent to the JHF Investment Compliance Department (contact: Fred Spring), 10th Floor, 101 Huntington Avenue, Boston, MA 02199; and o Notify the JHF Investment Compliance Department, in writing, that you have an account before you place any trades. This applies to any personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions" as well as trades in John Hancock Mutual Funds and John Hancock Variable Products. The Investment Compliance Department may rely on information submitted by your broker as part of your reporting requirements under this code of ethics. 8. Reports and Other Disclosures In the Code of Ethics >> Initial Holdings Report and Annual Holdings Report - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons - ---------------------------------------- You must file an initial holdings report within 10 calendar days after becoming an Investment Access person or a Regular Access person. The information must be current as of a date no more than 45 days prior to your becoming an Investment Access person or a Regular Access person. You must also file an annual holdings report (as of December 31st) within 45 calendar days after the calendar year end. This applies to any personal securities holdings in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions" as well as holdings in John Hancock Mutual Funds and John Hancock Variable Products. Your reports must include: o the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each reportable security; o the name of any broker, dealer or bank with which you maintain an account; and o the date that you submit the report. >> Quarterly Transaction Reports - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons - ---------------------------------------- You must file a quarterly transaction report within 30 calendar days after the end of a calendar quarter if you are an Investment Access person or a Regular Access person. This report must cover all transactions during the past calendar quarter for any accounts and personal securities trades in the categories described above in the section "Which Accounts and Securities are Subject to the Code's Personal Trading Restrictions" as well as transactions in John Hancock Mutual Funds and John Hancock Variable Products. You must submit a quarterly report even if you have no transactions during the quarter. Your quarterly transaction report must include the following information about these transactions: o the date of the transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each reportable security involved; o the nature of the transaction (i.e. purchase, sale or any other type of acquisition or disposition); o the price at which the transaction was effected; o the name of the broker, dealer or bank with or through which the transaction was effected; and o the date that you submit the report. >> Annual Certification - ---------------------------------------- Applies to: Investment Access Persons Regular Access Persons Non-Access Persons - ---------------------------------------- At least annually (or additionally when the code of ethics has been significantly changed), you must provide a certification at a date designated by the Investment Compliance Department that: (1) you have read and understood this code of ethics; (2) you recognize that you are subject to its policies; and (3) you have complied with its requirements. You are required to make this certification to demonstrate that you understand the importance of these policies and your responsibilities under the code of ethics. 9. Limited Access Persons There is an additional category of persons called "Limited Access" persons. This category consists only of directors of John Hancock Advisers, LLC or the John Hancock funds who: (a) are not also officers of John Hancock Advisers, LLC; and (b) do not ordinarily obtain information about fund portfolio trades. A more detailed definition of Limited Access persons, and a list of the policies that apply to them, is attached as Appendix C. 10. Subadvisers A subadviser to a John Hancock fund has a number of code of ethics responsibilities, as described in Appendix D. 11. Reporting Violations If you know of any violation of our code of ethics, you have a responsibility to promptly report it to the Chief Compliance Officer of your company. You should also report any deviations from the controls and procedures that safeguard John Hancock Funds and the assets of our clients. You can request confidential treatment of your reporting action. 12. Interpretation and Enforcement This code of ethics cannot anticipate every situation in which personal interests may be in conflict with the interests of our clients and fund investors. You should be responsive to the spirit and intent of this code of ethics as well as its specific provisions. When any doubt exists regarding any code of ethics provision or whether a conflict of interest with clients or fund investors might exist, you should discuss the situation in advance with the Chief Compliance Officer of your company. The code of ethics is designed to detect and prevent fraud against clients and fund investors, and to avoid the appearance of impropriety. If you feel inequitably burdened by any policy, you should feel free to contact your Chief Compliance Officer or the Compliance and Business Practices Committee. Exceptions may be granted where warranted by applicable facts and circumstances. For example, exemption from some Personal Trading Requirements may be granted for transactions effected pursuant to an automatic investment plan. To provide assurance that policies are effective, the Investment Compliance Department will monitor and check personal securities transaction reports and certifications against fund portfolio transactions. Additional administration and recordkeeping procedures are described in Appendix E. The Chief Compliance Officer of your company has general administrative responsibility for this code of ethics as it applies to the access persons of your company; an appropriate Compliance Department will administer procedures to review personal trading reports. The Compliance and Business Practices Committee of John Hancock Funds approves amendments to the code of ethics and dispenses employee/officer sanctions for violations of the code of ethics. The Boards of Trustees/Directors of the mutual funds and closed-end funds also approve amendments to the code of ethics and dispenses sanctions for access persons of the Funds who are not employees/officers. Accordingly, the Investment Compliance Department will refer violations to the Compliance and Business Practices Committee and/or the Boards of Trustees/Directors of the John Hancock funds, respectively, for review and appropriate action. The following factors will be considered when determining a fine or other disciplinary action: o the person's position and function (senior personnel may be held to a higher standard); o the amount of the trade; o whether the funds or accounts hold the security and were trading the same day; o whether the violation was by a family member. o whether the person has had a prior violation and which policy was involved. o whether the employee self-reported the violation. You can request reconsideration of any disciplinary action by submitting a written request. No less frequently than annually, a written report of all material violations and sanctions, significant conflicts of interest and other related issues will be submitted to the boards of directors of the John Hancock funds for their review. Sanctions for violations could include (but are not limited to) fines, limitation of personal trading activity, suspension or termination of the violator's position with John Hancock Funds and/or a report to the appropriate regulatory authority. 13. Education of Employees The Investment Compliance Department will provide a paper copy or electronic version of the code of ethics (and any amendments) to each person subject to this code of ethics. The Investment Compliance Department will also administer training of employees on the principles and procedures of the code of ethics. Appendix A: Categories of Personnel You have been notified about which of these categories applies to you, based on the Investment Compliance Department's understanding of your current role. If you have a level of investment access beyond that category, or if you are promoted or change duties and as a result should more appropriately be included in a different category, it is your responsibility to immediately notify the Chief Compliance Officer of your company. 1) Investment Access person: You are an Investment Access person if you are an employee of John Hancock Advisers, LLC, a John Hancock fund, or John Hancock Life Insurance Company or its subsidiaries who, in connection with your regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by a John Hancock fund. (examples: portfolio managers, analysts, traders) 2) Regular Access person: You are a Regular Access person if you do not fit the definition of Investment Access Person, but you do fit one of the following two sub-categories: o You are an officer (vice president and higher) or trustee/director of John Hancock Advisers, LLC or a John Hancock fund, unless you qualify as a Limited Access person-please see Appendix C for this definition.) o You are an employee of John Hancock Advisers, LLC, a John Hancock fund or John Hancock Life Insurance Co. or its subsidiaries , or a director, officer (vice president and higher) or employee of John Hancock Funds, LLC who has access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund or who is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic. (examples: Investment Operations personnel, Investment Compliance Department personnel, most Fund Financial Management personnel, investment administrative personnel, Technology Resources personnel with access to investment systems, attorneys and some legal administration personnel) 3) Non-Access person: You are a non-access person if you are an employee of John Hancock Advisers, LLC, John Hancock Funds, LLC or a John Hancock fund who does not fit the definitions of any of the other three categories (Investment Access Person, Regular Access Person or Limited Access Person). To be a non-access person, you must not have access to information regarding the purchase or sale of securities by a John Hancock fund or nonpublic information regarding the portfolio holdings in connection with your regular functions or duties. (examples: wholesalers, inside wholesalers, certain administrative staff) 4) Limited Access Person: Please see Appendix C for this definition. Appendix B: Preclearance Procedures You should read the Code of Ethics to determine whether you must obtain a preclearance before you enter into a securities transaction. If you are required to obtain a preclearance, you should follow the procedures detailed below. 1. Pre-clearance for Public Securities including Derivatives, Futures, Options and Selling Short: A request to pre-clear should be entered into the John Hancock Personal Trading & Reporting System. The John Hancock Personal Trading & Reporting System is located under your Start Menu on your Desktop. It can be accessed by going to Programs/Personal Trading & Reporting/ Personal Trading & Reporting and by entering your Web Security Services user id and password. If the John Hancock Personal Trading & Reporting System is not on your Desktop, please contact the HELP Desk at (617) 572-6950 for assistance. The Trade Request Screen: At times you may receive a message like "System is currently unavailable". The system is scheduled to be offline from 8:00 PM until 7:00 AM each night. [GRAPHIC: Trade Request Screen] Ticker/Security Cusip: Fill in this one of these fields with the proper information of the security you want to buy or sell. Then click the [Lookup] button. Select one of the hyperlinks for the desired security, and the system will populate the proper fields Ticker, Security Cusip, Security Name and Security Type automatically on the Trade Request Screen. If You Don't Know the Ticker, Cusip, or Security Name: If you do not know the full ticker, you may type in the first few letters followed by an asterisk * and click the [Lookup] button. For example, let's say you want to buy some shares of Intel, but all you can remember of the ticker is that it begins with int, so you enter int* for Ticker. If any tickers beginning with int are found, they are displayed on a new screen. Select the hyperlink of the one you want, and the system will populate Security Cusip, Security Name and Security Type automatically on the Trade Request Screen. If you do not know the full cusip, you may type in the first few numbers followed by an asterisk * and click the [Lookup] button. For example, let's say you want to buy some shares of Microsoft, but all you can remember of the cusip is that it begins with 594918, so you enter 594918* for Ticker. If any cusips beginning with 594918 are found, they are displayed on a new screen. Select the hyperlink of the one you want, and the system will fill in Ticker, Security Name and Security Type automatically on the Trade Request Screen. If you do not know the Ticker but have an idea of what the Security Name is, you may type in an asterisk, a few letters of the name and an asterisk * and click the [Lookup] button. For example, let's say you want to buy some shares of American Brands, so you enter *amer* for Security Name. Any securities whose names have amer in them are displayed on a new screen, where you are asked to select the hyperlink of the one you want, and the system will fill in Ticker, Cusip and Security Type automatically on the Trade Request Screen. Other Items on the Trade Request Screen: Brokerage Account: Click on the dropdown arrow to the right of the Brokerage Account field to choose the account to be used for the trade. Transaction Type: Choose one of the values displayed when you click the dropdown arrow to the right of this field. Trade Date: You may only submit trade requests for the current date. Note: One or more of these fields may not appear on the Request Entry screen if the information is not required. Required fields are determined by the Investment Compliance Department. Click the [Submit Request] button to send the trade request to your Investment Compliance department. Once you click the [Submit Request] button, you will be asked to confirm the values you have entered. Review the information and click the [Confirm] button if all the information is correct. After which, you will receive immediate feedback in your web browser. (Note: We suggest that you print out this confirmation and keep it as a record of the trade you have made). After this, you can either submit another trade request or logout. Attention Investment Access Persons: If the system identifies a potential violation of the Ban on Short Term Profits Rule, your request will be sent to the Investment Compliance Department for review and you will receive feedback via the e-mail system. Starting Over: To clear everything on the screen and start over, click the [Clear Screen] button. Exiting Without Submitting the Trade Request: If you decide not to submit the trade request before clicking the [Submit Request] button, simply exit from the browser by clicking the [X] button on the upper right or by pressing [Alt+F4], or by clicking the Logout hyperlink on the lower left side of the screen. Ticker/Security Name Lookup Screen: You arrive at this screen from the Trade Request Screen, where you've clicked the [Lookup] button (see above, "If You Don't Know the Ticker, Cusip, or Security Name"). If you see the security you want to trade, you simply select its corresponding hyperlink, and you will automatically return to the Trade Request Screen, where you finish making your trade request. If the security you want to trade is not shown, that means that it is not recognized by the system under the criteria you used to look it up. Keep searching under other names (click the [Return to Request] button) until you are sure that the security is not in the system. If you determine that the desired security is not in the system, please contact a member of the Investment Compliance department to add the security for you. Contacts are listed below: Fred Spring x54987 Adding Brokerage Accounts: To access this functionality, click on the Add Brokerage Account hyperlink on the left frame of your browser screen. You will be prompted to enter the Brokerage Account Number, Brokerage Account Name, Date Opened, and Broker. When you click the [Create New Brokerage Account] button, you will receive a message that informs you whether the account was successfully created. [GRAPHIC: Add Brokerage Account screen] 3. Pre-clearance for Private Placements and Initial Public Offerings: You may request a preclearance of private placement securities or an Initial Public Offering by contacting Fred Spring via Microsoft Outlook (please "cc." Frank Knox on all such requests). Please keep in mind that the code of ethics prohibits Investment Access persons from purchasing securities in an initial public offering. The request must include: |_| the associate's name; |_| the associate's John Hancock Funds' company; |_| the complete name of the security; |_| the seller (i.e the selling party if identified and/or the broker-dealer or placement agent) and whether or not the associate does business with those individuals or entities on a regular basis; |_| any potential conflict, present or future, with fund trading activity and whether the security might be offered as inducement to later recommend publicly traded securities for any fund or to trade through a particular broker-dealer or placement agent; and |_| the date of the request. Clearance of private placements or initial public offerings may be denied for any appropriate reason, such as if the transaction could create the appearance of impropriety. Clearance of initial public offerings will also be denied if the transaction is prohibited for a person due to his or her access category under the code of ethics. Appendix C: Limited Access Persons There are two types of Limited Access Persons-(1) Certain directors of the Adviser and (2) the Independent Trustees/Directors of the Funds. (1) Certain Directors of the Adviser: You are a Limited Access person if you are a director of John Hancock Advisers, LLC or Sovereign Asset Management Co. and you meet the three following criteria: (a) you are not also an officer of John Hancock Advisers, LLC, Sovereign Asset Management Co. or a John Hancock fund; (b) you do not have access to nonpublic information regarding any clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any John Hancock fund or account; and (c) you are not involved in making securities recommendations to clients and do not have access to such recommendations that are nonpublic. (examples: directors of John Hancock Advisers, LLC or Sovereign Asset Management Co. who are not involved in the daily operations of the adviser) If you are a Limited Access Person who fits this definition, the following policies apply to your category. These policies are described in detail in the code of ethics. o General principles o Inside information policy and procedures o Broker letter/Duplicate Confirms* o Initial/annual holdings reports* o Quarterly transaction reports* o Annual recertification o Preclearance requirement LIMITED: You only need to preclear any direct or indirect acquisition of beneficial ownership in any security in an initial public offering (an IPO) or in a limited offering (i.e. a private placement). To request preclearance of these securities, contact Fredrick Spring at fspring@jhancock.com and/or Frank Knox at Frank_Knox@manulifeusa.com. - --------------- *A Limited Access Person may complete this requirement under the code of ethics of another Manulife/John Hancock adviser or fund by the applicable regulatory deadlines and arrange for copies of the required information to be sent to the John Hancock Funds Compliance Department. - --------------- (2) The Independent Trustees/Directors of the Funds: If you are an independent trustee/director to a John Hancock fund (i.e. not an "interested person" of the fund within the meaning of the Investment Company Act of 1940), the following policies apply to your category. These policies are described in detail in the code of ethics. o General principles o Annual recertification o Quarterly transaction report, but only if you knew (or should have known) that during the 15 calendar days before or after you trade a security, either: (i) a John Hancock fund purchased or sold the same security, or (ii) a John Hancock fund or John Hancock Advisers, LLC considered purchasing or selling the same security. This policy applies to holdings in your personal accounts, those of a spouse, "significant other" or family members sharing your household, as well as all accounts over which you have discretion or give advice or information. If this situation occurs, it is your responsibility to contact the Chief Compliance Officer of your company and he will assist you with the requirements of the quarterly transaction report. This means that the independent trustees of the funds will not usually be required to file a quarterly transaction report-they are only required to file in the situation described above. Appendix D: Subadvisers Each subadviser to a John Hancock fund is subject to its own code of ethics, which must meet the requirements of Rule 17j-1 and Rule 204A-1. Approval of Code of Ethics Each subadviser to a John Hancock fund must provide a copy of its code of ethics to the trustees of the relevant John Hancock funds for approval initially and within 60 calendar days of any material amendment. The trustees will give their approval if they determine that the code: o contains provisions reasonably necessary to prevent the subadviser's Access Persons (as defined in Rule 17j-1) from engaging in any conduct prohibited by Rule 17j-1; o requires the subadviser's Access Persons to make reports to at least the extent required in Rule 17j-1(d); o requires the subadviser to institute appropriate procedures for review of these reports by management or compliance personnel (as contemplated by Rule 17j-1(d)(3)); o provides for notification of the subadviser's Access Persons in accordance with Rule 17j-1(d)(4); and o requires the subadviser's Access Persons who are Investment Personnel to obtain the pre-clearances required by Rule 17j-1(e); Reports and Certifications Each subadviser must provide an annual report and certification to John Hancock Advisers, LLC and the fund's trustees in accordance with Rule 17j-1(c)(2)(ii). The subadviser must also provide other reports or information that John Hancock Advisers, LLC may reasonably request. Recordkeeping Requirements The subadviser must maintain all records for its Access Persons as required by Rule 17j-1(f). Appendix E: Administration and Recordkeeping Adoption and Approval The trustees of a John Hancock fund must approve the code of ethics of an adviser, subadviser or affiliated principal underwriter before initially retaining its services. Any material change to a code of ethics of a John Hancock fund, John Hancock Funds, LLC, John Hancock Advisers, LLC or a subadviser to a fund must be approved by the trustees of the John Hancock fund, including a majority of trustees who are not interested persons, no later than six months after adoption of the material change. Administration No less frequently than annually, John Hancock Funds, LLC, John Hancock Advisers, LLC, each subadviser and each John Hancock fund will furnish to the trustees of each John Hancock fund a written report that: o describes issues that arose during the previous year under the code of ethics or the related procedures, including, but not limited to, information about material code or procedure violations, and o certifies that each entity has adopted procedures reasonably necessary to prevent its access persons from violating its code of ethics. Recordkeeping The Investment Compliance Department will maintain: o a copy of the current code of ethics for John Hancock Funds, LLC, John Hancock Advisers, LLC, and each John Hancock fund, and a copy of each code of ethics in effect at any time within the past five years. o a record of any violation of the code of ethics, and of any action taken as a result of the violation, for six years. o a copy of each report made by an Access person under the code of ethics, for six years (the first two years in a readily accessible place). o a record of all persons, currently or within the past five years, who are or were required to make reports under the code of ethics. This record will also indicate who was responsible for reviewing these reports. o a copy of each code of ethics report to the trustees, for six years (the first two years in a readily accessible place). o a record of any decision, and the reasons supporting the decision, to approve the acquisition by an Investment Access person of initial public offering securities or private placement securities, for six years. EX-99 5 exnnaudcom5.txt AUDIT COMMITTEE CHARTER JOHN HANCOCK FUNDS AUDIT COMMITTEE CHARTER A. Membership. The Audit Committee shall be composed exclusively of Trustees ("Independent Trustees") who are not "interested persons" as defined in the Investment Company Act of 1940, as amended, of John Hancock Advisers, LLC and who satisfy the independence and financial literacy requirements in this charter. The Audit Committee shall be composed at least three Independent Trustees who are designated for membership from time to time by the Administration Committee, subject to ratification by the Board of Trustees. In selecting Independent Trustees to serve on the Audit Committee, the Administration Committee should select members who are free of any relationship that, in the opinion of the Administration Committee, may interfere or give the appearance of interfering with such member's individual exercise of independent judgment. Unless otherwise determined by the Board, no member of the Audit Committee may serve on the audit committee of more than two other public companies (other than another John Hancock Fund). Except as otherwise permitted by the applicable rules of the New York Stock Exchange, each member of the Audit Committee shall be independent as defined by such NYSE rules and Rule 10A-3(b)(1) of the Exchange Act. Each member of the Audit Committee must be financially literate, as such qualification is interpreted by the Board of Trustees in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the Audit Committee. At least one member of the Audit Committee must have accounting or related financial management expertise, as the Board of Trustees interprets such qualification in its business judgment. B. Overview. The Audit Committee's purpose is to: 1. assist the Board of Trustee's oversight of (1) the integrity of the funds' financial statements, (2) the funds' compliance with legal and regulatory requirements (except to the extent such responsibility is delegated to another committee), (3) the independent auditor's qualifications and independence, and (4) the performance of the funds' internal audit function and independent auditors; 2. act as a liaison between the funds' independent accountants and the full Board; and 3. prepare an Audit Committee Report as required by the Securities and Exchange Commission ("SEC") to the extent required to be included in the funds' annual proxy statement or other filings. The Audit Committee shall discharge its responsibilities, and shall access the information provided by the funds' management and independent auditors, in accordance with its business judgment. Management is responsible for the preparation of the fund's financial statements and the independent auditors are responsible for auditing those financial statements. The Audit Committee and the Board of Trustees recognize that management (including the internal audit staff) and the independent auditors have more experience, expertise, resources and time, and more detailed knowledge and information regarding a fund's accounting, auditing, internal control and financial reporting practices than the Audit Committee does. Accordingly, the Audit Committee's oversight role does not provide any expert or special assurance as to the financial statements and other financial information provided by a fund to its shareholders and others. The independent auditors are responsible for auditing the funds' financial statements and for reviewing the funds' unaudited interim financial statements. The authority and responsibilities set forth in this charter do not reflect or create any duty or obligation of the Audit Committee to plan or conduct any audit, to determine or certify that any fund's financial statements are complete, accurate, fairly presented, or in accordance with generally accepted accounting principles or applicable law, or to guarantee any independent auditor's report. C. Oversight. The independent auditors shall report directly to the Audit Committee, and the Audit Committee shall be directly responsible for oversight of the work of the independent auditors, including resolution of disagreements between any fund's management and the independent auditors regarding financial reporting. In connection with its oversight role, the Audit Committee should also review with the independent auditors, from time to time as appropriate: significant risks and uncertainties with respect to the quality, accuracy or fairness of presentation of a fund's financial statements; recently disclosed problems with respect to the quality, accuracy or fairness of presentation of the financial statements of companies similarly situated to the funds and recommended actions which might be taken to prevent or mitigate the risk of problems at the funds arising from such matters; accounting for unusual transactions; adjustments arising from audits that could have a significant impact on the funds' financial reporting process; and any recent SEC comments on the funds' SEC reports, including, in particular, any compliance comments. The Audit Committee should inquire of the independent auditor concerning the quality, not just the acceptability, of the funds' accounting determinations and other judgmental areas and question whether management's choices of accounting principles are, as a whole, conservative, moderate or aggressive. D. Specific Responsibilities. The Audit Committee shall have the following duties and powers, to be exercised at such times and in such manner as the Committee shall deem necessary or appropriate: 1. To oversee the funds' auditing and accounting process. 2. To approve, and recommend to the full Board of Trustees for its ratification and approval in accord with applicable law, the selection, appointment, retention and compensation of an independent auditor for each fund prior to the engagement of such independent auditor. The Committee should meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit. The Committee should periodically consider whether, in order to assure continuing auditor independence, there should be regular rotation of the independent audit firm and obtain and review a copy of the most recent report on the independent auditor issued by the Public Company Accounting Oversight Board pursuant to Section 104 of the Sarbanes-Oxley Act. 3. To periodically review and evaluate the lead partner and other senior members of the independent auditor's team and confirm the regular rotation of the lead audit partner and reviewing partner as required by Section 203 of the Sarbanes-Oxley Act. 4. To confirm that the officers of the funds were not employed by the independent auditor, or if employed, did not participate in any capacity in the audit of the funds, in each case, during the one-audit-year period preceding the date of initiation of the audit, as required by Section 206 of the Sarbanes-Oxley Act. 5. To pre-approve all audit and non-audit services provided to each fund by its independent auditor, directly or by establishing pre-approval policies and procedures pursuant to which such services may be rendered, provided however, that any such policies and procedures are detailed as to particular services, the Audit Committee is informed of each service, and any such policies and procedures do not include the delegation of the Audit Committee's responsibilities under the Securities Exchange Act of 1934 or applicable rules or listing requirements. The Committees should periodically compare the fees paid for audit services to those paid by peer companies as a means of assessing whether the scope of audit work is sufficient. 6. To pre-approve all non-audit services provided by a fund's independent auditor to the fund's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the fund, if the engagement relates directly to the operations and financial reporting of the fund. The Committee is authorized to delegate, to the extent permitted by law, pre-approval responsibilities to one or more members of the Committee who shall report to the Committee regarding approved services at the Committee's next regularly scheduled meeting. The Committee is also authorized to adopt policies and procedures which govern the pre-approval of audit, audit-related, tax and other services provided by the independent accountants to the funds. 7. To monitor the independent auditor of each fund throughout the engagement to attempt to identify: conflicts of interest between management and the independent auditor as a result of employment relationships; the provision of prohibited non-audit services to a fund by its independent auditor; violations of audit partner rotation requirements; and prohibited independent auditor compensation arrangements whereby individuals employed by the auditor are compensated based on selling non-audit services to the fund. The independent auditors should promptly contact the Audit Committee or its Chair about any significant issue or disagreement concerning a fund's accounting practices or financial statements that is not resolved to their satisfaction or if Section 10A(b) of the Exchange Act has been implicated. 8. To meet with independent auditors, including private meetings, as necessary, management's internal auditors, and the funds' senior management (i) to review the arrangements for and scope of the annual audit and any special audits; (ii) to review the form and substance of the funds' financial statements and reports, including each fund's disclosures under "Management's Discussion of Fund Performance" and to discuss any matters of concern relating to the funds' financial statements, including any adjustments to such statements recommended by the independent accountants, or other results of an audit; (iii) to consider the independent accountants' comments with respect to the funds' financial policies, procedures and internal accounting controls and management's responses thereto; (iv) to review the resolution of any disagreements between the independent accountants and management regarding the funds' financial reporting; and (v) to review the form of opinion the independent accountants propose to render to the Board and shareholders. The Audit Committee should request from the independent auditors a frank assessment of management. 9. With respect to any listed fund, to consider whether it will recommend to the Board of Trustees that the audited financial statements be included in a fund's annual report. The Board delegates to the Audit Committee the authority to release the funds' financial statements for publication in the annual and semi-annual report, subject to the Board's right to review and ratify such financial statements following publication. With respect to each fund, to review and discuss with each fund's management and independent auditor the funds' audited financial statements and the matters about which Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU 380) requires discussion. The Audit Committee shall prepare an annual committee report for inclusion where necessary in the proxy statement of a fund relating to its annual meeting of security holders or in any other filing required by the SEC's rules. 10. To receive and consider reports on the audit functions of the independent auditors and the extent and quality of their auditing programs. 11. To oversee the adoption and implementation of any codes of ethics required under applicable law. 12. To obtain and review, at least annually, a report by the independent auditor describing: the firm's internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and, to access the auditor's independence, all relationships between the independent auditor and each fund, including the disclosures required by any applicable Independence Standards Board Standard No. 1. The Audit Committee shall engage in an active dialogue with each independent auditor concerning any disclosed relationships or services that might impact the objectivity and independence of the auditor. 13. To review with the independent auditor any problems that may be reported to it arising out of a fund's accounting, auditing or financial reporting functions and management's response, and to receive and consider reports on critical accounting policies and practices and alternative treatments discussed with management. 14. To review the procedures for allocating fund brokerage, the allocation of trades among various accounts under management and the fees and other charges for fund brokerage. 15. To receive and consider reports from the independent auditors regarding reviews of the operating and internal control structure of custodian banks and transfer agents, including procedures to safeguard fund assets. 16. To monitor securities pricing procedures and review their implementation with management, management's internal auditors, independent auditors and others as may be required. 17. To establish and monitor, or cause to be established and monitored, procedures for the receipt, retention, and treatment of complaints received by a fund regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of the investment adviser, administrator, principal underwriter or any other provider of accounting related services for a listed fund, as well as employees of the fund regarding questionable accounting or auditing matters, as and when required by applicable rules or listing requirements. The procedures currently in effect are attached as Exhibit A. 18. To report regularly to the Board of Trustees, including the Audit Committee's conclusions with respect to the independent auditor and the funds' financial statements and accounting controls. E. Subcommittees. The Audit Committee may, to the extent permitted by applicable law, form and delegate authority to one or more subcommittees (including a subcommittee consisting of a single member), as it deems appropriate from time to time under the circumstances. Any decision of a subcommittee to preapprove audit or non-audit services shall be presented to the full Audit Committee at its next meeting. F. Additional Responsibilities. The Committee shall serve as the "qualified legal compliance committee" (as such term is defined in 17 CFR Part 205)("QLCC"), the duties of which are listed on Exhibit B to this charter; and shall also perform other tasks assigned to it from time to time by the Administration Committee or the full Board, and will report findings and recommendations to the Administration Committee or the full Board, as appropriate. G. Funding. Each fund shall provide for appropriate funding, as determined by the Audit Committee, in its capacity as a committee of the Board of Trustees, for payment of: 1. Compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the fund. 2. Compensation to any advisers employed by the Audit Committee under its authority to engage independent counsel and other advisers. 3. Ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties. H. Governance. One member of the Committee shall be appointed as chair. The chair shall be responsible for leadership of the Committee, including scheduling meetings or reviewing and approving the schedule for them, preparing agendas or reviewing and approving them before meetings, presiding over meetings, and making reports to the Administration Committee or the full Board, as appropriate. The designation of a person as an "audit committee financial expert", within the meaning of the rules under Section 407 of the Sarbanes-Oxley Act of 2002, shall not impose any greater responsibility or liability on that person than the responsibility and liability imposed on such person as a member of the Committee, nor shall it decrease the duties and obligations of other Committee members or the Board. The compensation of Audit Committee members shall be as determined by the Board of Trustees. No member of the Audit Committee may receive, directly or indirectly, any consulting, advisory or other compensatory fee from a fund, other than fees paid in his or her capacity as a member of the Board of Trustees or a committee of the Board. The members of the Audit Committee should confirm that the minutes of the Audit Committee's meetings accurately describe the issues considered by the Committee, the process the Committee used to discuss and evaluate such issues and the Committee's final determination of how to proceed. The minutes should document the Committee's consideration of issues in a manner that demonstrates that the Committee acted with due care. I. Evaluation. At least annually, the Audit Committee evaluate its own performance, including whether the Audit Committee is meeting frequently enough to discharge its responsibilities appropriately. J. Miscellaneous. The Committee shall meet as often as it deems appropriate, with or without management, as circumstances require. The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to retain independent counsel and other advisers, experts or consultants, at the funds' expense, as it determines necessary to carry out its duties. The Committee shall have direct access to such officers of and service providers to the funds as it deems desirable. K. Review. The Committee shall review this charter at least annually and shall recommend such changes to the Administration Committee or the full Board as it deems desirable. EXHIBIT A Policy for Raising and Investigating Complaints or Concerns About Accounting or Auditing Matters As contemplated by the Audit Committee Charter, the Committee has established the following procedures for: the receipt, retention and treatment of complaints received by a fund regarding accounting, internal accounting controls or auditing matters; and the confidential, anonymous submission by employees of the John Hancock Advisers, LLC or its affiliates of concerns regarding questionable accounting or auditing matters. A. Policy Objectives The objective of this policy is to provide a mechanism by which complaints and concerns regarding accounting, internal accounting controls or auditing matters may be raised and addressed without the fear or threat of retaliation. The funds desire and expects that the employees and officers of John Hancock Advisers, LLC or any other service provider to the funds will report any complaints or concerns they may have regarding accounting, internal accounting controls or auditing matters. B. Procedures for Raising Complaints and Concerns Persons with complaints regarding accounting, internal accounting controls or auditing matters or concerns regarding questionable accounting or auditing matters may submit such complaints or concerns to the attention of funds' Secretary by sending a letter or other writing to the funds' principal executive offices. Complaints and concerns may be made anonymously to any of the above individuals. In addition any complaints or concerns may also be communicated anonymously, directly to any member of the Audit Committee. C. Procedures for Investigating and Resolving Complaints and Concerns All complaints and concerns received will be promptly forwarded to the Audit Committee of the Board of Trustees or the chair of the Audit Committee, unless they are determined to be without merit by Secretary of the funds. If sent only to the chair, the chair may determine the appropriate response or may refer the issues to the entire Audit Committee. In any event, the funds' Secretary will provide a record of all complaints and concerns received (whether or not determined to have merit) to the Audit Committee each fiscal quarter. The Audit Committee will evaluate any complaints or concerns received (including those reported to the committee on a quarterly basis and which the funds' Secretary has previously determined to be without merit). If the Audit Committee requires additional information to evaluate any complaint or concern, it may conduct an investigation, including interviews of persons believed to have relevant information. The Audit Committee may, in its discretion, assume responsibility for directing or conducting any investigation or may delegate such responsibility to another person or entity. After its evaluation of the complaint or concern, the Audit Committee will authorize such follow-up actions, if any, as deemed necessary and appropriate to address the substance of the complaint or concern. The funds reserves the right to take whatever action the Audit Committee believes appropriate, up to an including discharge of any employee deemed to have engaged in improper conduct. Regardless of whether a complaint or concern is submitted anonymously, the Audit Committee will strive to keep all complaints and concerns and the identity of those who submit them and participate in any investigation as confidential as possible, limiting disclosure to those with a business need to know. John Hancock Advisers, LLC and its affiliates shall not penalize or retaliate against any person or entity for reporting a complaint or concern, unless it is determined that the complaint or concern was made with knowledge that it was false. The funds will not tolerate retaliation against any person or entity for submitting, or for cooperating in the investigation of, a complaint or concern. Moreover, any such retaliation is unlawful and may result in criminal action. Any retaliation will warrant disciplinary action against the offending party, up to and including termination of employment. John Hancock Advisers, LLC and its subadvisers shall include this policy in its employee manual and shall distribute, at least annually, the policy to all of its employees. The funds shall retain records of all complaints and concerns received, and the disposition thereof, for five years. EXHIBIT B-QLCC DUTIES AND RESPONSIBILITIES The QLCC shall adopt written procedures for the confidential receipt, retention, and consideration of any report of evidence of a material violation. The QLCC has the authority and responsibility, once a report of evidence of a material violation by a Fund, its officers, directors, employees or agents has been received by the QLCC: (i) to inform the CLO and CEO of such report (except in the case where the reporting attorney reasonably believes that it would be futile to report evidence of a material violation to the CLO and CEO, and has informed the QLCC of such belief); and (ii) to determine whether an investigation is necessary or appropriate, and, if it determines an investigation is necessary or appropriate, to: (A) notify the full board of directors; (B) initiate an investigation, which may be conducted either by the CLO or by outside attorneys; and (C) retain such additional expert personnel as the QLCC deems necessary; and, at the conclusion of such investigation, to: (A) recommend, by majority vote, that the Fund implement an appropriate response to evidence of a material violation; and (B) inform the CLO and the CEO and the Board of Trustees of the results of any such investigation and the appropriate remedial measures. (iii) by majority vote, to take all other appropriate action, including notifying the U.S. Securities and Exchange Commission in the event that the Fund fails in any material respect to implement an appropriate response that the QLCC has recommended. EX-99 6 exnnadmincom6.txt ADMINISTRATION COMMITTEE CHARTER JOHN HANCOCK FUNDS ADMINISTRATION COMMITTEE CHARTER A. Composition. The Administration Committee shall be composed entirely of Trustees who are "independent" as defined in the rules of the New York Stock Exchange ("NYSE") and the NASDAQ Stock Market, Inc. ("NASDAQ") or any other exchange, as applicable and are not "interested persons" as defined in the Investment Company Act of 1940 of any of the funds, or any fund's investment adviser or principal underwriter (the "Independent Trustees"). All of the Board's Independent Trustees shall be members of the Administration Committee. B. Overview. The overall charter of the Administration Committee is: (i) to review and comment on complex-wide matters to facilitate uniformity among, and administration of, the funds; (ii) to oversee liaison between management and the Independent Trustees; (iii) to review matters relating to the Independent Trustees, such as retirement arrangements that have not been assigned to another committee; (iv) to review the performance of the Independent Trustees as appropriate; and (v) when appropriate, to oversee the assignment of tasks to other Committees. C. Specific Responsibilities. The Administration Committee shall have the following duties and powers, to be exercised at such times and in such manner as the Committee shall deem necessary or appropriate: 1. To consider the number of funds under supervision by the Independent Trustees and the ability of the Independent Trustees to discharge successfully their fiduciary duties. 2. To evaluate, from time to time, the retirement policies for the Independent Trustees. 3. To participate in the development of agendas for Board and Committee meetings. 4. To consider, evaluate and make recommendations regarding the type and amount of fidelity bond, and director and officer and/or errors and omission insurance coverage, for the funds, the Board and the Independent Trustees, as applicable. 5. To identify qualified individuals to serve as Chief Compliance Officer ("CCO"), and recommend an appropriate candidate to the Board, as needed from time to time. The Administration Committee shall assist the Board in monitoring: (i) the performance of the CCO and (ii) the cooperation of the adviser(s) and other service providers with the CCO, including the requirement of regular reports by the CCO to the Administration Committee and to the Board. The Administration Committee shall have the power to annually review the CCO's responsibilities and the extent of his or her authority and to conduct annual compensation and retention review with the CCO and make appropriate recommendations to the Board. 6. To consider, evaluate and make recommendations and necessary findings regarding independent legal counsel and any other advisers, experts or consultants, that may be engaged from time to time, other than as may be engaged directly by another Committee. 7. To evaluate feedback from shareholders as appropriate. D. Additional Responsibilities. The Committee will also perform other tasks assigned to it from time to time by full Board, and will report findings and recommendations to the full Board at each Regular Board meeting following a Committee meeting, as appropriate. E. Governance. The Chairman of the Board shall serve as the chair of the Administration Committee. The chair shall be responsible for leadership of the Committee, including scheduling meetings or reviewing and approving the schedule for them, preparing agendas or reviewing and approving them before meetings, presiding over meetings, and making reports to the full Board, as appropriate. F. Miscellaneous. The Committee shall meet as often as it deems appropriate, with or without management, as circumstances require. The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to retain special counsel and other advisers, experts or consultants, at the funds' expense, as it determines necessary to carry out its duties. The Committee shall have direct access to such officers of and service providers to the funds as it deems desirable. G. Review. The Committee shall review this Charter periodically and recommend such changes to the full Board as it deems desirable. EX-99 7 exnnproxvot7.txt PROXY VOTING POLICIES John Hancock Advisers, LLC Sovereign Asset Management Corporation Proxy Voting Guidelines We believe in placing our clients' interests first. Before we invest in a particular stock or bond, our team of portfolio managers and research analysts look closely at the company by examining its earnings history, its management team and its place in the market. Once we invest, we monitor all our clients' holdings, to ensure that they maintain their potential to produce results for investors. As part of our active investment management strategy, we keep a close eye on each company we invest in. Routinely, companies issue proxies by which they ask investors like us to vote for or against a change, such as a new management team, a new business procedure or an acquisition. We base our decisions on how to vote these proxies with the goal of maximizing the value of our clients' investments. Currently, John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management Corporation ("Sovereign") manage open-end funds, closed-end funds and portfolios for institutions and high-net-worth investors. Occasionally, we utilize the expertise of an outside asset manager by means of a subadvisory agreement. In all cases, JHA or Sovereign makes the final decision as to how to vote our clients' proxies. There is one exception, however, and that pertains to our international accounts. The investment management team for international investments votes the proxies for the accounts they manage. Unless voting is specifically retained by the named fiduciary of the client, JHA and Sovereign will vote proxies for ERISA clients. In order to ensure a consistent, balanced approach across all our investment teams, we have established a proxy oversight group comprised of associates from our investment, operations and legal teams. The group has developed a set of policies and procedures that detail the standards for how JHA and Sovereign vote proxies. The guidelines of JHA have been approved and adopted by each fund client's board of trustees who have voted to delegate proxy voting authority to their investment adviser, JHA. JHA and Sovereign's other clients have granted us the authority to vote proxies in our advisory contracts or comparable documents. JHA and Sovereign have hired a third party proxy voting service which has been instructed to vote all proxies in accordance with our established guidelines except as otherwise instructed. In evaluating proxy issues, our proxy oversight group may consider information from many sources, including the portfolio manager, management of a company presenting a proposal, shareholder groups, and independent proxy research services. Proxies for securities on loan through securities lending programs will generally not be voted, however a decision may be made to recall a security for voting purposes if the issue is material. Below are the guidelines we adhere to when voting proxies. Please keep in mind that these are purely guidelines. Our actual votes will be driven by the particular circumstances of each proxy. From time to time votes may ultimately be cast on a case-by-case basis, taking into consideration relevant facts and circumstances at the time of the vote. Decisions on these matters (case-by-case, abstention, recall) will normally be made by a portfolio manager under the supervision of the chief investment officer and the proxy oversight group. We may abstain from voting a proxy if we conclude that the effect on our clients' economic interests or the value of the portfolio holding is indeterminable or insignificant. Proxy Voting Guidelines Board of Directors We believe good corporate governance evolves from an independent board. We support the election of uncontested director nominees, but will withhold our vote for any nominee attending less than 75% of the board and committee meetings during the previous fiscal year. Contested elections will be considered on a case by case basis by the proxy oversight group, taking into account the nominee's qualifications. We will support management's ability to set the size of the board of directors and to fill vacancies without shareholder approval but will not support a board that has fewer than 3 directors or allows for the removal of a director without cause. We will support declassification of a board and block efforts to adopt a classified board structure. This structure typically divides the board into classes with each class serving a staggered term. In addition, we support proposals for board indemnification and limitation of director liability, as long as they are consistent with corporate law and shareholders' interests. We believe that this is necessary to attract qualified board members. Selection of Auditors We believe an independent audit committee can best determine an auditor's qualifications. We will vote for management proposals to ratify the board's selection of auditors, and for proposals to increase the independence of audit committees. Capitalization We will vote for a proposal to increase or decrease authorized common or preferred stock and the issuance of common stock, but will vote against a proposal to issue or convert preferred or multiple classes of stock if the board has unlimited rights to set the terms and conditions of the shares, or if the shares have voting rights inferior or superior to those of other shareholders. In addition, we will support a management proposal to: create or restore preemptive rights; approve a stock repurchase program; approve a stock split or reverse stock split; and, approve the issuance or exercise of stock warrants Acquisitions, mergers and corporate restructuring Proposals to merge with or acquire another company will be voted on a case-by-case basis, as will proposals for recapitalization, restructuring, leveraged buyout, sale of assets, bankruptcy or liquidation. We will vote against a reincorporation proposal if it would reduce shareholder rights. We will vote against a management proposal to ratify or adopt a poison pill or to establish a supermajority voting provision to approve a merger or other business combination. We would however support a management proposal to opt out of a state takeover statutory provision, to spin-off certain operations or divisions and to establish a fair price provision. Corporate Structure and Shareholder Rights In general, we support proposals that foster good corporate governance procedures and that provide shareholders with voting power equal to their equity interest in the company. To preserve shareholder rights, we will vote against a management proposal to restrict shareholders' right to: call a special meeting and to eliminate a shareholders' right to act by written consent. In addition, we will not support a management proposal to adopt a supermajority vote requirement to change certain by-law or charter provisions or a non-technical amendment to by-laws or a charter that reduces shareholder rights. Equity-based compensation Equity-based compensation is designed to attract, retain and motivate talented executives and independent directors, but should not be so significant as to materially dilute shareholders' interests. We will vote against the adoption or amendment of a stock option plan if the: * plan dilution is more than 10% of outstanding common stock, * plan allows for non-qualified options to be priced at less than 85% of the fair market value on the grant date, * company allows or has allowed the re-pricing or replacement of underwater options in the past fiscal year (or the exchange of underwater options). With respect to the adoption or amendment of employee stock purchase plans or a stock award plan, we will vote against management if: * the plan allows stock to be purchased at less than 85% of fair market value; * this plan dilutes outstanding common equity greater than 10% * all stock purchase plans, including the proposed plan, exceed 15% of outstanding common equity. Other Business For routine business matters which are the subject of many proxy related questions, we will vote with management proposals to: * change the company name; * approve other business; * adjourn meetings; * make technical amendments to the by-laws or charters; * approve financial statements; * approve an employment agreement or contract. Shareholder Proposals Shareholders are permitted per SEC regulations to submit proposals for inclusion in a company's proxy statement. We will generally vote against shareholder proposals and in accordance with the recommendation of management except as follows where we will vote for proposals: * calling for shareholder ratification of auditors; * calling for auditors to attend annual meetings; * seeking to increase board independence; * requiring minimum stock ownership by directors; * seeking to create a nominating committee or to increase the independence of the nominating committee; * seeking to increase the independence of the audit committee. Corporate and social policy issues We believe that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the corporation's board of directors. Proposals in this category, initiated primarily by shareholders, typically request that the company disclose or amend certain business practices. We generally vote against business practice proposals and abstain on social policy issues, though we may make exceptions in certain instances where we believe a proposal has substantial economic implications. John Hancock Advisers, LLC Sovereign Asset Management Corporation Proxy Voting Procedures The role of the proxy voting service John Hancock Advisers, LLC ("JHA") and Sovereign Asset Management Corporation ("Sovereign") have hired a proxy voting service to assist with the voting of client proxies. The proxy service coordinates with client custodians to ensure that proxies are received for securities held in client accounts and acted on in a timely manner. The proxy service votes all proxies received in accordance with the proxy voting guidelines established and adopted by JHA and Sovereign. When it is unclear how to apply a particular proxy voting guideline or when a particular proposal is not covered by the guidelines, the proxy voting service will contact the proxy oversight group coordinator for a resolution. The role of the proxy oversight group and coordinator The coordinator will interact directly with the proxy voting service to resolve any issues the proxy voting service brings to the attention of JHA or Sovereign. When a question arises regarding how a proxy should be voted the coordinator contacts the firm's investment professionals and the proxy oversight group for a resolution. In addition the coordinator ensures that the proxy voting service receives responses in a timely manner. Also, the coordinator is responsible for identifying whether, when a voting issue arises, there is a potential conflict of interest situation and then escalating the issue to the firm's Executive Committee. For securities out on loan as part of a securities lending program, if a decision is made to vote a proxy, the coordinator will manage the return/recall of the securities so the proxy can be voted. The role of mutual fund trustees The boards of trustees of our mutual fund clients have reviewed and adopted the proxy voting guidelines of the funds' investment adviser, JHA. The trustees will periodically review the proxy voting guidelines and suggest changes they deem advisable. Conflicts of interest Conflicts of interest are resolved in the best interest of clients. With respect to potential conflicts of interest, proxies will be voted in accordance with JHA's or Sovereign's predetermined policies. If application of the predetermined policy is unclear or does not address a particular proposal, a special internal review by the JHA Executive Committee or Sovereign Executive Committee will determine the vote. After voting, a report will be made to the client (in the case of an investment company, to the fund's board of trustees), if requested. An example of a conflict of interest created with respect to a proxy solicitation is when JHA or Sovereign must vote the proxies of companies that they provide investment advice to or are currently seeking to provide investment advice to, such as to pension plans. -----END PRIVACY-ENHANCED MESSAGE-----